- Churches Cannot be Allowed to Become Political Dark Money Shops
- May 23, 2017 | Author: Trevor Potter
- Law Firm: Caplin & Drysdale, Chartered - Washington Office
- Today President Trump signed an executive order addressing political spending by religious organizations. The order was not as broad as predicted. Instead of easing restrictions on political spending, it allows the IRS to continue to enforce the current restrictions, but prohibits those restrictions from being expanded.
Still, a potential repeal of this law is on the table, as Congress also took the issue up this morning.
For 63 years, Congress has barred entities organized under Section 501(c)(3) of the tax code - which includes the entire charitable sector, as well as churches, mosques, and synagogues - from engaging in partisan political activities.
The prohibition was passed without controversy in 1954 by a Republican Congress, signed by a Republican president, and has been supported and strengthened on a bipartisan basis by administrations of both political parties.
But the political activities prohibition - also known as the “Johnson Amendment” - is now under attack. Although sometimes framed in terms of religious liberty, the effect of a full repeal would broadly impact the charitable sector, and likely lead to the creation of an array of new 501(c)(3) “super dark money groups” - entities organized as charities or religious organizations, but that operate as tax-deductible vehicles for wealthy donors to secretly influence elections.
Look at what happened with 501(c)(4) nonprofits. We have seen a wave of newly created 501(c)(4) organizations formed to spend hundreds of millions of dollars on elections, using funds raised from corporations, unions, and wealthy individuals, all while keeping their donors secret.
Donors to these 501(c)(4) “dark money” groups, however, do not get a tax deduction. Yet if the ban on electoral politics were lifted for 501(c)(3) entities, then houses of worship and charities could become “super dark money groups” that offer donors not only anonymity for bankrolling electoral activity, but also a charitable tax deduction.
It shouldn’t come as a surprise that most of the anonymous political funds currently flowing to 501(c)(4) entities would instead be routed to an array of newly created 501(c)(3)s formed to influence elections. The ability of donors to deduct their political contributions would be a huge incentive to create new politically active charitable vehicles, or lure existing religious institutions into taking massive donations for the purpose of intervening in elections.
And, because religious entities are exempted from the IRS form 990 reporting requirement, an organization seeking to engage in electoral politics might only need to notify the IRS of its intention to operate as a church to avoid even the minimal disclosure that now applies to dark money 501(c)(4)s.
Proposals aimed at narrowing the Johnson Amendment rather than repealing it entirely are also fraught with peril. Political operatives will likely exploit every possible loophole to open the door to tax-deductible dark money. Even limited exceptions could create new political and financial pressures for religious entities. Once houses of worship may permissibly engage in even limited campaign activity, a donor could use the incentive of financial support (or the threat of withdrawing support) to pressure a church to use its influence to support or oppose a candidate before the congregation.
For decades, the Johnson Amendment has kept tax-exempt organizations focused on their charitable or religious missions, freeing charities of the political and financial pressures associated with partisan political campaigns.
The longstanding public interest in the prohibition is clear. Donors to religious entities and charities get a tax deduction for their contributions, and those entities are generally exempt from taxes. As the Supreme Court has noted, these tax benefits operate as “a form of subsidy that is administered through the tax system.” 501(c)(3) entities are subsidized by taxpayers for their charitable, religious and educational work, not partisan political activity.
Tax-exempt organizations have an implicit promise of providing a benefit to society, but working to elect or defeat a candidate strays dangerously from the societal benefit baked into the tax code, and implied in their societal contract. A repeal of the political activities prohibition is a solution that only creates new problems, and should be defeated.