Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.
The High Cost of Free Exercise: All Saints, the Service, and Section 501(c)(3)
In the United States, religious organizations must choose between claiming a tax exemption and intervening in a political campaign. Section 501(c)(3) conditions a religious organization’s right to a tax exemption on refraining from intervention in political elections. The tax exemption frees charitable and religious organizations from income taxes and permits individuals to deduct their donations to section 501(c)(3) organizations. This tax-exempt status can be maintained only if: (1) “no substantial part” of the organization’s activities are targeted toward propaganda or influencing legislation; and (2) the organization “does 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 office.” Therefore, application of this law requires the Service to determine what is religion and what is politics.
Religion and politics are increasingly intertwined; churches are ceasing to recognize the bright-line distinction upon which section 501(c)(3) depends. During the 2004 elections, for example, the Archbishop of Boston Sean O'Malley threatened to deny communion to United States Senator John Kerry because of his support for abortion rights. On June 22, 2006, in his first homily as Archbishop of Washington, D.C., Donald Wuerl committed himself to including a “religious position in all of the discussions and debate[s] that help mold our culture and society.” He declared that “bishops have a responsibility to speak out on public policy” and that the “voice of the Gospel must be heard in any discussion that involves human dignity.” The 2008 political season has strong religious currents. Indeed, the Service is investigating United States Senator Barack Obama’s Church, the United Church of Christ, for potential violations of the political nonintervention requirements of section 501(c)(3).
In such a climate, the Service finds itself in the position of enforcing a statute that unconstitutionally requires it to declare where religious beliefs end and secular politics begin. The government cannot constitutionally declare the scope of religious doctrine.
Although section 501(c)(3) is a half-century old, the statute has never faced a constitutional challenge to its bright-line distinction between religion and politics. However, the Service’s recent conflict with All Saints Episcopal Church in Pasadena, California raises the specter of such a challenge. The validity of the political activity prohibitions of section 501(c)(3) rests on the assumption that religion can at all times be conceptually severed from politics, which was impossible in the All Saints conflict. All Saints asserted that religious doctrine motivated its political intervention; so while the specific conflict seems to have been resolved, the case still sounds the death knell for the political activity prohibitions of section 501(c)(3). When political intervention is religiously compelled, enforcement of section 501(c)(3)’s political nonintervention requirements will not be constitutional.First, this Note details the conflict between All Saints Episcopal Church and the Service. Second, it delineates the qualifications for section 501(c)(3) status and the statutory path to political participation. Third, it argues that in the unique condition of religiously motivated political intervention, enforcement of section 501(c)(3) is outside the government’s constitutional tax authority. Fourth, it argues that even if those limitations are no bar, the Free Exercise Clause presents a more stringent challenge. Fifth, it considers the traditional arguments the Service has put up to defend section 501(c)(3), discusses why they are inapplicable to All Saints, and offers a solution that would focus section 501(c)(3) enforcement on expenditures, rather than conduct.