Churches, Campaigns, and Taxes: The 411 on 501(c)(3)

There has been a resurgence of interest in the question of which groups may or may not explicitly support and endorse candidates for election.  In particular, some church groups have begun to provide explicit endorsements of specific political candidates, and a lawsuit was recently filed seeking to force the IRS to enforce the requirement that these groups not participate in “any political campaign on behalf of (or in opposition to) any political candidate.”

The question I want to address in this post is pretty simple, but one that seems to me to be frequently overlooked.  It is captured by the (typical) title of the following article: “Churches Risk Tax-Exempt Status to Endorse Candidates.” The title seems to imply that a church must choose between paying taxes and staying apolitical.  But this isn’t true, is it?  (Although the phrase “no representation without taxation” is catchy and fittingly consumerist, in my opinion.)

Well, given that I’m still typing this post, you can probably guess correctly that the answer is, “no, a group can be tax-exempt and politically active.”  In particular, clearly political groups such as the, EMILY’s ListPartnership for America’s Families, and the  College Republican National Committee are all tax-exempt.  These four are so-called “527 groups,” which are generally permitted to engage in political activities (e.g., voter information, issue advocacy) but not endorsement of specific candidates. The 527 classification also applies to political action committees (PACs), which essentially represent the “political bank accounts” of various political parties, candidates, and anyone else interested in accepting donations to use in support of specific candidates.  (Things get a little confusing here, as these groups are subject to campaign finance laws in addition to the tax code.)

In addition, some clearly political groups are classified as 501(c)(4) groups, including the ACLU and the Sierra Club.  These groups are tax-exempt and prohibited from endorsing political candidates.  Things are a little complicated regarding how much lobbying these groups can do, but presumably the main reason that churches do not consider reclassifying themselves as 501(c)(4) is that, in general, donations to 501(c)(4) groups are not tax-deductible.  Similarly for 527 groups who, in addition, must generally make public where their donations come from (this has caused an increase in the use of 501(c)(4) groups in “issue advocacy” in the most recent election cycle).

My point, then, is that the question at hand is not, really, about religious freedom.  As a rule, the federal government doesn’t tax churches. (In fact, a church doesn’t even need the 501(c)(3) status to be both tax exempt and for donations to the church to be tax-deductible.) Rather, there are two questions at play in this debate, both about campaign finance.

First, should taxpayers be subsidizing political donations?  Currently, donations to (say) the ACLU or the Republican National Committee are “post tax,” meaning that they cost me the full freight in terms of foregone mad money.  A donation to a church is “pre tax,” implying that my donation costs me only about 65% of my mad money.

Second, should churches play a central role in campaign finance regulation? Donations to PACs and other 527 groups are not tax-deductible.  Allowing churches to endorse and otherwise directly support candidates for election implies that it is cheaper for a voter to support his or her favored candidates by giving to a church that supports the candidate.  In addition, churches are (appropriately) not required to make public their donors or sizes of their donors’ individual donations.  So, allowing churches to become directly involved in elections would completely gut campaign finance reform as we currently “do it.”

Additionally, note one final key point: churches are already allowed to engage in issue advocacy, and I personally think churches should do so for a variety of reasons.  In this regard, churches are already given special dispensation under the tax code, relative to most other 501(c)(3) groups.  Thus, to charge that the tax code is somehow infringing on religious freedom is simply disingenuous.  The separation of church and state goes both ways, after all.

With that, I leave you with this.