Church Tax Exemptions and Political Activities
Diocesan Press Service. January 31, 1972 [72008]
I.
There are indications that within the last two years the Internal Revenue Service has been investigating and, it is feared, attempting to restrict certain "political" activities of churches and associations of churches. These IRS efforts have included:
* a continuing examination of the records of a major national association of churches with respect to its involvement in "political" and "social" action;
* advice to a major national Protestant denomination that its proposed use of a designated offering for a student political education program would "jeopardize" that denomination's tax exempt status;
* an attempt to investigate the use of space in a Massachusetts church by a student peace group and advice that such use could endanger the church's exempt status; and
* an attempt to investigate allegedly "political" activities of a Florida church organization.
The phenomenon is not unique to churches. The Columbia University student newspaper – Spectator -- was recently investigated by the IRS with a view to withdrawing its tax exempt status because of its allegedly "political" activities. The investigation now appears to have been dropped.
Although governmental surveillance and control of church activities is commonplace in some countries, it is virtually unprecedented in the United States. Major church denominations and national church associations advise us that to their knowledge they have not previously been subjected to governmental investigation or attempted curtailment of their activities. National church bodies are in active communication with each other concerning the recent governmental inquiries and regard them as a major threat to their integrity and effective functioning.
Church Political Activities. Churches proclaim that the tradition of prophetic witness imposes on them both social and political responsibilities:
"How then should the church bear witness to its Lord in the present time? ...The question as to whether the church should proclaim its gospel is unthinkable! Likewise unthinkable is the possibility that this proclamation can be limited in scope so as to leave the political and social realm undisturbed."*
"Christians believe that God is the ultimate source of all authority, that He endows man with the capacity to exercise authority, and that man exercises that authority through the institutions which he develops, including those which are ecclesiastical and those which are poli- tical. No matter how essential these institutions may be in terms of man's social existence, the committed Christian must continually see them as instruments under the sovereignty and judgment of God."**
* "Relations Between Church and State in the United States of America", 175th General Assembly, United Presbyterian Church, May 1963, p. 35.
** "Relations Between Church and Government", Report by Study Commission on Church and State Relations to. The General Conference of the Methodist Church, February, 1964, p. 6.
"Inescapably the interests of the church as a corporate body are affected by the public policies of government. Like other social groups, the church has a right to speak or act corporately on those matters of public policy which are of vital concern to its interest, its ministry, and its witness in the world. Any conception of church-government relations which denies the church this right strikes at the very core of religious liberty."*
Greater awareness by churches of their social responsibilities has increasingly led them to take public positions on issues of considerable political significance. For example:
"Be it resolved, That, we, the members of the Executive Council:
"2. Call for the total withdrawal of all American forces from South-east Asia now, and an end to the war.
"3. Approve Congressional efforts-to assure this immediate withdrawal by asserting its constitutional responsibilities regarding appropriation of funds and the commitment of American Military Forces to combat.
"4. Call for a re-allocation of the resources of this country from military involvement abroad to domestic programs such as a full employment program, an adequate Family Assistance Program, increased production of .housing for low- income and moderate-income households and extension of anti-pollution programs."*
The publicity given to the opposition by many churches to the war in Viet Nam may tend to obscure the breadth of the social concerns of churches generally. Crime, welfare, poverty, the "new morality", abortion and consumerism are but a few other areas of recent concern which may dictate strong stands by the churches with undeniable political implications.
* Resolution of the Executive Council of the Episcopal Church, May 20, 1970.
Religious conviction, of course, is not necessarily equivalent to political or economic wisdom. The merit of such stands can and should be debated, within and without the Church, but the Church's right (and obligation), as the Church, to take such stands, on the other hand, is largely, though not universally, taken for granted.
Taxes and Political Activities. Churches and associations of churches in this country have traditionally enjoyed very broad exemption from state and federal taxation. These include exemption from real and personal property taxes, income taxes and taxes on income devoted exclusively to religious purposes. Taxpayers are granted deductions from income, estate and gift taxes for amounts contributed to churches and church associations. Federal social security and unemployment taxes do not apply to religious institutions. Sales and other excise taxes are often not levied on purchases by religious organizations. For a variety of reasons, we believe that the general principle of tax exemption is desirable.*
* See: The Guild of St. Ives, A Report on Churches and Taxation, New York: Executive Council of the Episcopal Church, 1967. Indeed, nothing in this present paper is intended to indicate that the principle of tax exemption may not be constitutionally mandated - a view held by some of our membership.
At the same time, certain conditions are attached to the exemptions, the most important of which are contained in Section 501(c)(3) of the Internal Revenue Code, which limits exemption from federal taxes to certain organizations (including churches)
". . . no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of any candidate for public office." *
The rationale for the limitations as applied to churches and charitable organizations is not entirely clear.** In part, at least, the limitation appears to reflect a more general Congressional policy to deny any form of tax benefit to political activities. A taxpayer, for example, gets no deduction for contributions to a political party, and various provisions of the Code go to great lengths to prevent a taxpayer from deriving tax benefit from indirect attempts to assist a particular political party or cause.*
The merits of denying tax benefits to political activities may be debated. Given the Congressional policy against such benefits, however, it is hard to quarrel with the limitation imposed on exempt organizations by Section 501(c)(3). Since contributions to a church are deductible by the donor, the expenditure of such contributions by the church for political purposes effectively sidesteps the denial of tax benefit to political activities and would give the church an unfair -advantage over other nonexempt groups whose views may differ from the churches' and who must fund their activities with after-tax dollars. In a pluralistic and democratic society, the church's voice is but one of many, and any system which promotes the political interests of the church by according tax advantages for political activities not available to others generally should not be tolerated.
* This test applies for purposes of income taxes on churches; a similar standard applies for purposes of determining deductibility of gifts, bequests or contributions to such organizations.
** See Clark, "The Limitation on Political Activities: A Discordant Note in the Law of Charities," 46 Virginia Law Re- view 439 (1960).
* See, e.g. IRC § 162(e)(2); § 271; § 276
The Conflict
How is the church's social ministry, which has tended increasingly to involve it in political activity, to be reconciled with the legitimate interest of the State in the evenhanded administration of its tax laws? Some attempt at accommodation is found in Section 501(c)(3) itself. As a practical matter, it is probably impossible for a church or other exempt organization to avoid entirely any involvement in activities loosely categorized as "political". Congress did not impose an absolute prohibition on such activities.* The limitation contained in Section 501(c)(3) on attempts to influence legislation is subject to a substantiality test: an organization will not risk its tax exemption so long as such political activities represent an insubstantial part of its activities, viewing its operations as a whole.
The statute, moreover, does not use the term "political activities". The prohibition is against "carrying on propaganda or otherwise attempting to influence legislation." The statutory language is far narrower and more precise than the elastic term "political activities". As interpreted by the Income Tax Regulations, an organization will be regarded as attempting to influence legislation if it
(a) Contacts, or urges the public to contact, members of a legislative body for the purpose of proposing, supporting or opposing legislation; or
(b) Advocates the adoption or rejection of legislation.*
The primary focus of the prohibition, as the Regulation indicates, is on lobbying and similar activities which involve active campaigning for the adoption or rejection of particular legislation. As a practical matter, comparatively little of the churches' time and money is spent in direct or indirect attempts to push or defeat a specific bill or proposal by contacting legislators or by actively campaigning. One of the individuals involved in such activities for the Episcopal Diocese of New York has estimated, for example, that rigorous cost accounting would not show as much as 1% of the Diocesan activities devoted to legislative activity. The churches have and undoubtedly will continue to take public stands on issues many of which may be controversial and politically charged, but such stands by themselves, do not appear to violate the prohibition.
* "Political" activities as used herein refers to "attempting to influence legislation" within the meaning of Section 501(c)(3) and not to "participat(ing) in, or interven(ing) in ... any political campaign on behalf of any candidate for public office." The prohibition upon the latter is absolute.
* Reg. §1.501(c)(3) - 1(c)(ii). The Regulations define legislation to include action by the Congress, by any State legislature, by any local council or similar governing body, or by the public in a referendum, initiative, constitutional amendment or similar procedure. Reg. §I.501(c)(3)(ii), supra.
The Regulations concede that "[t]he fact that an organization, in carrying out its primary purpose , advocates social or civic changes or presents opinion on controversial issues with the intention of molding public opinion or creating public sentiment to an acceptance of its views does not preclude such organization from qualifying under section 501(c)(3) .... ."* Nothing in the statute or Regulations, moreover, suggests that the prohibition extends to frequently mutually beneficial contacts with government executives and agencies charged with administering (as opposed to formulating) the laws.
In short, excepting lobbying and similar activities, the statute, as interpreted by the IRS's own Regulations, is broad enough to accommodate the majority of the activities considered by the churches to be a necessary part of their social and prophetic witness. The problem, in our view, does not lie primarily with the statute or the Regulations but with the manner in which the law may have been administered recently by the Internal Revenue Service. To that may also be added the caution of some churches and their legal advisors when confronted with an TRS warning that a contemplated program or activity may "jeopardize" their tax exemptions.
We are not aware of any instance where the IRS has actually suspended or withdrawn the exemption of a major religious institution because of its allegedly political activities. On the other hand, the IRS has been successful in using the threat of loss of exemption to discourage certain activities by churches which, in its view, would constitute an impermissible form of political action by an exempt organization. While such attempts by the IRS may not have been politically motivated, some of the instances which have come to our attention do suggest that some IRS agents evidently take a much broader view of what constitutes impermissible political involvement than would seem to be authorized by the present statute and Regulations.
* Reg. § 1.501(c)(3)-1(d)(2). Note also the observation that presentation of both sides of a question, something the church is not likely to do, ordinarily negates an implication of propaganda. Cochran v. Commissioner, 78 F.2d 176 (4th Cir. 1935).
It is regrettable that the mere threat of adverse action by a regulatory agency like the IRS may have a chilling effect on a contemplated course of action, however small the chances of the agency's position succeeding were the matter to be brought to a court test.* We believe churches and their legal Advisors have a duty both to weigh carefully the relatively narrow ambit of the statutory restriction and to avoid undue caution and timidity.
Unless the churches are willing to abandon any and all aspects of the social ministry which could be characterized in one way or another as "political," however, the time may have come for the churches to test the propriety of certain of the attempts by the IRS to restrict their activities with social and political implications. Participation in the secular world is central to modern church doctrine.
* The manner in which the statute is administered is not without constitutional overtones, only the most obvious of which is the possibility of selective enforcement. In a recent case upholding the constitutionality of a New York State property tax exemption for churches, the Supreme Court relied in part on the fact that the exemption of churches, in contrast to taxation, involved a minimal involvement between church and state and avoided the difficult and continuing administrative determinations incident to taxation, which could draw government into internal church affairs. Walz v. Tax Commission, 397 U.S. 664 (1970). In this connection, Congress in extending the unrelated business income tax to churches in the Tax Reform Act of 1969 simultaneously imposed strict limits on the extent to which the books and activities of churches can be examined to determine compliance with the tax. I.R.C. 7§605(c). It is unlikely that Congress at the same time believed that Section 501(c)(3) conferred a mandate for monitoring the day to day activities of churches.
II
While nobody knows what the future holds, it is entirely possible that there will be instances when churchmen may feel the need to exceed the limits of permissibility.. When, and if, that occurs, complete taxation could be avoided by the creation of an independent coordinate organization for social action which could qualify as a social welfare organization under Section 501(c)(4) of the Code. Although the organization's activities could reflect the policies of the particular church and its leadership and members could be coextensive with the clergy and laity of the church denomination, it would, formally, be separate and distinct in its organization and operation. As is true of the churches now, the income of such an organization would be exempt from Federal income taxes. Contributions to the organization; however, would not be deductible and the organization could not receive funds or other assistance from the church itself.
As an exempt social welfare organization, the organization would not be free to intervene 'directly or indirectly in an election campaign .on behalf of or in opposition to any candidate for public office. It would otherwise be free, however, to engage in lobbying and any other form of political activity to promote the common good and general welfare of the people of the community.
Once freed of the statutory inhibition against political activities, the social ministry of the churches may be pursued openly and by any necessary and convenient means (with the exception of intervening in an election campaign). On those occasions when that ministry turns political, moreover, it will be competing on even terms with the views of other groups similarly dependent on nondeductible contributions for support.
Internally, the separation of the political aspects of social action in some cases from the other activities of the churches might help to heal some of the present divisions in the churches over the propriety of the increasing involvement of the churches generally in political activities. By no means all Christians accept the notion that the churches have a right and duty to engage themselves formally as churches in political activities. Even those who take the opposite view generally concede that Christians may speak with different voices and must occasionally wonder themselves if the Holy Spirit invariably dwells with the majority at annual Conventions.
There is every reason to suppose that a Christian may withhold as well as contribute money to his church as a matter of conscience. A separate social action organization might lessen the harshness of that choice.
At the same time, we note the comments of John Lassoe, sometime Diocesan director of Christian Social Relations for the Episcopal Diocese of New York:
"The proposition that an independent- coordinate organization for social action be formed is not attractive. By any definition, it would be a step- child -- and such stepchildren have fared badly in the past. Quite a few such groups have been spawned by the Episcopal Church (and other religious bodies, sometimes on a cooperative basis); without exception, they have withered and died. Once outside the structure, they have never been taken seriously by the 'official' Church -- and the public or political figures that they sought to influence have not been slow to recognize their powerlessness, their limited link with the larger Church."
Since business has at times been able to make cooperative trade associations work effectively for lobbying purposes we suspect past failures are attributable as much to a lack of commitment by the founders as to any inherent unworkability of the concept.
Still, what has failed before is likely to be at best difficult to implement in the future. If churches are to expand their legislative activities substantially beyond what we believe to be their present permissible scope, the only alternative to the drastic, presumably unbearable loss of tax exemption would appear to be the formation of such separate organizations. While this may be difficult, we are not inclined to be overly critical of a system which may dictate it, because on the whole we accept the goals of that system, and find it hard to disagree with its underlying philosophy. The solution seems the best way to accommodate two basically antagonistic principles, neither of which is necessarily wrong in itself.
New York, New York
December 8, 1971
[For a full list of submitters, please contact the Archives. --Ed.]