{"id":16287,"date":"2011-07-18T07:53:30","date_gmt":"2011-07-18T12:53:30","guid":{"rendered":"http:\/\/timesandseasons.org\/?p=16287"},"modified":"2011-07-18T07:53:30","modified_gmt":"2011-07-18T12:53:30","slug":"the-tax-exemption-and-the-churchs-political-leanings","status":"publish","type":"post","link":"https:\/\/timesandseasons.org\/index.php\/2011\/07\/the-tax-exemption-and-the-churchs-political-leanings\/","title":{"rendered":"The Tax Exemption and the Church’s Political Leanings"},"content":{"rendered":"

In light of the Church\u2019s recent policy statement<\/a> banning some Church authorities from endorsing candidates, and the speculation that the Church\u2019s political neutrality derives from its desire to stay tax-exempt,[fn1] I thought I\u2019d present a brief primer on the tax exemption.[fn2]<\/p>\n

The Revenue Act of 1894 probably represents the birth of the modern federal income tax. An inauspicious birth, to be sure–it was struck down as unconstitutional in 1895–but the birth, nonetheless.<\/p>\n

True, it was enacted 19 years before the 16th Amendment permitted direct taxation (whatever that is), but it set the stage for the income tax to come. Including, it turns out, in the world of exempting public charities from tax. It provided that the income tax would not apply to \u201ccorporations, companies, or associations organized and conducted solely for charitable, religious, or educational purposes.\u201d [fn3] Although the list of entities that aren\u2019t taxed has expanded (among other things, the exemption now includes groups that foster amateur sports competition–read the NCAA–and that are organized to prevent cruelty to children or animals), the current law reads almost identically to the 1894 version.<\/p>\n

Why do we exempt some groups, including religious groups, from tax? Theories range from the historical to the idea that they relieve the government from providing some services to the idea that this subsidy for public charities permits tax payers to directly control some portion of government spending to the idea that they (specifically, in this case, religions) are co-sovereigns and therefore not subject to the government\u2019s taxing jurisdiction. The tax exemption (for all tax-exempts, not just churches) is controversial. But it doesn\u2019t appear to be going away.<\/p>\n

Most public charities[fn4] have to file a (long and relatively complicated) application with the IRS in order to get their tax exemption; churches are unique in this regard. A church is automatically exempt, even with no filing. But even for churches, the exemption isn\u2019t free. A public charity can lose its exemption if it acts badly. The two most prominent ways it can act badly are by campaigning for or against a candidate for office and by engaging in too much lobbying.<\/p>\n

In general, the first proscription is pretty straight-forward. If a public charity, including a church, supports or opposes a candidate, it loses its exemption.[fn5]<\/p>\n

The lobbying is a tougher question. Basically, \u201cno substantial part\u201d of a public charity\u2019s activities can involve attempting to influence legislation. But how much lobbying constitutes \u201cno substantial part\u201d is a tricky line to draw. One court found that where less than 5% of a public charity\u2019s actions were devoted to influencing politics, the public charity didn\u2019t cross the \u201cno substantial part\u201d line. On the other hand, a couple of courts have found that ~16% crossed the line.<\/p>\n

And if a church were to lose its exemption, two things would happen. First, it would be taxable on its taxable income. Second, donors (in our case, those paying tithing, fast offerings, and other offerings that go in the tithing envelope) would no longer be able to deduct their donations in determining their taxable income.<\/p>\n

As a policy matter, it\u2019s certainly fair to ask whether public charities should be permitted to engage in politics at all, given their subsidy, or should be prevented from campaigning, given the First Amendment. It\u2019s fair to ask whether churches, charities, or the NCAA should be exempt from tax in the first place, and whether donations to such organizations should be deductible. It\u2019s even fair to argue about whether this church or that one crossed a line in its political participation. But, as a baseline, there\u2019s probably some value in knowing what the current rules are, where they came from, and how they\u2019re applied.<\/p>\n

[fn1] I should point out that I\u2019m only aware of one church ever losing its tax exemption over politicking.<\/p>\n

[fn2] To international readers, I\u2019m sorry. This is a US-centric post, mostly because I\u2019m familiar with the US tax law applicable to public charities, but not to any other country\u2019s laws. Of course, if you are non-US and you know how your country\u2019s tax law treats churches\/charities, I\u2019d love to hear about it in the comments.<\/p>\n

[fn3] Revenue Act of 1894, 36 Stat. 11 sec. 38.<\/p>\n

[fn4] I\u2019ll use \u201cpublic charity\u201d rather than \u201ctax-exempt organization,\u201d mostly because the rules for 501(c)(3) organizations are different from the rules for other entities that don\u2019t have to pay taxes.<\/p>\n

[fn5] It is not, of course, quite that straight-forward. On the margins, there is always the question of whose actions will be imputed to the tax-exempt. And what constitutes supporting or opposing a candidate. And, even if the entity clearly supports a candidate, the IRS has to discover the support and act on it. Nonetheless, this rule is about as bright-line as they come.<\/p>\n","protected":false},"excerpt":{"rendered":"

In light of the Church\u2019s recent policy statement banning some Church authorities from endorsing candidates, and the speculation that the Church\u2019s political neutrality derives from its desire to stay tax-exempt,[fn1] I thought I\u2019d present a brief primer on the tax exemption.[fn2] The Revenue Act of 1894 probably represents the birth of the modern federal income tax. An inauspicious birth, to be sure–it was struck down as unconstitutional in 1895–but the birth, nonetheless. True, it was enacted 19 years before the 16th Amendment permitted direct taxation (whatever that is), but it set the stage for the income tax to come. Including, it turns out, in the world of exempting public charities from tax. It provided that the income tax would not apply to \u201ccorporations, companies, or associations organized and conducted solely for charitable, religious, or educational purposes.\u201d [fn3] Although the list of entities that aren\u2019t taxed has expanded (among other things, the exemption now includes groups that foster amateur sports competition–read the NCAA–and that are organized to prevent cruelty to children or animals), the current law reads almost identically to the 1894 version. Why do we exempt some groups, including religious groups, from tax? Theories range from the historical to the […]<\/p>\n","protected":false},"author":138,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[1058,26,55],"tags":[],"class_list":["post-16287","post","type-post","status-publish","format-standard","hentry","category-guest-bloggers","category-law","category-news-politics"],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/timesandseasons.org\/index.php\/wp-json\/wp\/v2\/posts\/16287","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/timesandseasons.org\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/timesandseasons.org\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/timesandseasons.org\/index.php\/wp-json\/wp\/v2\/users\/138"}],"replies":[{"embeddable":true,"href":"https:\/\/timesandseasons.org\/index.php\/wp-json\/wp\/v2\/comments?post=16287"}],"version-history":[{"count":1,"href":"https:\/\/timesandseasons.org\/index.php\/wp-json\/wp\/v2\/posts\/16287\/revisions"}],"predecessor-version":[{"id":16288,"href":"https:\/\/timesandseasons.org\/index.php\/wp-json\/wp\/v2\/posts\/16287\/revisions\/16288"}],"wp:attachment":[{"href":"https:\/\/timesandseasons.org\/index.php\/wp-json\/wp\/v2\/media?parent=16287"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/timesandseasons.org\/index.php\/wp-json\/wp\/v2\/categories?post=16287"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/timesandseasons.org\/index.php\/wp-json\/wp\/v2\/tags?post=16287"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}