Q: Besides campaigning for a specific candidate, what other activities can jeopardize a church’s tax exempt status?
A: The IRS lists five activities that will jeopardize a church’s tax-exempt status in their Tax Guide for Churches & Religious Organizations. Only two of the five activities involve politics. As stated in the tax guide, “section 501(c)(3) organizations, including churches and religious organizations, must abide by certain rules:
- Their net earnings may not inure to any private shareholder or individual,
- They must not provide a substantial benefit to private interests,
- They must not devote a substantial part of their activities to attempting to influence legislation,
- They must not participate in, or intervene in, any political campaign on behalf of (or in opposition to) any candidate for public office, and
- The organization's purposes and activities may not be illegal or violate fundamental public policy."
Inurement and Private Benefit
Churches are not allowed to let the church’s income or assets inure to insiders. An insider is anyone who has a personal and private interest in the organization, and includes ministers, church board members, officers, and some employees. Inurement would include the payment of dividends, unreasonable compensation, or transferring property for less than fair market value.
Additionally, a 501(c)(3) organization’s activities must be directed toward charitable, educational, religious, or other exempt purposes. The tax guide explains the “beneficiaries of an organization’s activities must be recognized objects of charity (such as the poor or the distressed) or the community at large (for example, through the conduct of religious services or the promotion of religion).” This means, for example, that recipients of benevolence funds must have a bona fide need for the assistance.
Lobbying and Political Campaign Activity
Churches may not use a substantial part of their activities to influence or lobby for legislation. However, the tax guide states that churches “can involve themselves in issues of public policy without the activity being considered as lobbying.” For example, churches can conduct educational meetings and prepare educational materials like voter guides. However, churches and religious organizations are prohibited from participating in a candidate’s political campaign. Any public statement for or against a particular candidate is not allowed.
The Tax Guide for Churches and Religious Organizations has many more details, and includes examples of what is and isn’t allowed in these five areas. The guide can be downloaded from the IRS website and is a valuable resource.
