Alan P. Dye is a partner with the Washington, D.C. law firm of Webster, Chamberlain & Bean. Prior to joining the firm, he was law clerk to a judge of the United States Tax Court. Mr. Dye has a degree in economics from Duke University, was graduated from the University of Florida School of Law in 1971, and was awarded a Masters of Law Degree (Taxation) from New York University in 1973. He is a member of the Committee on Exempt Organizations of the Section of Taxation of the American Bar Association and past Chairman of its Subcommittee on Trade Associations, as well as a member of the Election Law Committee of the Administrative Law Section. Mr. Dye is a member of the District of Columbia and Florida bars, a fellow of the American College of Tax Counsel, and a former member of the Council of the Legal Section of the American Society of Association Executives.

The IRS treatment of legislative and political activities by clergymen and organizations exempt from tax under section 501(c)(3) of the Internal Revenue Code of 1986 (the Code) is subject to changing IRS interpretations, and it is dangerous to generalize based upon specific cases. Nevertheless, certain principles may be relied upon with reasonable certainty. These are summarized below, along with the answers to some frequently-asked questions. This article should not be interpreted as legal advice concerning any particular situation. Clergymen should consult their own tax advisors with respect to their particular circumstances.

LAW AND REGULATIONS

An organization is exempt from tax under section 501(c)(3) if it is

"... a corporation, ... fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes,

It is apparent from the language of the statute that an organization exempt from tax under section 501(c)(3) may undertake no activity whatever on behalf of or in opposition to any candidate for public office, federal, state or local. This is an absolute prohibition.

Legislative activities, as contrasted to political activities, are permissible for such an organization. However, the statute prescribes that no substantial part of the activities of such an organization may be devoted to activities intended to influence legislation.

The IRS regulations under section 501(c)(3) elaborate on the general statutory requirements as follows:

(i) To devote more than an insubstantial part of its activities to attempting to influence legislation by propaganda or otherwise; or

(ii) Directly or indirectly to participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of or in opposition to any candidate for public office; or

(iii) To have objectives and to engage in activities which characterize it as an "action" organization as defined in paragraph (c)(3) of this section.

Sections 1.501(c)(3)-1(b)(3)(i) and (ii) of the above regulation merely restate section 501(c)(3) and its prohibition of political activity and limitations on legislative activity, but subsection (iii) expands the limitations placed upon charitable or educational organizations to preclude section 501(c)(3) status for so-called 'action' organizations, which are defined to include any organization which contacts or urges the public to contact legislators regarding legislation or which itself advocates the adoption or rejection of legislation.

The statute does not define the term "substantial" for purposes of determining whether an organization qualifies under section 501(c)(3). Court cases have held that an organization may devote 5 percent of its activities to lobbying without losing its tax-favored status, and that an organization devoting more than 20 percent of its activities to lobbying does not qualify. Organizations devoting between 5 and 20 percent of their activities to such pursuits are in an area of uncertainty. The IRS has never accepted the applicability of any specific percentage to determine the substantiality of an organization's legislative activity.

In 1976, section 501(h) was enacted to relieve some of this uncertainty. That section sets forth a procedure whereby an organization may elect to expend a specified portion of its budget for legislative activities without any adverse effect upon its tax exempt status. The amount of such activity is computed on a sliding scale. As an example, an organization whose total expenditures on all exempt purposes are less than $500,000 per year may devote up to 20 percent of such expenditures to lobbying without paying any tax, and up to 30 percent without losing its tax-exempt status. Expenditures exceeding 20 percent, but less than 30 percent, are subject to a special tax, but will not adversely affect tax-exempt status.

Under section 501(h), one-quarter of the allowable expenditure amount may be devoted to so-called "grassroots lobbying", defined as attempts to influence the general public regarding legislation. Organizations not electing under §501(h) are subject to the old rules. In either case, permissible lobbying must be in the public interest.

Section 501(h) may be elected by most organizations qualifying for tax exemption under section 501(c)(3) of the Internal Revenue Code. However while the bill was being considered by Congress, there were those in the church community who believed that churches are not subject to the prohibitions against lobbying in any respect. These organizations believed that to include churches and integrated auxiliaries of churches in the relief legislation would imply that the government had the right to revoke their tax exemptions if they engaged in legislative activity. Since they did not believe that this is true, the organizations lobbied for a provision excluding them from the benefits of section 501(h). The result is that churches, integrated auxiliaries of churches, and members of affiliated groups in which one or more members are churches or integrated auxiliaries of churches are not eligible to elect section 501(h) treatment. Religious institutions which are not churches or integrated auxiliaries can make the election.

DISCUSSION

1. Endorsements

a. Can a clergyman or officer of a nonprofit tax-exempt organization publicly endorse a candidate for public office?

Neither the federal tax statutes nor the federal election law place impediments upon individuals expressing their election choices. The fact that a clergyman is employed by a tax-exempt organization does not destroy his personal constitutional right to political expression, and such an individual may personally endorse or oppose candidates for office without endangering the tax-exempt status of the organization by which he is employed.

b. Can it be done from the premises or pulpit of the tax-exempt organization?

c. Can the church or "organization" endorse a candidate?

d. Can the clergyman or nonprofit organization leader/officer lend his name to political advertisements and have his title listed under his name for identification purposes?

Just as there is no prohibition against an individual employed by a tax-exempt organization engaging in political activity, there is no prohibition against the candidate using the individual's identification with such an organization if it is helpful in his candidacy. Clergymen who work on their own time in political campaigns may be identified by their organizational titles.

2. Voter Registration and Education

a. Can a Section 501(c)(3) organization encourage or conduct voter registration or voter education activities among church members or on the nonprofit premises?

Yes. The IRS has ruled that even private foundations may support nonpartisan voter registration drives. T.D. Release K-87, May 11, 1969. As to voter education, IRS Revenue Ruling 78-248, states as follows:

"Certain 'voter education' activities conducted in a nonpartisan manner may not constitute prohibited political activity under section 501(c)(3) of the Code. Other so-called 'voter education' activities, however may be proscribed by the statute."

This revenue ruling contains a number of examples of situations illustrative of the rules as applied by the IRS.

In one example, an organization compiled and made generally available to the public voting records of all members of Congress. The publication contained no editorial opinion, and its contents did not imply approval or disapproval of the members' voting records. The IRS held that such activity is not prohibited to a section 501(c)(3) organization.

Important distinctions may be drawn from a third example in which the same sort of questionnaire was sent to candidates in order to prepare a voters' guide, but the questionnaire was structured in such a way that it evidenced bias on certain issues. The organization was held not to qualify for tax-exempt status.

b. Must voter registration activities be nonpartisan?

Yes.

c. Can the organization spend money for paying registration organizers, or for mailing out registration forms?

Yes, if the registration is nonpartisan.

3. Candidate Appearances ,

a. Can candidates speak on the premises of a Section 501(c)(3) organization?

The Internal Revenue Service has never to our knowledge attempted to revoke the tax-exempt status of an organization which allowed political candidates to speak on the premises. It is fairly clear that there is no problem with such practice if all candidates are allowed to speak, rather than merely those endorsed by the leaders of the institution. This is consistent with revenue rulings dealing with broadcasting stations, in which it has been held that providing reasonable air time to all legally qualified candidates for election to public office does not constitute participation in a political campaign. See Rev. Rul. 74-574, 1974-2 C.B. 160.

The question is a closer one if only certain candidates are allowed to address the group with political speeches. It could be argued that allowing a candidate to speak involves no endorsement by the organization or that purely internal communications do not constitute intervention in a political campaign. Nevertheless, more care and consideration should be given to such an activity than to an activity where all candidates are provided with the opportunity to speak.

Of course, candidates and public officials retain their rights to religious expression. Ministers should be safe in introducing a candidate present in the congregation at a service, and candidates who are members of a congregation may be allowed to deliver sermons and read scripture just like other members.

b. Can public incumbent office-holders speak on the premises or from the pulpit?

Yes, though if such office-holders are candidates, the same considerations apply as are discussed above.

c. Can an organization exempt from tax under Section 501(c)(3) operate forums where all candidates for a particular office come and speak?

Though the Internal Revenue Service has apparently never ruled on this exact question, such an activity is consistent with other IRS rulings. See, for instance, Revenue Ruling 74-574, supra, involving appearances by candidates on television stations operated by religious and education groups. See, also, Revenue Ruling 66-256, 1966-2 C.B. 210, in which an organization was held to qualify for section 501(c)(3) status where it conducted public forums at which elections and debates on social, political, and international matters are presented.

4. Fundraising

Can funds be raised at religious services for campaign contributions to candidates, contributions to political parties or contributions for a legislative battle or moral or educational issue campaign?

An organization may qualify for section 501(c)(3) status so long as it does not devote a substantial portion of its activities to propaganda or legislative activities. Collecting money at a church service does not involve an expenditure of funds which could under any circumstances amount to a substantial expenditure. Therefore, allowing fundraising for lobbying campaigns at church services is unlikely to result in substantial legislative activity.

In contrast, raising money for a candidate or a political party would constitute indirect participation in a political campaign. Since the prohibition on such activities is absolute, such an activity could result in the loss of tax-exempt status.

5. Mailing Lists

Can an organization exempt from tax under Section 501(c)(3) loan or rent its mailing list to an organization carrying on legislative activities or to a candidate or political committee for campaign fundraising?

Both the Federal Election Commission and the Internal Revenue Service would react adversely to a loan of an organization's mailing list for use in a political campaign.

Such an activity would constitute a corporate political expenditure to the extent that corporate funds had been used to develop the membership list. It would also constitute participation in a political campaign for purposes of section 501(c)(3).

The loan of a mailing list to a "legislative" organization must be analyzed using different principles. The election law would not apply since the statute applies only to political activities rather than legislative ones. The loan could be considered a legislative expenditure to the extent of the cost of providing it, but in any event would be considered such an expenditure only to the extent of any additional cost incurred by the corporation. Presumably, such additional costs would be very slight and would only in a very unusual circumstance result in substantial expenditure.

It is clear that both political candidates and parties and legislative organizations can rent or buy mailing lists from charitable organizations. No problem would exist in any of the above cases if the list is rented at its fair market value (the value at which it is rented to other organizations, if at all) to either a political organization or a legislative organization.

We have attempted to deal in general summary form with problems which commonly arise. The reader should recognize, however, that the tax effect of political or legislative activity on a church or charity depends on the precise facts of the particular case. Each church should consult its own counsel with respect to its specific activities.

Revised January 23, 2002

© Copyright 2002 Alan P. Dye. Permission to reprint is granted so long as no changes are made to the text.