How Much Is Too Much? Limitations Upon Political Speech by Tax-Exempt Organizations
When 501(c)(3) tax-exempt status is bestowed upon an organization, there are certain limitations upon the activity that the organization can undertake. One of the most notable restrictions is the ban on political speech. With the 2008 U.S. presidential election in full swing, this issue has become more visible and more contentious.
History of the ban on political speech
Churches and nonprofit charities were banned from political campaign activity 54 years ago when Lyndon Johnson, then a senator, introduced legislation, which some say was motivated by his desire to silence his critics. This was done with a floor amendment to the Revenue Act of 1954. No hearings took place and no congressional record was developed on the need or reasons for the absolute ban. As a result of this legislation, churches and charities must forfeit their right to free political speech as the price for exemption from certain taxes under Section 501(c)(3). If a church or charity violates regulations that prohibit it from endorsing political candidates, the IRS can revoke the organization's tax-exempt status.
Political activity is prohibited for 501(c)(3) organizations. The IRS has delivered a clear statement—it has "zero tolerance" for such political activity. This absolute ban spans from the use of an organization's name in association with any political activity, to campaign contributions, and to outright support of or opposition to a candidate for public office.
Recent IRS inquiries into political activity of 501(c)(3) organizations
Senator Barack Obama brought the scrutiny of the Internal Revenue Service upon his church, the United Church of Christ ("UCC"), earlier this year. News broke in late February about the Internal Revenue Service's investigation, and by all accounts, this was the first time the IRS investigated a denomination. The IRS scrutinized a speech that Obama, an active member of Trinity United Church of Christ in Chicago for more than two decades, gave at a denominational meeting last year.
Officials of the UCC announced they were under investigation for potential violations of federal tax law. But, after learning the details about the event, many experts in the area of political activity of churches wondered why the IRS was investigating a denomination for a potential violation that is, at best, unclear. Some UCC supporters have even gone so far as to suggest the investigation was politically motivated. The UCC is generally considered the most liberal major Protestant denomination in the United States.
The IRS decided to undertake the UCC investigation after church officials invited Obama as a church member, rather than in his capacity as a candidate, to speak to fellow UCC members. This invitation was extended a year before Obama declared his intention to run for higher office. Obama was invited as one of sixty diverse speakers representing the arts, media, academia, science, technology, business, and government. Each speaker was asked to reflect on the intersection of his or her faith and respective vocations or fields of expertise.
Prior to the speech, a church official told the crowd that Obama's appearance was not intended to be a campaign event and that campaign-related material and other forms of electioneering would not be allowed inside the event venue. The IRS claimed that forty Obama volunteers staffed campaign tables outside the Hartford Civic Center, where the event was held. Church officials said they barred any campaigning inside the center but could not prevent Obama's campaign workers from setting up on the city street outside.
Despite the events that occurred outside of the speech venue, there were also issues with the content of the speech. Obama's speech, ironically, focused mainly on the proper intersection of faith and politics for Christians. At a few points in the oration, he lapsed into campaign-like language about policies he has advocated in the Senate—or would advocate in the White House—on moral issues such as health care. He also occasionally referred to his candidacy. But should an exempt organization be faulted when a candidate edges toward campaign-like rhetoric?
The IRS ultimately issued a letter clearing the UCC of any wrongdoing. The letter is useful in suggesting steps that 501(c)(3) organizations should take to protect themselves when they do have interactions with candidates for public office.
It is quite clear that if the candidate is speaking in a noncandidate capacity, the organization should ensure that campaign volunteers for the candidate are not campaigning on premises that are under the control of the organization. It appears that volunteers can campaign in close proximity to the site of the speech, provided it is public property, or property that is not within the control of the organization. However, 501(c)(3) organizations should be careful. We wonder whether the IRS might look at the situation differently if the candidate and the organization collude, with the organization knowing from the outset that the speech will be nonpolitical, but that volunteers will be waiting on the public sidewalk just outside as attendees leave the venue.
Generally speaking, providing a forum for a candidate to speak is viewed as a show of support for the candidate. Providing a forum for opposing candidates (i.e., a candidates' debate) is often used as a way to avoid any potential IRS pitfalls. But simply allowing the opposing candidate to speak will still be viewed as supporting one candidate if the organization publicly supports that candidate's policies.
Permitted political speech by individuals
It is very important to note that the prohibition on organizational support for or opposition to candidates does not in any way prohibit members, staff, leadership, and clergy from expressing their personal views—as long as organizational titles, stationery, discussion forums, publications, meeting rooms, staff time, or other resources are not used. Thus organizations and their leaders, in their individual capacities and outside the context of any organization-sponsored function or publication, may endorse or oppose candidates and otherwise participate in election campaigns. When engaging in personal political activity, however, leaders should take steps to ensure that their actions are not imputed to their organizations.
But the political activities of leaders will be attributed to their organizations if they are undertaken during worship services or organization-sponsored functions, or in official organization publications. Political activity will also be attributed to the organization if a member or leader indicates that he or she is acting on behalf of the religious organization or if the organization's funds, facilities, or other assets are used to support the political activity.
Taking matters into their own hands
The most recent and bold position regarding political speech is centered on "Pulpit Freedom Day." The Alliance Defense Fund called on pastors and ministers to violate the statutory prohibition on political speech by endorsing or opposing candidates for elective public office on Sunday, September 28.
The Alliance Defense Fund, along with many other religious institutions, believes that the statutory ban violates religious organizations' First Amendment constitutional rights. By organizing Pulpit Freedom Day, the group hopes to bait the IRS into challenging the religious leaders' actions in federal court so that the U.S. Supreme Court can finally rule on the constitutionality of the 54-year-old ban on political endorsements by churches and other tax-exempt charities. In public statements, Alliance Defense Fund leaders have said that they did not encourage any congregation to violate the law. Alliance Defense Fund senior legal counsel Erik Stanley stated that they simply encouraged them to exercise their constitutional right in the face of an unconstitutional law.
Many other religious leaders and institutions encouraged their members to disregard the call. The rationale for abstaining from Pulpit Freedom Day is based upon the belief that this action would be an assault on the rule of law and the separation of church and state. The opposition group also wants the government to determine whether the Alliance Defense Fund should lose its tax exemption by organizing a supposedly "illegal" activity because, in the estimation of the opponents, the federal tax law is clear and does not require U.S. Supreme Court intervention.
According to the Alliance Defense Fund, at least 31 pastors took part in Pulpit Freedom Sunday. Based upon this action, Americans United for Separation of Church and State filed six complaints with the Internal Revenue Service. A spokesman for the IRS said that the agency was aware of Pulpit Freedom Sunday and "will monitor the situation and take action as appropriate."
IRS enforcement efforts
In 2006, the IRS received 237 complaints and selected 100 organizations, 44 churches, and 56 non-churches for examination. According to IRS statistics, more than half of those cases remain under investigation. The IRS did substantiate improper political activity in 26 cases and issued written advisories. According to an agency report on the statistics, there are no revocation recommendations.
In 2004, the IRS selected 110 cases for examination and revoked the tax-exempt status of 5 organizations. Of those 5 organizations, none were churches. The last church to have its tax-exempt status revoked was the Church at Pierce Creek near Binghamton, New York, in 1992. The church took out an ad in 1992 that read: "The Bible warns us to not follow another man in his sin, nor help him promote sin lest God chasten us and how then can we vote for Bill Clinton?" According to the IRS, that ad, like a speech from the pulpit, is a violation of Section 501(c)(3) of the tax code.
The penalty for violation of the political activity prohibition is severe. First and most importantly, the IRS can revoke the tax-exempt status of the organization. This means that all dues, educational revenue, etc. would become taxable. In addition, the IRS can charge an excise tax on the amount spent on political intervention. Given the severity of exemption revocation, the IRS does not frequently invoke the penalty. But it has been done. For example, a medical society had its tax-exempt status revoked when it included a favorable article in its newsletter about the candidacy of two of its members for the state legislature.
Tax-exempt organizations often ask how the IRS would find out about a political activity, especially given the low incidence of IRS audits of nonprofits. This is not an issue that typically arises during an IRS audit. It typically comes to the attention of the IRS when a candidate feels that his or her opposition is being supported by a nonprofit organization. A phone call to the local IRS office is often all that is needed to start an investigation.
For more information, please contact RJ&L partner, Bruce Warren, at 719-386-3003 or bwarren @rothgerber.com.