501(c)(3) organizations enjoy certain tax benefits, namely exemption from federal income tax and the ability to receive tax-deductible charitable donations. However, the trade-off is that these organizations are subject to increased regulation and restriction of their activities—one notable restriction being their inability to conduct partisan campaign activity. This restriction has been a topic of much discussion lately, with President Trump’s recent promises to eliminate it and opponents expressing concern over any such move. This post will discuss the political activity restriction, its criticism, and arguments for keeping it in place.
Background on Restriction. The Tax Code is clear that a 501(c)(3) exempt organization cannot “participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.” This prohibition was put in place in 1954 and is referred to as the Johnson Amendment, because then-Senator Lyndon Johnson pushed the amendment through Congress to quiet a conservative nonprofit group working on the side of his election opponent. The consequences for violating the Johnson Amendment prohibition are severe—even a de minimis violation constitutes a basis for revocation of 501(c)(3) status.
There are many ways a 501(c)(3) organization can violate the prohibition on political campaign activity, but the clearest way is to contribute financially to a political campaign. This includes not only direct monetary contributions to a campaign, but also less direct contributions, such as allowing a candidate to use facilities or resources of the organization. It also prohibits organizations from making communications in support of, or in opposition to, candidates for office. This is what the Johnson Amendment is best known for—ostensibly limiting religious leaders from advocating from the pulpit for candidates for public office who share their values.
Criticism of Restriction. The Johnson Amendment, and specifically its impact on religious organizations, has been the subject of much debate over the years. Those in favor of repealing the Amendment generally argue that it is an impermissible limitation on free speech, and they have become increasingly brazen in recent years in order to force the issue. One example is the Pulpit Freedom Sunday movement, where participating churches preach on political issues and candidates in intentional violation of the Johnson Amendment. The churches then send videos of their sermons to the IRS, trying to provoke enforcement, which would enable them to challenge the Amendment on freedom of speech grounds in court. Although IRS enforcement of the Johnson Amendment has been lackluster at best (e.g., it has not attempted to revoke exemption on the basis of videos submitted by churches involved in Pulpit Freedom Sunday movement), in at least one case, a church in New York did lose its exemption in 1992 for political activity after it took out a full page newspaper advertisement in opposition to President Clinton’s re-election four days before the election. The Amendment has survived court challenges in 1983, 1990 and 2000, which is why some opponents feel the better route for challenging it is through legislation and not the courts.
It would appear repeal advocates have found a champion in President Trump. At the National Prayer Breakfast on February 2nd, President Trump reiterated his campaign pledge to repeal the Johnson Amendment, saying “I will get rid of and totally destroy the Johnson Amendment and allow our representatives of faith to speak freely and without fear of retribution.”
Support for Keeping Restriction in Place. Advocates of the Johnson Amendment believe that introducing political activity to the charitable sector will only serve to undermine the mission-related work of charitable organizations. They point to the aftermath of the Citizens United decision as an example of how repeal would undermine the sector. In other words, if charities are allowed to get involved in politics, enormous sums of so-called “dark money,” which allows donors to remain anonymous, will flow into charitable organizations. The donations would be tax deductible under Section 501(c)(3), an additional benefit that makes the charity an even more attractive option than the Section 501(c)(4) vehicle commonly used today. It is feared that pressure from wealthy donors on charities to take political positions in line with their values would grow. As charitable organizations and politics become inextricably intertwined, the public’s distrust of politicians and politics will inevitably cast a shadow on the charitable sector.
Similarly, BoardSource recently submitted a position paper, arguing to keep the Johnson Amendment in place. The paper points out that 501(c)(3) organizations are allowed to participate in policy advocacy, and in lobbying to a certain degree (apart from private foundations). However, it makes the point that “electioneering,” or participating in election-related activity, is a large departure from 501(c)(3)’s public benefit requirements. It further argues that this departure will result in politicization of nonprofits, and will spiral out of control quickly.
Despite the sweeping nature of the President’s language, leaders in Congress have taken a more measured approach, perhaps in an effort to get bipartisan support, and introduced a bill that doesn’t completely repeal the Johnson Amendment. The Free Speech Fairness Act introduced by Senator Lankford and Representative Hice earlier this month, would allow for speech that is made “in the ordinary course of the organization’s regular and customary activities,” so long as the organization does not incur “more than de minimis incremental expenses” for the speech. This means that speech about candidates and elections can be added to whatever a tax-exempt organization is currently doing as long as the organization does not incur more than an insignificant additional cost. The Free Speech Fairness Act does not completely repeal the Johnson Amendment, however, as tax-exempt organizations will still be prohibited from making campaign contributions to candidates or parties. Repeal advocates hope that this more limited modification will lessen fears around a Citizens United scenario that would impact the 501(c)(3) charitable sector negatively.
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Schauble Law Group will be following developments, as debate over the Johnson Amendment is sure to heat up in Congress over the coming months. But for now, 501(c)(3) organizations remain prohibited from participating or intervening in political campaigns on behalf of or in opposition to any candidate for public office.
For our previous blog post regarding acceptable political activities of tax-exempt entities, click here.
