http://www.irs.gov/pub/irs-pdf/p1828.pdf
Churches and religious organizations, like many other
charitable organizations, qualify for exemption from
federal income tax under IRC section 501(c)(3) and
are generally eligible to receive tax-deductible contributions.
To qualify for tax-exempt status, such an
organization must meet the following requirements
(covered in greater detail throughout this publication):
■ the organization must be organized and operated
exclusively for religious, educational, scientific, or other
charitable purposes,
■ net earnings may not inure to the benefit of any
private individual or shareholder,
■ no substantial part of its activity may be attempting
to influence legislation,
■ the organization may not intervene in political
campaigns, and
■ the organization’s purposes and activities may not
be illegal or violate fundamental public policy.
Jeopardizing Tax Exempt Status
All IRC section 501(c)(3) organizations, including churches
and religious organizations, must abide by certain rules:
■ their net earnings may not inure to any private
shareholder or individual,
■ they must not provide a substantial benefit to private
interests,
■ they must not devote a substantial part of their
activities to attempting to influence legislation,
■ they must not participate in, or intervene in, any
political campaign on behalf of (or in opposition to)
any candidate for public office, and
■ the organization’s purposes and activities may not
be illegal or violate fundamental public policy.
Substantial Lobbying Activity
In general, no organization, including a church, may
qualify for IRC section 501(c)(3) status if a substantial
part of its activities is attempting to influence legislation
(commonly known as lobbying). An IRC section 501(c)
(3) organization may engage in some lobbying, but too
much lobbying activity risks loss of tax-exempt status.
Legislation includes action by Congress, any state legislature,
any local council, or similar governing body, with
respect to acts, bills, resolutions, or similar items (such as
legislative confirmation of appointive offices), or by the
public in a referendum, ballot initiative, constitutional
amendment, or similar procedure. It does not include
actions by executive, judicial, or administrative bodies.
A church or religious organization will be regarded as
attempting to influence legislation if it contacts, or urges
the public to contact, members or employees of a legislative
body for the purpose of proposing, supporting, or
opposing legislation, or if the organization advocates the
adoption or rejection of legislation.
Churches and religious organizations may, however,
involve themselves in issues of public policy without
the activity being considered as lobbying. For example,
churches may conduct educational meetings, prepare
and distribute educational materials, or otherwise consider
public policy issues in an educational manner without
jeopardizing their tax-exempt status.
Measuring Lobbying Activity
Substantial part test. Whether a church’s or religious
organization’s attempts to influence legislation constitute
a substantial part of its overall activities is determined
on the basis of all the pertinent facts and circumstances
in each case. The IRS considers a variety of factors,
including the time devoted (by both compensated and
volunteer workers) and the expenditures devoted by the
organization to the activity, when determining whether
the lobbying activity is substantial. Churches must use
the substantial part test since they are not eligible to use
the expenditure test described in the next section.
Under the , a church or religious organization that conducts excessive
lobbying activity in any taxable year may lose its tax-exempt status,
resulting in all of its income being subject to tax. In addition, a
religious organization is subject to an excise tax equal to five percent
of its lobbying expenditures for the year in which it ceases to
qualify for exemption. Further, a tax equal to five percent of the
lobbying expenditures for the year may be imposed against organization
managers, jointly and severally, who agree to the making of
such expenditures knowing that the expenditures would likely result
in loss of tax-exempt status.
Expenditure test. Although churches are not eligible,
religious organizations may elect the expenditure test
under IRC section 501(h) as an alternative method for
measuring lobbying activity. Under the expenditure test,
the extent of an organization’s lobbying activity will not
jeopardize its tax-exempt status, provided its expenditures,
related to such activity, do not normally exceed an
amount specified in IRC section 4911. This limit is generally
based upon the size of the organization and may
not exceed $1,000,000.
Religious organizations electing to use the expenditure
test must file IRS Form 5768, Election/Revocation of
Election by an Eligible IRC Section 501(c)(3) Organization
To Make Expenditures To Influence Legislation, at any
time during the tax year for which it is to be effective.
The election remains in effect for succeeding years
unless it is revoked by the organization. Revocation of
the election is effective beginning with the year following
the year in which the revocation is filed. Religious organizations
may wish to consult their tax advisors to determine
their eligibility for, and the advisability of, electing
the expenditure test.
Under the , a religious organization that engages in excessive lobbying
activity over a four-year period may lose its tax-exempt status,
making all of its income for that period subject to tax. Should the
organization exceed its lobbying expenditure dollar limit in a particular
year, it must pay an excise tax equal to 25 percent of the
excess.
Issue Advocacy vs. Political Campaign Intervention
Like other section 501(c)(3) organizations, some
churches and religious organizations take positions on
public policy issues, including issues that divide
candidates in an election for public office. However,
section 501(c)(3) organizations must avoid any issue
advocacy that functions as political campaign intervention.
Even if a statement does not expressly tell an
audience to vote for or against a specific candidate, an
organization delivering the statement is at risk of violating
the political campaign intervention prohibition if
there is any message favoring or opposing a candidate. A
statement can identify a candidate not only by stating the
candidate’s name but also by other means such as showing
a picture of the candidate, referring to political party
affiliations, or other distinctive features of a candidate’s
platform or biography.
Key factors in determining whether a communication
results in political campaign intervention include the following:
■ whether the statement identifies one or more candidates
for a given public office;
■ whether the statement expresses approval or disapproval
for one or more candidates’ positions and/or
actions;
■ whether the statement is delivered close in time to the
election;
■ whether the statement makes reference to voting or an
election;
■ whether the issue addressed in the communication has
been raised as an issue distinguishing candidates for a
given office;
■ whether the communication is part of an ongoing
series of communications by the organization on the
same issue that are made independent of the timing of
any election; and
■ whether the timing of the communication and identification
of the candidate are related to a non-electoral
event such as a scheduled vote on specific legislation by
an officeholder who also happens to be a candidate for
public office.
A communication is particularly at risk of political campaign
intervention when it makes reference to candidates
or voting in a specific upcoming election. Nevertheless,
the communication must still be considered in context
before arriving at any conclusions.
Example: Candidate A and Candidate B are candidates for the
state senate in District W of State X. The issue of State X funding
for a faith-based indigent hospital care in District W is a prominent
issue in the campaign. Both candidates have spoken out on
the issue. Candidate A supports funding such care; Candidate B
opposes the project and supports increasing State X funding for
public hospitals instead. P is the head of the board of elders at
Church C, a section 501(c)(3) organization located in District W.
At C’s annual fundraising dinner in District W, which takes place in
the month before the election, P gives a long speech about health
care issues, including the issue of funding for faith-based programs.
P does not mention the name of any candidate or any political party.
However, at the end of the speech, P makes the following statement,
“For those of you who care about quality of life in District W and the desire
of our community for health care responsive to their faith, there is a very
important choice coming up next month. We need more funding
for health care. Increased public hospital funding will not make
a difference. You have the power to respond to the needs of this
community. Use that power when you go to the polls and cast
your vote in the election for your state senator.” C has violated
the political campaign intervention prohibition as a result of P’s
remarks at C’s official function shortly before the election, in which
P referred to the upcoming election after stating a position on an
issue that is a prominent issue in a campaign that distinguishes the
candidates.
I am posting these important pieces of the IRS Tax Law as they relate to Churches and Religious organizations, because I believe it is time for these organizations to be held accountable for their actions within the political process.
If you witness this type of action within your own Church, or you see religious organizations advocating an issue during an election cycle, this is in direct violation of the tax code as stated above.
The "wrong-wing" has keyed on this constituency as a base for get-out-the-vote rallying. If they can drum up support for an issue from the pulpit, or at a bible study group, on Church grounds, then this is grounds for loss of their tax-exempt status. Document the occurrence and turn them in.
You work hard for your money, make sure your tax dollars work hard for you, not your Pastor or your local millionaire.
