Political Silence at Church: The Empty Threat of Removing Tax-Exempt Status for Insubstantial Attempts To Influence Legislation

Brigham Young University Law Review, 2006 by Andersen, David M

A. The Tax-Exempt Status of Churches and the Origins of the Political Speech Restrictions

1. Tax-exempt status of a 501 (c) (3) organization

A 501(c)(3) organization is a nonprofit entity that is exempt from paying taxes under § 501(c)(3) of the Internal Revenue Code. Tax-exempt status essentially refers to two concurrent conditions that exist as long as these organizations do not violate the tax code's restrictions: (1) these organizations are generally exempt from paying taxes23 and (2) those who donate to these organizations may receive a deduction for their contribution.24 Distinguishing these two conditions is critical because each raises different policy concerns when evaluating the relationship between tax-exempt status and the current political speech restrictions.25 Much of the case law in this area arises under the deduction category because individual taxpayers have the burden of proving that tax-exempt entities qualify as such.26

Congress has afforded churches significant tax benefits that are not available to other traditional nonprofit organizations. Foremost among these benefits is the fact that churches automatically qualify for tax-exempt status under § 501(c)(3).27 As a result, the tax code does not require them to apply for and obtain formal recognition of their tax-exempt status.28 Thus, by traditional default, churches are generally not part of the federal tax base.29 In addition to automatic tax-exempt status, churches enjoy other tax privileges. For example, churches are subject to less stringent annual reporting and filing requirements,30 churches benefit from specific rules limiting the IRS's authority and opportunity to audit churches,31 and churches are exempt from certain unemployment taxes.32 The unique tax treatment of churches33 as compared to other nonprofits is an acknowledgement by Congress of the special role of religion in the United States. As the IRS has observed,

Congress has enacted special tax laws applicable to churches, religious organizations, and ministers in recognition of their unique status in American society and of their rights guaranteed by the First Amendment .... Churches and religious organizations are generally exempt from income tax and receive other favorable treatment under the tax law . . . .34

2. History of church tax-exempt status and the political speech restrictions

The general history of churches' tax-exempt status in the United States and the subsequent restrictions placed on tax-exempt entities provide a foundation for the modern debate over church political speech. Tax exemptions for churches under the federal tax system existed as early as 1798.35 In 1894, Congress passed the first income tax on corporations but exempted from the tax those "corporations, companies, or associations organized and conducted solely for charitable, religious or educational purposes."36 Congress later completed the second prong of tax-exempt status in 1917 by allowing a charitable tax deduction for contributions made to "corporations or associations organized and operated exclusively for religious, charitable, scientific, or educational purposes."37 At that time, the only restriction against such organizations was that "no part of the net income" of such charitable organizations could "inure[] to the benefit of any private stockholder or individual."38