IRS Proposes Deal to Ignore Johnson Amendment for Churches

The Internal Revenue Service has joined with two Evangelical churches in Texas and the National Association of Religious Broadcasters in proposing a settlement of their litigation to overturn the so-called “Johnson Amendment” to the Tax Code that prohibits churches and other charities from endorsing or opposing candidates for public office.  (See Nonprofit Issues^®, Vol. XXXIV, No. 4)

The proposed settlement would provide that the Johnson Amendment “does not reach speech by a house of worship to its congregation, in connection with religious services through its customary channels of communication on matters of faith, concerning electoral politics viewed through the lens of religious faith.”  It would permanently enjoin the IRS from seeking to enforce the statute against the two plaintiff churches.

The National Association of Religious Broadcasters would effectively waive any claims it made in the suit.

The proposed settlement says that internal church communication is neither participation nor intervention in a political campaign “within the ordinary meaning of those words.” “Bona fide communications internal to a house of worship, between the house of worship and its congregation, in connection with religious services, do neither of these things, any more than does a family discussion concerning candidates” and “do not run afoul of the Johnson Amendment as properly interpreted.”

The Court did not immediately approve the settlement, but stayed further proceedings in the case while considering the proposal.

The reaction has been swift, with many in opposition to the effort to overturn 70 years of law. Statements opposing the proposal were issued by the U.S. Conference of Catholic Bishops saying that the ruling would not change its stance against endorsing or opposing candidates.  The Jewish community was more divided on the issue. Americans United for Separation of Church and State opposed the proposal and has asked to be allowed to intervene in the case, or at least be able to file an amicus brief, in opposition.

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The National Council of Nonprofits immediately called it “an assault on the bedrock principle that charitable organizations must remain nonpartisan in law, fact, and purpose” and “is not about religion or free speech, but about radically altering campaign finance laws.”  President Trump reportedly called the proposal “terrific.”

Nonprofit commentators have raised questions about the interpretation as applied to televangelists, and the meaning of “customary channels” of communication.  One complained that the settlement would spread widespread confusion without further specific guidance.  Others claimed that about 80% of the public does not favor churches endorsing or opposing candidates.  One professor said that the Declaratory Judgment Act specifically prohibits a declaratory judgment, which was specifically requested by the plaintiffs, on federal tax matters.  (National Religious Broadcasters v. Long, E.D. TX, No. 6:24-cv-00311.)

YOU NEED TO KNOW

There appears to be a way to go before this issue is fully decided.

President Trump signed an Executive Order in the first year of his first term seeking to limit IRS enforcement activity on the Johnson Amendment against churches.  (See Nonprofit Issues^®, April, 2017.) The IRS has generally been reluctant to enforce the provision in recent years, particularly against churches that have essentially asked for a test case to take to the Supreme Court, where many believe that the statute would be declared unconstitutional.

This Administration has obviously decided not to spend resources to enforce the Johnson Amendment against churches.  If this settlement is approved, another Administration might change that policy since it legally protects only two churches.  (Are other churches likely to file to get similar protection?  Perhaps as a class action?)

Even limiting the exclusion to churches, the move would add a lot of additional “dark money” to politics and, for the first time, make that dark money tax deductible.  (See Commentary: “Keep Charities Out of Politics”)

There was a huge jump in non-deductible dark money after the U.S. Supreme Court decided the Citizens United case allowing corporations, including 501(c)(4) social welfare corporations, to participate in elections.  No one should doubt that it wouldn’t happen here.

We should also watch to see if the IRS will try to use this settlement technique to get rid of the requirement for public charities to file Schedule B to the Form 990 tax return identifying major contributors to the organizations.  That requirement is being challenged in the Buckeye Institute case.  (See Nonprofit Issues^®, Vol. XXXIV, No. 1.) Trump already eliminated the requirement for non-charities to file Schedule B in his first Administration (See Nonprofit Issues^®, Vol. XXVIII, No. 3.) and would undoubtedly like to see it go for charities as well.