• Political Campaign Activity and Tax-Exempt Organizations
  • August 20, 2014 | Authors: Patricia B. Carlson; Richard L. Lieberman
  • Law Firm: Burke, Warren, MacKay & Serritella, P.C. - Chicago Office
  • Churches and other tax-exempt organizations (TEOs) described in Section 501(c)(3) of the Internal Revenue Code (“Code”) may not understand that the Code absolutely prohibits them from participating in or intervening in political campaigns for or against any candidate for public office. Indeed, it seems that the IRS has not been actively pursuing enforcement of this prohibition, perhaps in light of its own recent political troubles. But TEOs should take note: recent developments have brought renewed IRS scrutiny, and violating this prohibition may lead to severe sanctions, including the loss of tax-exempt status.

    Past misunderstandings are not surprising, given that TEOs are allowed to “educate the public” with regard to “important policy issues” and to engage in an “insubstantial” amount of lobbying. The limits of such activities are often confusing to even the most experienced tax professionals. More importantly, many TEOs simply ignore the political campaign prohibition, contending that they have a First Amendment right to intervene in a political campaign on behalf of a candidate, and believing that the IRS would be hesitant to put its prohibition to a constitutional test.

    Until recently, aggressive enforcement of the Code’s prohibition may have been the one thing rarer than a Cubs World Series appearance. But, heads up: while it remains unknown whether we’ll live to see the Cubs in a World Series, the IRS’ reluctance to challenge TEO political campaign activity appears to have come to an end.

    In December 2012, the Freedom From Religion Foundation (“FFRF”) filed suit in the U.S. District Court for the Western District of Wisconsin seeking a declaration that the IRS violated the First Amendment establishment clause “by failing to enforce the electioneering restrictions of §501(c)(3) of the Tax Code against churches and religious organizations,” and asking the court to order the IRS “to authorize a high ranking official within the IRS to approve and initiate enforcement of the restrictions of §501(c)(3) against churches and religious organizations, including the electioneering restrictions, as required by law.”

    On July 17, 2014, FFRF issued a press release announcing a settlement with the IRS:

    “[t]he IRS has now resolved the ¿ issue necessary to initiate church examinations. The IRS also has adopted procedures for reviewing, evaluating and determining whether to initiate church investigations. While the IRS retains ‘prosecutorial’ discretion with regard to any individual case, the IRS no longer has a blanket policy or practice of non-enforcement of political activity restrictions as to churches.”

    The press release further states that FFRF withdrew its lawsuit because

    “[u]ntil the IRS has satisfied congressional overseers that objective procedures are firmly in place with regard to political activities by all tax-exempt organizations, the judge in FFRF’s pending suit would not currently be able to order any immediate or effective relief.”

    With FFRF’s announcement in mind as we approach another highly fractious campaign season, churches and other TEOs would be wise to carefully scrutinize how the Code prohibition on “political campaign intervention” might apply to their own political involvement.

    A December 9, 2013, memorandum from the IRS’ Exempt Organizations Determinations Unit, listed the following types of activities as potentially qualifying as “political campaign intervention”:

    • Voter registration
    • Inaugural and convention host committees
    • Post-election transition teams
    • Voter guides
    • Voter polling
    • Voter education
    • GOTV drives
    • Events at which candidates speak
    • Communications expressing approval or disapproval of candidates’ positions or actions
    • Other activities that appear to support or oppose candidates for public office

    With the IRS’ blanket non-enforcement policy/practice at an apparent end, now may be an opportune time for churches and other TEOs to proactively review what qualifies as impermissible political campaign intervention.