Earlier this year, a cadre of Ohio clergymen asked the IRS to investigate World Harvest Church in Columbus, Ohio, and related church organizations for allegedly violating the tax rules for tax-exempt organizations. The group suggested that World Harvest intervened in the Ohio gubernatorial election, citing several alleged instances in which the churches promoted candidate J. Kenneth Blackwell at religious events, in voter-registration drives and in educational materials.
The ministers were pushing the IRS to police the Ohio church in connection with compliance with Internal Revenue Code (IRC) 501(c)(3), the tax code section that governs tax-exempt organizations, including churches. Section 501(c)(3) organizations are defined as public charities, private operating foundations and private non-operating foundations.
World Harvest's dilemma comes on the heels of the debate concerning All Saints Church in Pasadena, Calif. Newspapers across the country, from The New York Times to The Los Angeles Times, reported a number of stories in connection with an anti-war and anti-poverty sermon delivered by a minister in Pasadena prior to the last presidential election. The IRS investigated All Saints Church concerning its political speech.
Many commentators refer to the plight of World Harvest or All Saints as a free-speech issue, arguing that the tax law limits church leaders' first amendment right to freedom of speech. The Houses of Worship Free Speech Restoration Act of 2005 (HR 235) was introduced by Rep. Walter Jones (R-N.C.) in January 2005. In fact, a revised version of this bill has been introduced annually in Congress for the last five years seeking to allow religious organizations to engage in certain campaign activities and remain tax-exempt.
The backers of HR 235 argue the bill would free clergy from the "muzzle" imposed by the "absolute ban" on all speech that may be regarded as political, allowing them to speak out on the political questions of the day. Proponents argue that ministers live in fear, anxiety and uncertainty created by the threat that the IRS will impose financial penalties or revoke tax-exempt status. Strong claims ... too bad they are not true.
Contrary to popular rhetoric, the IRS is not trampling on anyone's right to free speech. Frankly, churches should not be complaining and neither should the critics who have chimed in on the IRS's behalf. This is how it works. The tax law prohibits any political intervention by a church (the political activity prohibition also applies to all tax-exempt organizations), but allows some political activities that influence legislation.
The amount of time a church or other tax-exempt organization devotes to political activity influencing legislation (lobbying) must be an insubstantial part of the church's activities. The term "church" includes synagogues, temples, mosques and similar types of organizations. In a report issued by the government on February 24, 2006, after sampling some 100 churches, the IRS found that nearly 75 percent of the organizations violated the tax rules in connection with political activity.
Although the tax code excludes churches from the requirement to file an application for tax-exempt status, many churches voluntarily choose to file for tax-exempt status. Recognition by the IRS does assure churches, as well as their members and contributors, that the church is tax exempt under 501(c)(3) and qualifies them for related tax benefits.
So why have tax-exempt status, if it disallows the pastor from politicking? »Individual and corporate donors might be more likely to support organizations with 501(c)(3) status because their donations can be tax deductible.
For some, an agreement such as this is akin to selling one's soul to the devil.
In the case of All Saints, the church defended itself by arguing the sermon in question was free speech. In responding to whether the church violated the prohibition against political activity, All Saints refers to itself as being "boldly political without being partisan," that if the tax rules are applied in a manner as interpreted by the IRS, then the church is prohibited from preaching its core values in connection with political issues.
But All Saints forgets its bargain with the government: it agreed to abide by the tax rules and stay out of politics, in exchange for the tax benefits derived from its tax-exempt status.
Church leaders have two choices: either (1) follow the tax-exempt status rules in connection with political activities, if they want to be tax-exempt, or (2) give up their tax-exempt status. In fact, if a church gives up its tax-exempt status it would truly be free to take a stand consistent with its religious beliefs, without feeling pressured by the tax law's prohibition on political activities.
Sure, this would mean that parishioners would no longer be able to claim tax deductions for church contributions. But, as one commentator has reported, 70 percent of all church parishioners do not itemize their tax deductions. This means that they do not claim a federal income tax deduction for charitable contributions to their church. If that is correct, churches' may be getting the short end of the bargain to begin with.
If a church wants to benefit from the government's tax subsidy in the form of tax benefits from tax-exempt status, it must follow the tax rules. If a church rejects being yoked with the tax law restrictions, the solution is simple. In the end this is not some Orwellian drama after all. It's a business deal. If a church signs up for a business deal, the IRS will ask them to keep their side of the bargain. There is no room for the church community to be indignant. The government has a right to ask a church to keep its promise ... or give up that tax-exempt status.
Mark Muntean is the author of Tax Guide for Church and Clergy (Tax Institute 1995) and practices law in San Francisco, Calif. He can be reached at [email protected].
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