Managing Threats to Your Tax-Exempt Status
by Gary McCaleb
Senior Counsel, Alliance Defense Fund

 

Have you ever thought about the impact it would have on your church to lose its tax-exempt status?  There are many and growing examples of churches that have either had the status threatened or revoked.

 

With politicians to the right of us and politicians to the left—one would think it is already November 2008.  The daily news is dominated by stories of presidential hopefuls, “hate crime” legislation, and a host of other political issues.  And when politics permeates our culture as it does, it can sometimes create tensions for your church—as numerous cases have recently demonstrated.

 

Indeed, the 2008 elections raise profound questions on matters of war and peace; adoption and abortion; marriage and same-sex “marriage”; poverty and health care; and the role of faith in public life.  Some pastors may be deterred from speaking biblical truth for fear that their church’s federal tax-exempt status would somehow be endangered.  But consider the result of godly voices being silenced while secular voices are amplified in the public square.  Accepting this would deprive the church of its high calling to be “salt and light” to the world.

 

The Alliance Defense Fund’s mission is to defend the right to hear and speak the Truth of God’s word at all appropriate times and places—and yes, that includes election time.  Of course, some pastors may seem to dwell more in politics than doctrine.  But the good news is that churches very seldom “cross the line” in respect to their tax-exempt status.  The bad news is that any number of agitating special interest groups are happy to report what they think is a tax code violation to the IRS.

 

Unfortunately, official IRS investigations may be launched based on no more than inaccurate hearsay submitted to the IRS by such agitators.  For example, after the 2004 elections, activist groups engineered IRS investigations against churches and Christian ministries in Minnesota, Pennsylvania, South Dakota, Maryland, and Oregon.  These investigations consumed a huge amount of ministry time and resources, left each ministry’s tax-exempt status in limbo for months, and subjected very good ministries to very bad publicity.

 

In ADF’s experience, these investigations seldom detect any significant wrongdoing—yet by the time that the IRS exonerates the ministry, the damage to the ministry’s mission and reputation is done.  And bear in mind that these “violation” reports are not about some noble cause to ensure that we all pay our fair share of taxes—it’s about scaring churches into silence.  It is a powerful spoiling tactic that pastors will see used again and again to silence Christian voices.

 

So this year, when you see media reports of another “IRS crackdown” on ministries, be prepared to stop these "bare scare" tactics in their tracks.

 

It’s really quite simple—all a pastor needs to do is to keep two things straight:  what you can do on issue advocacy (such as legislative bills and voter initiatives), and what you cannot do in regard to political candidate campaigns.

 

On legislation, federal tax law allows a church to spend about 5% (in some cases, up to 20%) of its total resources on direct lobbying for legislation—including local, state, and federal legislation, and voter-initiated matters.  When it comes to legislation, you certainly have the right to expressly urge your congregation to consider what bearing Scripture has on the issues and to vote accordingly.  Plainly stated, there is nothing in federal tax law to prevent a pastor from directly encouraging people to support legislation that the church believes to be beneficial to the community—or oppose those proposals that would undercut the community.

 

In contrast, IRS regulations flatly prohibit tax-exempt organizations—including churches—from intervening in a candidate’s campaign.  This means that churches, or pastors acting in their official capacities, cannot support or oppose a political candidate.  However, church leaders remain free to address the issues from the pulpit, and engage in non-partisan efforts to educate their congregations through distributing voter guides, register voters, or host candidate forums.

 

Excellent public policy information is available from the Family Research Council at www.frc.org.  If you need legal advice on a specific situation, you may contact the Alliance Defense Fund at 800-TELL-ADF, or you can use the “Need legal help?” link on the ADF website, www.telladf.org.  (Note that ADF’s services are provided without charge or obligation.)

 

Perhaps the most important thing a pastor can do to protect the local church is to have clear written policies to implement these guidelines.  Whether a church made an effort to comply with the law (and a good policy is great evidence of this) is one of the first things an IRS agent looks for.  Similarly, once the policy is in place, enforce it.  For example, if an employee inadvertently forwards a “vote for John Doe” email to the church mailing list, a wise pastor would counsel the employee and send out a corrective email.  Then he would document what was done, in case the IRS comes calling.  It is wise to use legal counsel when drafting the policies, and in many cases ADF volunteer attorneys (almost a thousand nationwide) may be able to provide free legal assistance.

 

In closing, I encourage you to consider this election season as a special opportunity to impact culture, lift up righteousness, advocate for justice, minister to the needy, and speak up for God’s Truth. We should not hesitate to speak—and certainly should not refrain from speaking based upon misperceptions of government regulations. May God bless you and your church with wisdom and boldness as you preach God’s Word in all its fullness.

 

Gary McCaleb is senior counsel with the Alliance Defense Fund .