Order Code RS21549
Updated June 15, 2004
CRS Report for Congress
Received through the CRS Web
Campaign Activity by Churches: Legal
Analysis of Houses of Worship Free Speech
Erika Lunder, Marie B. Morris, and L. Paige Whitaker
American Law Division
Churches and other Internal Revenue Code (IRC) Section 501(c)(3) tax-exempt
organizations can lose their tax-exempt status if they participate in a political campaign.
The Houses of Worship Free Speech Restoration Act, H.R. 235 (108th Congress) would
permit churches to engage in unlimited amounts of certain types of political campaign
activity without jeopardizing their tax-exempt status. It would amend the IRC so that
churches could not lose their tax-exempt status “because of the content, preparation, or
presentation of any homily, sermon, teaching, dialectic, or other presentation made
during religious services or gatherings.” H.R. 235 is similar in purpose to the Houses
of Worship Political Speech Protection Act, H.R. 2357 (107th Congress), although the
107th Congress bill took a different approach. H.R. 2357 received a floor vote on
October 2, 2002, and failed to pass by a vote of 178 to 239.
H.R. 4520 (108th Congress), the American Jobs Creation Act of 2004, had included
a provision addressing the participation of churches in political campaign activity, but
the Committee on Ways and Means struck the provision by unanimous consent on June
14, 2004. The provision, former section 692 (Safe Harbor for Churches), would have
codified existing law on the consequences to churches of statements made by religious
leaders as private citizens, allowed churches to make a limited number of unintentional
violations of the political campaign activity prohibition without jeopardizing their taxexempt status, and imposed a sanction on unintentional violations of the prohibition.
These provisions appear to respond to Branch Ministries v. Rossotti, 211 F.3d 137
(D.C. Cir. 2000), where the U.S. Court of Appeals for the D.C. Circuit upheld the
authority of the Internal Revenue Service (IRS) to revoke the tax-exempt status of
churches that engage in prohibited campaign activities. This report provides an
overview of current tax and campaign finance law relevant to this legislation, a
discussion of how H.R. 235 (108th Congress), H.R. 4520 (108th Congress), and H.R.
2357 (107th Congress) would amend current law, and a comparison of the three bills.
This report will be updated as developments occur.
Congressional Research Service ˜ The Library of Congress
Churches and religious organizations are among several types of organizations
exempted from federal income taxes by § 501(c)(3) of the Internal Revenue Code (IRC).
Among the requirements for tax-exempt status is the requirement that the § 501(c)(3)
organization must not
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
This is viewed as an absolute prohibition, violation of which can result in loss of taxexempt status. For example, in Branch Ministries v. Rossotti, 211 F.3d 137 (D.C. Cir.
2000), the U.S. Court of Appeals for the District of Columbia Circuit upheld the Internal
Revenue Service (IRS) revocation of the exempt status of the Church at Pierce Creek in
Binghamton, New York. The church and its pastor had placed a full-page political
advertisement in two national newspapers four days before the 1992 presidential elections
and had suggested that tax-deductible contributions would be accepted to pay for the
While the Branch Ministries case underlined the point that a church can lose its
exempt status for participating in a campaign, there is a distinction between political
campaign activities and simple political activities. Under the tax laws, political campaign
activities include those activities that are specifically linked to election periods and
support or oppose particular candidates. Examples of prohibited political campaign
activities include endorsing or opposing particular candidates; evaluating candidates and
supporting a slate of the best-qualified candidates; preparing and distributing voters’
guides during an election where the questions asked or the presentation of the information
indicate a bias on certain issues; and making contributions to a political campaign.
It should be noted, however, that many types of political activities that are not
“campaign activities” are permitted to some extent. The key distinction is that noncampaign political activities cannot support or oppose a particular candidate. Permissible
political activities under the IRC, so long as no candidate is endorsed or opposed, include
educational activities, such as conducting public forums at which social, political, and
international questions are considered; compiling voting records of Members of Congress,
so long as the record is not widely distributed to the general public during an election
campaign; publishing candidate responses to a questionnaire on a variety of subjects;
issuing report cards that indicate whether legislators support or oppose the organization’s
views; issue advertising (this is usually considered lobbying); nonpartisan public opinion
polling; non-partisan voter registration drives meeting the requirements of IRC § 4945(f);
and lobbying for or against the appointment of nonelective officers, such as judges.
While these non-campaign political activities are not prohibited, some of these activities
may cause the organization to be subject to one or more taxes. Under IRC § 527(f), a tax
can be imposed on the lesser of (a) the amount spent on “exempt function” (i.e., political)
activities as defined in IRC § 527 or (b) its net investment income. Under IRC § 4955,
excise taxes measured by a percentage of the amounts spent on political expenditures (as
defined in that Code section) can be imposed on the managers of the organization and on
the organization itself. IRC §§ 4911 and 4912 impose excise taxes measured by the
amounts the organization spends on “excess” or “disqualifying” lobbying expenditures,
In sum, there are political activities that churches and other § 501(c)(3) organizations
can engage in without jeopardizing their exempt status, such as taking a stand on
particular issues or legislation and providing education on particular issues, but
participating in an election campaign by endorsing or opposing or contributing to
particular candidates is not permissible under current tax law.
Campaign Finance Law.
The current Federal Election Campaign Act (FECA),2 which governs the raising and
spending of campaign funds, does not perfectly parallel the tax law. FECA generally
prohibits corporations from directly making contributions and expenditures in connection
with federal elections.3 Unincorporated organizations, however, are not prohibited by
FECA from making such contributions and expenditures. The recently enacted
“Bipartisan Campaign Reform Act of 2002,” (BCRA), P.L. 107-155, which amends
FECA, further bans corporations, including tax-exempt corporations, from funding
“electioneering communications,” which it defines as broadcast communications that
“refer” to a federal office candidate within 60 days of a general election and 30 days of
a primary; the constitutionality of this provision of the new law, however, is under review
by the U.S. Supreme Court.4 The new Federal Election Commission (FEC) regulations
promulgated under BCRA carved out an exception to this prohibition for IRC § 501(c)(3)
nonprofit corporations5 on the theory that the Internal Revenue Code already prohibits
such organizations from funding such advertisements.6
For a more complete discussion of this topic, see Kindell, Judith E. and Reilly, John Francis,
Election Year Issues, Exempt Organization Continuing Professional Educational Technical
Instruction Program for Fiscal Year 2002 at [http://www.irs.gov/pub/irs-tege/topici02.pdf].
2 U.S.C. § 431 et seq.
2 U.S.C. § 441b(a)(2002). Corporations may make expenditures to communicate with
stockholders and executive or administrative personnel and their families, to engage in
nonpartisan voter registration or get-out-the-vote campaigns aimed at stockholders and executive
or administrative personnel and their families, and to establish, administer, and solicit
contributions to a separate segregated fund for political purposes (also known as a political
action committee or PAC), 2 U.S.C. § 441b(b)(2).
2 U.S.C. § 441b (2002). The constitutionality of this section of the newly amended FECA is
under review by the U.S. Supreme Court, which will hear oral argument in the case on September
8, 2003, McConnell v. FEC (No. 02-1672). For information about the case, see, the CRS
Campaign Finance Electronic Briefing Book, [http://www.congress.gov/brbk/html/ebcam50.html]
and the Supreme Court BCRA case website, [http://www.supremecourtus.gov/bcra/bcra.html].
11 C.F.R. § 114.10 (2003).
However, it is not clear that the Internal Revenue Code or current IRS regulations would
necessarily treat all broadcasts that meet the definition of “electioneering communications” as
campaign intervention. It may be that the future IRS regulations will be informed by the FECA
In addition, in the 1986 decision, FEC v. Massachusetts Citizens for Life, Inc.
(MCFL),7 the Supreme Court held that the prohibition on corporations using their
corporate treasury funds to make contributions and expenditures in connection with
federal elections could not constitutionally be applied to certain non-profit corporations.
Under MCFL, certain nonprofit, nonstock corporations are permitted to spend treasury
funds to make contributions and expenditures in connection with federal elections if: (1)
the corporation is formed for the purpose of promoting political ideas and does not engage
in business activities; (2) the corporation has no shareholders or other affiliates with an
economic incentive to remain associated with the corporation when they disagree with its
political activities; and (3) the corporation is not established by a business corporation and
does not accept contributions from business corporations.8
How Legislation Would Change Current Law
H.R. 2357 (107th Congress). H.R. 2357 would have amended IRC § 501(c)(3)
to except churches and church auxiliaries from the absolute prohibition on participation
or intervention in a political campaign and added language which would have measured
churches’ political campaign activities by the same “no substantial part” test that is used
for lobbying activities of all 501(c)(3) organizations; i.e., “no substantial part” of
churches’ activities could be “participating in, or intervening in (including the publishing
or distributing of statements), any political campaign on behalf of (or in opposition to) any
candidate for public office.” The bill would have applied to expenditures made after the
date of enactment. Since the bill did not include a numerical test, each church or related
organization would have been judged on a case-by-case basis as to whether or not its
campaign activities were a substantial part of its activities as a whole.
H.R. 235 (108th Congress). H.R. 235 takes a different approach from H.R. 2357
(107 Congress). Instead of amending IRC § 501(c)(3), section 2 of the bill would add
a new subsection, IRC § 501(p), under which churches, their integrated auxiliaries, and
conventions or associations of churches would
not fail to be treated as organized and operated exclusively for a religious purpose, or
to have participated in, or intervened in any political campaign on behalf of (or in
opposition to) any candidate for public office, for purposes of subsection (c)(3), or
section 170(c)(2) (relating to charitable contributions), because of the content,
preparation, or presentation of any homily, sermon, teaching, dialectic, or other
presentation made during religious service or gatherings.
Section 3 of the bill provides that nothing in section 2 of the bill would permit any
disbursements for electioneering communications, or political expenditures, prohibited
in the Federal Election Campaign Act of 1971, as amended and section 4 of the bill
provides that the amendments made by the act would become effective as of the date of
regarding what activities constitute campaign intervention, but there is no requirement that they
479 U.S. 238 (1986).
Id. at 264.
H.R. 4520 (108th Congress). The provision in H.R. 4520 was markedly different
from the other two bills. The Committee on Ways and Means struck the provision,
former section 692 (Safe Harbor for Churches), by unanimous consent on June 14, 2004.
The provision would have added a new subsection, IRC § 501(q), under which churches,
their integrated auxiliaries, and conventions or association of churches would not have
been treated as participating in a political campaign solely because of certain statements
made by their religious leaders. The church would not have lost its tax-exempt status
under IRC § 501 or its eligibility to receive deductible contributions under IRC § 170, and
would not have been subject to the existing excise tax in IRC § 4955 or the proposed
excise tax in IRC § 4956 (discussed below). The statement would have needed to be
clearly identified as have been made by the religious leader in his or her capacity as a
private citizen and not on the behalf of or in representation of the church. The statement
could not have been made in an official publication of the church, made at “an official
function” of the church, or paid for by the church.
Also under the new subsection, churches and related organizations that
unintentionally participated in a political campaign would not have lost their tax-exempt
status or eligibility to receive deductible contributions unless the organization or its
religious leaders had done so on more than three separate occasions during the calendar
year. This rule would not have applied to any activity that was an intentional disregard
by the church or its religious leaders of the prohibition on political campaign activity.
Regardless of the number of unintentional violations, the church would have been subject
to the existing excise tax in IRC § 4955 and the proposed excise tax in IRC § 4956
H.R. 4520 would also have added a new section, IRC § 4956, that would have
imposed an excise tax on churches and related organizations that unintentionally violated
the prohibition on political campaign activity. The amount of tax owed would have
depended on the number of times the church had unintentionally violated the prohibition
during the calendar year. If the church had at least three violations, then the sanction
would have equaled the highest corporate tax rate multiplied by the church’s gross
income. If the church had two violations, then the sanction would have equaled that
amount divided by two. If the church had one violation, then the sanction would have
equaled the full amount divided by 52. The amount of tax owed would have been reduced
by any amount imposed for the existing excise tax in IRC § 4955.
Comparison Between H.R. 2357 (107th Congress), H.R. 235 (108th
Congress), and H.R. 4520 (108th Congress)
Unlike H.R. 235 (108th Congress), H.R. 2357 (107th Congress) would not have
limited the type of political campaign activities that a church could engage in while still
maintaining its tax-exempt status, but would have required that political activities not be
a substantial part of the activities of a church. Although “no substantial part” is a flexible
standard, that test would prevent a church from being organized to conduct political
H.R. 235 (108th Congress) is narrower than H.R. 2357 (107th Congress) in that it
limits the type of activities permitted, but it is broader in the sense that there is no cap on
the number of activities that could be permitted. Under H.R. 235 (108th Congress), the
permitted campaign-related activities would have to occur in the “content, preparation,
or presentation of any homily, sermon, teaching, dialectic, or other presentation made
during religious service or gatherings,” but any number of these kinds of activities could
be conducted provided they were part of the presentation at a religious gathering. This
language would preclude a church from making campaign contributions or paying for fullpage endorsement advertisements such as that sponsored by the Church at Pierce Creek.
However, this language would permit any activity that could be deemed part of a sermon
or other presentation during a religious service. As such the bill would appear to permit
activities such as express endorsement or opposition to a candidate for public office
during a sermon; requests that contributions be made directly to the candidate’s
committee or other political organizations; directions for individual contributions of
services to political campaigns; and exhortations to vote for particular candidates. Under
the bill, a church could probably reprint the sermon or minutes of the gathering and mail
them to church members as corporations are permitted to communicate with stockholders
under 2 U.S.C. § 441b(b)(2).9 Broadcasting sermons by incorporated churches containing
endorsements would appear to be prohibited under the language of BCRA as an
“electioneering communication,” but the FEC regulations have interpreted broadcasts by
§ 501(c)(3) nonprofit corporations as exempt from the definition of “electioneering
communication.” It is unclear how this might impact the interpretation of H.R. 235 (108th
Unlike H.R. 2357 (107th Congress) and H.R. 235 (108th Congress), H.R. 4520 (108th
Congress) would not have allowed churches to intentionally participate in political
campaign activity. Instead, under H.R. 4520, a church could have made a limited number
of unintentional violations of the prohibition against political campaign activity without
losing its tax-exempt status. The types of activity giving rise to the violations would not
have been restricted as in H.R. 235, but the violations would have needed to be
unintentional and limited to three per calendar year. Whether a violation was
unintentional would have depended on the facts and circumstances of each case. H.R.
4520 would also have codified existing law that religious leaders may participate in an
unlimited amount of political campaign activity in their capacity as private citizens.
Neither H.R. 2357 nor H.R. 235 address this issue.
Unincorporated churches are not subject to the FECA restrictions on corporations.