Hi, Everybody this diary is a compilation of research and information on the history of tax exemption revocation for churches and an analysis of past andpresent actions by the IRS on the endorsement of John McCain last year by 33 evengelical churchesGoodsteine, Laurie, Ministers to Defy IRS by Endorsing Candidates, New York Times September 26, 2008 at A20. It also includes an analysis of whether or not the Mormons and Catholic organizations that supported Proposition 8 in California.
Apparently the IRS has taken very limited action and is unlikely to do so given their guidelines and past activities.
Please come down below the fold for some in depth analysis of this modern problem coming out of the right wing machines known as mega-churches and some ideas for how to fight back given the current law.
As always IANAL, but I am taking the bar this summer.
Throughout American History the Church has been a linchpin of society. The small farm community and the immigrant ghetto centered more on their church then on the halls of government. The wealthy Boston Brahmin met in their Episcopal cathedrals to match make and connect with their business partners. Former slaves met in ply board shacks to read the bible and from that root sprung the tree of the civil rights movement. Stating that church and politics don’t mix is nonsensical given the ark of American political history. Churches are a gathering place where people have met to discuss not only their ideas on god and the hereafter but also on the everyday events in their lives, including politics. However, in the modern day setting in order to maintain special status as a tax exempt organization churches must refrain from directly participating in politics.
Churches are protected by the Free Exercise clause of the constitution in their exercise of religion. Everyone, including churches is protected by the First amendment right to free speech. However, churches and other non-profit organizations possess unique tax rights, they are not taxed and donations to them are tax deductible. The lack of taxation on churches dates back to medieval Europe when the church was a separate legal entity outside the king’s jurisdiction. In America we have adopted this standard to a greater extent then in the common law. Not only are churches exempt from all taxation donations to these institutions are tax deductible.
If churches are free to speak under the first amendment; regarding religion and other topics, then why do certain political activities result in revocation of tax exempt status? The short answer is that political donations are not charitable contributions and cannot be tax deductible, furthermore, churches cannot be used to make such donations tax deductible. The long answer follows.
History of Political Activity by Churches in America
One of the first examples of the entrance of churches into the political arena involved the presidential campaign of Thomas Jefferson in 1800. Jefferson’s own religious philosophy was that of a Deist. He believed that though Christianity was the best expression of "natural religion" he did not believe in one of the most basic tenants of Christianity, that Jesus Christ was the promised Messiah. This philosophy caused his election to be opposed by many of the more orthodox churches of the time. The opposition to Jefferson’s campaign on this front was obviously insufficient to prevent his election to the presidency. Also, at the time the tax exemption of churches did not exist on a federal level as the federal income tax had not yet come into existence. The 16th amendment to the constitution was ratified in 1916 and according to historical records the first Federal income taxes were not leveled until the beginning of the Civil war.
Shortly after the passage of the 16th amendment the first challenges came to participation in the tax exempt status. First, the common law tradition of not taxing churches was included in some of the first income tax codes, these tax codes also included exemptions for what are generally described as charitable or not for profit corporations. The not for profit categorization fit chambers of commerce, public and private charity organizations, and veterans organizations . This led almost directly to the first political activities of such organizations. The revocation of tax exempt status began with an organization that was decidedly not affiliated with any church.
Margaret Sanger’s American Birth Control League (ABCL) was the forerunner to Planned Parenthood. The ABCL solicited contributions for the purpose of running various clinics to promote reproductive health among married women, through the distribution of condoms and other prophylactic methods of birth control. The organization also devoted significant resources to lobbying state and federal officials to legalize birth control, and abortion. In Slee v. Commissioner of Internal Revenue, 42 F.2d 184 (2d Cir. 1930), the Second Circuit upheld the refusal of the IRS to acknowledge Slee’s donation to ABCL as a deductible charitable contribution . The basis for the decision in Slee was that the despite the ABCL’s charitable activities involving the distribution of reproductive medicine, the organization in its mission statement advocated a change in current governmental policy . The case stated that unless an organization was strictly charitable if its activities involved any lobbying it could lose its tax exempt status at the IRS’s discretion as occurred in Slee . In 1934 the Internal Revenue Code was rewritten to statutorily include Slee, the tax code of 1934 stated that the IRS could revoke an organizations tax exempt status for political activities .
Though the 1934 prevented charitable organizations from pursuing lobbying activities it did not prevent the endorsement of a particular candidate. In 1954 Lyndon Johnson added the prohibition due to what can only be described as a fit of pique. In Johnson’s 1954 primary for the democratic endorsement to run as Senator for the state of Texas his opponent was a man named Dudley Doughtery, a Catholic Rancher, who was supported by an organization holding tax exempt status known as the Committee for Constitutional Government . The new law incorporated the prohibition against the endorsement or advocacy of specific candidates by tax exempt organizations. Johnson passed the law with no other purpose stated then to deny exempt status to those who advocated on the part of candidates, it is clear in hindsight that Johnson who was famous both for holding a grudge, and for his skill at making backroom deals to pass legislation, did so because of the support his primary opponent was receiving support from such an organization . It is a testament to Johnson’s political savvy that his ulterior motive for pushing forward this legislation was not discovered until the 1980’s .
Both of these changes were slipped into the 1969 statute, with little or no legislature comment during the routine rewrite of the tax law, during the passage of the Tax Reform Act of 1969 . The requirement that tax exempt organizations not participate in lobbying or candidate endorsement then began to become a permanent part of the statutory tax law. In the 1987 Omnibus Budget proscription were added to prohibit lobbying activity by tax exempt organization not only to support but also to oppose any particular candidate . Despite the fact that the original motivation for the legislation was the attempt to limit the activities of an organization that some people found distasteful and on Lyndon Johnson’s vengeful nature the ban on political activity by tax exempt organizations has become an important part of our tax code.
Is the ban on Political Activities by Tax-Exempt Organizations Constitutional?
The Supreme Court of the United States found the ban on political activities by Tax-Exempt Organizations constitutional in Regan v. Taxation with Representation 461 US 540 (1983). Taxation held that the special tax exempt status was a special benefit granted by congress, both Rehnquist’s majority opinion held that "Both Tax Exemption and Tax Deductions are a form of subsidy that is administered through the tax system. " The majority opinion goes on to state that refusal to subsidize free speech is not the same as prohibition on that speech . The court also found that Taxation with Representation did not present a valid equal protection claim, the government’s subsidy of one particular organization falls within congress discretion under the constitution and does not present an equal protection problem unless such decisions are made along the lines of discrimination against suspect classes .
In Regan the court stated that: simply because the government chooses to subsidize the lobbying activities of Veterans organizations and not the organization in question does not mean that equal protection has been violated. As long as the restrictions are content neutral, lobbying and candidate support can be reasonably restricted for tax exempt organizations. Additionally, because the granting of tax exempt status has been determined to be a grant within the legislature’s discretion it is therefore allowed. The court goes on to say that the only time the court could reverse the legislature’s actions, either through statute or through the regulatory authority granted to the Internal Revenue Service is if the determination on tax exempt status was made on the basis of a suspect classification like race, the exact limits of this standard that the court must follow are those established in the courts previous decision in Harris v. McRae 448 US 297 (1980).
An organization can restrict its funds for lobbying and other activities, as per the Representation with Taxation Case. Blackmun’s concurrence sets out how the a charitable organization can set up a statutorily allowed 501 c 4 affiliates to advocate for legislative positions. According to Blackmun, the established statute allows organizations to exercise free speech and abide by the tax code.
Finally, according to the courts opinion in Taxation with Representation, Freedom of Religion and Speech are unaffected by a tax law which is based on the time, manner and is also content neutral. Tax exempt status is a reward, a subsidy therefore there is no need for congress to apply its power to tax equally as long as no suspect classification comes into the legislature or its representative agency’s decision.
Who can eliminate tax exempt status?
The Internal Revenue Service (IRS). As shown in both Slee v. Commissioner of Internal Revenue, 42 F.2d 184 (2d Cir. 1930) and Regan v. Taxation with Representation 461 US 540 (1983) the IRS has the power to cancel tax exempt status based on the statutory authority granted to it by congress. The power of the IRS to revoke such status is of course reviewable and subject to the courts. The IRS has not widely exercised this power.
Only the most egregious cases of candidate endorsement, lobbying or negative behavior towards a candidate usually cause revocation. In fact built into the statutory guidelines as established by the IRS are significant allowances for political activity by non-profit organizations. The Internal revenue code under 46 USCA § 4911 sets out a definition of lobbying activity and the allowable limits of such activity. 4911 (c) 2 defines allowable lobbying amounts for tax exempt organizations as the lessor of $1,000,000 or according to the following table :
If the exempt expenditures are--The lobbying nontaxable amount is --
Not over $500,000 20 percent of the exempt spending
$500,000 - $1,000,000 $100,000 and 15% of exempt spending over $500,000
$1,000,000 -$1,500,000 $175,000 and 10% of exempt spending over$1,000,000
$1,500,000 and greater $225,000 plus 5% of exempt spending over$1,500,000
4911 applies these strict monetary limits to tax exempt organizations and there affiliates and taxes excess lobbying at the rate of 25%. More importantly an organization which violates these standards may have its tax exempt donation status revoked by the IRS. Grassroots activity, as defined by 4911 d to include organization and public advocacy campaigns to influence public opinion and by extension legislation, also can be funded on the same scale as lobbying and is determined to be 25% of the allowable lobbying expenditures as determined above. The penalties for violating the Grassroots expenditures are the same as violating lobbying expenditures. Its important to note that these activities apply only to public debate, in an election; endorsement of a particular candidate, political party or referendum result are still prohibited.
The IRS allows activities that may appear to a layman to be political advocacy by categorizing them as education, an allowable activity for tax exempt organizations. Include voting guides, even voting guides which pertain to the organizations particular issues, and "Get Out the Vote Drives." Voting Guides and Issue Advocacy must not include an explicit endorsement of candidates the IRS has a number of requirements that will cause "educational campaigns" to fall outside of allowable activity for tax exempt organizations. The advocacy cannot include the following: Viewpoints or opinions are a significant portion of the organization’s communications, distorted facts to support the viewpoints or opinions in the communications, the use of inflammatory or disparaging terms or the expression based more on emotional feelings then on objective conclusions or the approached used in the organizations presentation is not truly intended to educate the audience because it does not take into account the background of the audience .
"Get Out the Vote Drives" have been considered acceptable by the IRS as long as they do not advocate for any particular political party, candidate or referendum position. Registration drives also fall into this same category and as long as no particular party registration is advocated do not constitute political activity which disqualifies an organization from tax exempt status.
Do it Solo Third Party Plaintiffs: an exercise in futility
Third party plaintiffs have attempted to bring actions to remove the tax exempt status of qualified charitable organizations. This is almost impossible to accomplish given the extremely difficult requirements to acquire standing. In re United States Catholic Conference et al. 885 F2d 1020 (NY 2d., 1989) demonstrates the difficulty in achieving standing for most third party plaintiffs. In Catholic Conference a group of pro-choice advocates including Rabbi’s, liberal Protestant churches, Citizens Organizations and individual taxpayers attempted to have the Catholic Conference’s tax exempt status removed on the basis that the Conference had repeatedly published and preached support of pro-life candidates and opposition to pro-choice candidates. The court found the following: taxpayer status was insufficient standing to challenge an organizations tax exempt status . Voter status and the claim that the Conferences political activities had damaged the voter’s rights were insufficient to create standing, the situation in this matter was distinguishable from Baker v. Carr 369 US 186 (1962) . Belonging to the clergy and espousing a claim that the Catholic Conference’s activities combined with the IRS’s refusal to revoke tax exempt status was in violation of the establishment clause was not enough to create standing, clergymen did not have a special right to make this claim . Finally, the court rejected the pro-choice organizations as valid plaintiffs on the basis that contrary positions on the issue were not enough to create standing .
In order to have standing to challenge an organizations tax exempt status the third plaintiff must show a direct and personal harm. This standard was met in the Fuleni v. League of Women Voters Educ. Fund 882 F.2d 621 (NY, 1989). In Fuleni the standard for standing, direct harm by the organizations espousal of an issue or position was met, when Dr. Lenora Fuleni was not allowed to participate in the presidential debates for the presidential primaries of the Democratic and Republican parties. As such she had standing to sue in that matter even though her claim was found to be without merit on the basis that she was not contending for those party positions . Now the case law surrounds Dr. Fuleni is not that simple the following actions brought by Fuleni on the same basis, her exclusion from presidential debates were dismissed for lack of standing: Fuleni v. Bentsen 35 F. 3d 49(NY, 1994), Fuleni v. Brady 935 F2d. 1235, (DC, 1991), both actions had substantially the same facts as League of Women Voters Education Fund above, in Brady the finding was that the actions of the Federal Election Commission was the direct cause of Fuleni’s exclusion from the debates , in Bentsen it was held that the injury caused by Fuleni’s exclusion from the debate was not complete enough to create standing .
Standing is as demonstrated almost never granted, the direct substantive harm necessary to create a legitimate third party plaintiff is almost impossible to achieve. Theoretically standing to challenge an organizations tax exempt status can be obtained for cases where an organization enters the political arena. In practice this has never happened a third party plaintiff can challenge tax exempt status, however when they do issue such a challenge they lose.
Modern Revocation of Tax Exempt Status
Though the IRS rarely exercises its right to remove an organizations tax exempt status, and it is nearly impossible for anyone else to challenge tax exempt status churches and organizations removal of tax exempt status does occur. One recent, prominent example of removal occurred in the case of Branch Ministries v. Rosetti IRS No. 99-5097, 211 3d. 137, (DC, 2000).
Branch Ministries Inc., was represented the Church at Pierce Creek in Birmingham, New York. On October 30, 1992 four days before the Presidential election the church took out full page ads in USA Today and the Washington Times. These advertisements had a headline which proclaimed "Christians Beware: Do not put the economy ahead of the Ten Commandments. Did you know that Gov. Bill Clinton -- supports abortion on demand -- supports the homosexual lifestyle and wants homosexuals to have special rights -- promotes giving condoms to teenagers in public schools? Bill Clinton is promoting policies that are in rebellion to God's laws ... HOW, THEN, CAN WE VOTE FOR BILL CLINTON?" These ads also contained information stating that the Church had made the ads the name of the pastor and a request for donations.
The ads attracted the attention of the IRS which promptly sent a letter to the church on November 20, 1992 and requesting certain financial records. The church denied any activity that would qualify as a violation of their tax exempt status and refused to provide the requested records to the IRS . On February 11, 1993 the IRS informed the church that it would be re-examining their tax status. Finally, on January 19, 1995 the IRS revoked the churches tax status on the basis that placing the two ads in question violated the rules governing the political activities of tax exempt churches and organizations .
Pastor Little and his church immediately commenced an appeal, claiming that the revocation of their tax status violated, the first amendment rights to free speech and free exercise of religion. The church also claimed that the revocation violated the Religious Freedom Restoration Act of 1993, 42 USC § 2000bb. The appeal also claimed that the IRS had violated the Equal Protection Clause of the Fifth Amendment by engaging in selective prosecution of Branch Ministries .
The District Court of the District of Columbia found that the IRS’s action in revoking Branch Ministries’ tax exempt status was entirely proper. They found that the IRS code provided amble opportunity for political expression by Branch Ministries, they just were not allowed to pay for such expression with tax exempt dollars. The IRS was not restricting the speech of the church simply to restrict it they were merely concerned that tax exempt funds were being raised and spent improperly.
The RFRA arguments made in the church’s appeal were also defeated. The court found that the church had not established that their right to freely exercise religion had been damaged . The court found this argument to be empty, withdrawing a special privilege of taxation cannot be equated with the prohibition of religious practices or speech.
The court also denied the churches claim that the 5th amendment had been violated. The court found that the necessary burden for selective prosecution had not been met . To be selective prosecution must be based on Race, Religion or another suspect category otherwise said prosecution is assumed to be benign . In the end the tax status of Branch Ministries was held to have been rightfully revoked for violation of the IRS’s limits on the political activities of 501 c3 organizations.
The 2008 Endorsements of Senator McCain
During the 2008 election, 33 churches announced that they would intentionally violate the segments of the tax code that prohibit churches from endorsing specific political candidates. These pastors decided to participate in a protest organized by the Alliance Defense Fund to protest current tax laws. They all endorsed John McCain publicly in their sermons on the last Sunday of September 2008.
These pastors collectively decided to purposefully defy the IRS rules on the endorsement of candidates by tax exempt organizations in order to protest a law they saw as unjust. This was not in fact a spontaneous outburst against the tax code. The protest was organized by the Alliance Defense Fund an organization that describes its itself as "a legal alliance defending the right to hear and speak the Truth through strategy, training, funding, and litigation." The Alliance Defense Fund is well known as an organization that represents plaintiffs and defendants in litigation that it believes will further the cause of the Religious Right in America. This organization claims on their websites list of victories include Boy Scouts of America v. Dale 530 US 640 (2000)where the boy scouts could ban gay scouts and Gonzales v. Carhart 550 US 124, (2007), which limited abortion rights and doctors discretion in regards to the procedure known by doctors as "dilation and extraction" and by the pro-life movement as "partial birth abortion."
The most recent effort in this organizations issue specific advocacy is called "Pulpit Freedom Sunday " the specific action was encouraged so that the ADF could bring suit for the purpose of challenging the political limits on Tax Exempt Status when the IRS makes a ruling on the actions of these specific pastors.
"Pulpit Freedom Sunday" has so far not caused significant IRS or third party plaintiff actions. As of the current date, of this presentation, the IRS has refused to engage, by not challenging the tax exempt status of most of these churches. There have been third party filings including one by the Americans United for Separation of Church and State requesting that the IRS intervene. The Alliance Defense Funds strategy is actually two-fold, if the IRS revokes these churches tax exempt status they will have standing to challenge the political prohibitions on tax exempt organizations, if not then a message will be sent to churches that political speech by churches will not result in the loss of tax exempt status.
So far the IRS has only taken public action against one of these Churches, William Keller’s evangelical church and organization located in St. Petersburg, Florida . In Keller’s case the IRS has requested financial statements, minutes of board meetings and a list of questions that seem to indicate an ongoing investigation . The IRS, however, refuses to confirm or deny that an investigation of Keller’s church is occurring. Additionally, Keller not only participated in the ADF’s protest but made statements during the Republican primary that "If you vote for Mitt Romney, you are voting for Satan! This message today is not about Mitt Romney. Romney is an unashamed and proud member of the Mormon cult founded by a murdering polygamist pedophile named Joseph Smith nearly 200 years ago. " Keller’s defense that this statement was simply an educational statement to inform his congregation about Governor Romney’s Mormon faith is unlikely to hold much water with the IRS or the court.
The IRS may be investigating Keller for this statement rather then for his later endorsement of John McCain Directly before the General Election. However, one thing that is important to keep in mind when dealing with these matters is that the IRS prefers to meticulously review any revocation before taking any action. If we were to re-examine the timeline of events in Branch Ministries v. Rosetti No. 99-5097 211 3d. 137, at 140-42(DC, 2000) the actions that provoked the IRS occurred in 1992, the initial revocation of tax exemption was not issued until 1995 and the final disposition of the matter on Appeal did not occur until the year 2000. A similar timeline will occur with the ADF’s 2008 cases even if the IRS decides to prosecute, which not a certain outcome. In Branch Ministries the activity which seemed to infuriate both the IRS and the courts was the use of the anti-Clinton advertisements to solicit tax deductible contributions, and the use of tax exempt funds to run negative advertisements on a candidate.
The pulpit endorsements were specifically designed by the legal team at the ADF to violate the statute without being outrageous, the IRS may simply choose to ignore them. Finally, even the groups that are most infuriated by this like the Americans United do not bring third party plaintiff actions they write letters of complaint to the IRS due to the realization that attempting to achieve standing to revoke someone else’s tax exempt status is an impossible task . In the end, if the IRS challenges these churches tax exempt status they are likely to find that the statue against political endorsement has been violated, the courts are likely to affirm this administrative judgment.
California, Proposition 8 and the Church of Latter Day Saints
Unlike the example above of the specific challenge issued to the endorsement prohibition of the tax rules governing 501 c 3 organizations, which include churches, the campaign to pass California’s ballot Proposition 8 banning Homosexual marriage through the California State Constitution, attempted to follow IRS tax laws. There is a slight distinction between supporting a referendum and supporting a candidate under the tax law. "Position statements" on issues like the death penalty, abortion, foreign conflicts and gay marriage are not generally prohibited or prosecuted by the IRS. An organization can make an explicit endorsement of a proposition in the guise of educating the public. Position advocacy is only specifically prohibited by the tax code when it can be connected to a direct candidate endorsement. Because a referendum is an up or down vote on a single issue or question, rather then a vote for a candidate that by definition is a person who has many complex positions on many issues.
The Church of Latter Day Saints scrupulously observed the Tax statutes concerning lobbying under 46 USCA 4911. The LDS Church donated $55,013.11 towards the non-501c3 organization www.protectmarriage.com. The Church of Latter Day Saints also encouraged its parishioners to donate money to support the California Referendum through this organization. The Mormon Church’s donations followed the statute for limited lobbying allowable by the Tax Code. Protectmarriage.com was a properly established and tax and Federal Election Compliant lobbying organization.
Other churches also followed the law in regards to lobbying efforts on behalf of Proposition 8. The Catholic Church for example made several contributions to Protectmarriage.com the most significant of which was a contribution of $200,000 made by the United States Conference of Catholic Bishops. The financial lobbying and grassroots financial support made directly by 501c3 seem to have strictly adhered to the statutory regulations regarding such activity. Not only was the letter of the law fulfilled by these 501c3’s direct contributions and solicitation of contributions on behalf of protectmarriage.com the spirit of the law was also protected. The desire to prevent funneling of tax exempt charitable donations to political causes was fulfilled, the parishioners of the LDS and other churches to the political advocacy committee were properly made and those contributions were properly taxed.
If we were to analyze this action through the prism of Regan v. Taxation with Representation 461 US 540 (1983), the separate entity that was created in order to allow for freedom of religious expression and freedom of speech seems to be the fully formed suggestion put forward by Blackmun’s concurrence. As such the monetary support of Proposition 8 by the various 501c3 organizations was entirely proper.
The last topic for examination is whether or not the support offered by these 501c3 organizations violated the endorsement prohibition as it pertains to referenda. The prohibition to advocating positions on referenda is based on the idea that supporting one position publicly imputes support of certain candidates. It is unclear that the support for proposition 8 can be imputed to any particular candidate. Given that the IRS has for many years maintained a relatively lax enforcement of revocation of tax exempt status based on improper participation makes it unlikely that the IRS will act against any of the organizations, religious or otherwise that advocated in favor or against Proposition 8.
In conclusion, tax exempt organizations may not participate directly in the political process. This ban is not absolute not is it particularly vigorously enforced. Additionally, due to the extremely, some might say impossibly high standards required to acquire standing by third party plaintiffs means that the only agency that can really exercise this power is the Internal Revenue Service.
The IRS uses its power to strip tax exempt status only in the most egregious of circumstances. Proselytizing politically is an everyday occurrence in America, stripping an organization of its tax exempt status happens in only the most egregious example of political action by those organizations. The IRS is also more willing to go after non-religious organizations, and will only pursue an organization with diligence and strict standards of review. Even after an organization is stripped of its tax exempt status judicial review on appeal always occurs.
In the 2008 election both the Alliance Defense Funds purposeful challenge and the heavily religious basis for the support of Proposition 8 in California present issues, of whether or not organizations should maintain there exempt status. The IRS uses its power to strip tax exempt organizations of their privileged status sparingly. However, the intentional challenge presented by the ADF may cause the IRS to pursue those preachers who endorsed McCain. The parties involved in the dispute concerning Proposition 8 in California are unlikely to have theirr tax exempt status threatened. The behavior of the Proposition 8 supporters, unlike that of the churches who acted on behalf of the ADF, adhered to the letter of the statute. Tax Exempt status is a privilege not a right and conditions on that privilege are constitutional, however, the IRS’s lax enforcement of the rules against political speech may finally tighten up after the widespread illegality that occurred during 2008.
If the IRS does not take action churches will continue to behave as they did in 2008. My advice on the progressive side of the aisle is if we can't stop churches and conservative organizations from participating in these activities then we shoud do the same. If the IRS won't revoke tax status when conservatives use their churches to shelter their election contributions from taxation we should set up progressive 501c3's to do the same, and maybe one of them could give me a just out of law schoool job, god help me I need a job.