Benevolence is identifying and meeting the needs of individuals that they cannot meet themselves. Individuals often call upon churches when they are broke. The most common requests include food, utilities, rent, medical expenses and transportation. But they can range from the compelling to the absurd. For example, one individual asked the church to provide school supplies so their children could attend school, while another asked the church to provide a Lexus automobile so he could land an outside sales job. From a stewardship perspective, the church should separate the reasonable from the unreasonable.

Here I will restrict benevolence to financial needs, since the IRS is most concerned about the money. Financial need may be met with cash or in-kind helps. This definition is broken into two requirements: needs and recipient resources. The church must document in writing that all benevolent expenditures meet both requirements.

The issue of need
The term “need” remains undefined in the tax authorities. So, churches usually resort to the dictionary when they must define “need.” Webster’s dictionary says that “need” equals “necessity.” Necessity usually includes food, shelter, clothing, transportation and health care expenses. For example, assume a single mom approaches the church about her need — her unpaid electric bill. Since electricity is needed in most residences, the church may consider this a need.

Of course, need is subjective. A church should not consider a request for $200 sneakers a need, though it fits the clothing category. On the other hand, providing modestly priced shoes would clearly fit within the definition of a “need.”

Needs get more complicated because some needs do not fit neatly into any category. For example, a child “needs” to participate in sports, but the family lacks the resources to buy the equipment. Another example: a welfare mom “needs” childcare to work. The church may adopt a written policy that gives guidance to the staff administering the programs.

The church should document that the request represents an unmet need. For example, the church could call the landlord and verify that last month’s rent is still unpaid. The church’s employee should prepare a memo to the file to reflect the conversation.

Benevolence gets more complicated when talking about a business need. The IRS has opined that a business can never receive church benevolence. Regardless whether this is confirmed later in court, every church should consult with competent legal counsel before giving a business any benevolence payment.

The issue of resources
The recipient of benevolence must lack the resources to meet the need. This test is related to the type of need being considered. For example, if a tornado destroyed an individual’s house today, the test would be whether that individual had the resources to find a room for the night. On the other hand, if the individual’s house was destroyed weeks ago, then the test is whether that individual can afford substitute housing until his home is rebuilt. In the first instance, the availability of insurance is not relevant, while in the second instance, the availability of insurance is very important.

Most churches accept a tax return or paycheck stub as proof of resources. Sometimes a copy of a bank statement is required. Again, many times the church will also require the recipient to sign a statement where the recipient represents that they lack the resources to pay the need.

Discretionary accounts. Many churches maintain a minister’s discretionary fund for benevolence. If the minister does not account for this fund or is the sole signer on the account, then all amounts placed in the account are taxable income to the minister. To prevent the minister being taxed on this account, the account should require at least two signatures and the minister should account for the expenditures just like the church’s other benevolence expenditures.

Repeat requests. Nearly every church has at least one person who is continually in need, or at least continually requests assistance. The IRS grows concerned when the benevolence assistance is regular and continuous. If the person also volunteers at the church, the IRS will likely claim that the payments were wages. If the payment is substantial, the IRS will likely claim that the person is receiving a private benefit, jeopardizing the church’s tax-exempt status.

Every church should use extreme caution when the benevolence payment is substantial or regular. In one case that I handled, the IRS claimed that the church’s monthly payments to a widow for the last three years constituted taxable compensation due her deceased minister/husband. In another case, the IRS claimed that $20,000 exceeded any possible needs. The IRS takes a very hard line in these circumstances, so the church should consult with competent legal counsel if either circumstance arises.

Employee benevolence. For better or worse, churches seem to attract needy employees. They may need their car repaired or have serious uninsured medical expenses. The Internal Revenue Code requires all benevolence payments provided to employees be taxed. The church must add the amount of the benevolent payments to the employee’s Form W-2, and if nonclergy, withhold all payroll taxes like the payment was wages. It makes no difference if the payment is direct or indirect, like to the employee’s doctor.

As a result, “love offerings,” pastoral appreciation gifts, Christmas gifts, anniversary gifts and birthday gifts that flow from the church to the church employee are always taxable. Even retirement gifts are taxable to the recipient. No exceptions to this rule exist.

If the church pays a benevolence payment to a “control person,” then the tax consequences get more complicated. If the IRS decides that the payment did not represent a true “need,” then the payment may represent an excess benefit transaction, subjecting the control person and the board or committee to an excise tax that can range from 10 percent to 200 percent, plus requiring the control person to repay the benevolent payment. A control person is generally someone having substantial authority within the church. It’s clear that the senior minister, the treasurer, the business administrator or executive minister is treated as a control party. The ministers on staff that have substantial authority over a significant part of the church are likely to be control parties. Volunteer board members, finance committee members, benevolence committee members and personnel committee members may become control parties subject to the excise taxes.

Suggested procedures
I suggest that the church adopt a written policy spelling out limits of the church’s benevolence. The policy should require a written application from the proposed recipient. The application should require a copy of an identifying document, such as a driver’s license.

The application should also include a copy of the unpaid bill, if the bill is the source of the need. At least two unrelated individuals should make all decisions regarding the request. The church should retain the application and related documents, plus the decision document at least three calendar years after the decision was made.

Also, the policy should require a separate application for each need. The church should have its policy reviewed by competent legal counsel. Finally, when faced with borderline requests, the church should consult with competent legal counsel before making the gift. By following this procedure, the church can fearlessly face any IRS inquiry about its benevolence.

Frank Sommerville, JD, CPA, is a partner in the law firm of Weycer, Kaplan, Pulaski & Zuber, P.C., Dallas and Houston, TX.  www.wkpz.org

As employers, churches are significantly affected by the new health care reform legislation. The legislation contains no specific exemptions for churches, and in many cases the effect will be the same as on similarly sized business employers.

In some ways, however, the law may have a greater impact on church employers. Churches have historically been exempt from many benefit plan laws, and have had more flexibility in designing and establishing health plans than most non-church employers. For instance, in some churches ministers have substantially better health benefits than other employees. Churches may find some of the new requirements to be more burdensome than an employer with a health plan already under significant government oversight would.

Compared to many non-church employers, churches also tend to have a larger variety of employee categories, such as ministers, lay employees, full-time, part-time and seasonal employees. This may make it more challenging to develop lawful church benefit plans that effectively provide health care for some church employee mixes.

Requirements 2010 – 2013

While many of the new plan requirements have not received extensive publicity, they could affect health plans almost immediately. Some of the requirements we believe will have particular impact on churches include:

• No lifetime or annual cover age limits
• Extension of dependent cover age up to age 26
• Coverage for preventive health services without any cost-sharing requirements
• Mandated specific patient protections
• For insured health plans, no discrimination in favor of more highly compensated employees
• Mandated claims appeals and review processes
• Prohibition on pre-existing condition exclusions
• W-2 reporting of the cost of health coverage (beginning with calendar year 2011 and reported on the Form W-2 issued in 2012)

Some of these do not apply
to “grandfathered plans,” which generally means plans in effect on March 23, 2010. Most apply whether the plan is insured, self-insured, or some combination.

The requirements for individual coverage and employer plans discussed in the remainder of this article take effect in 2014.

Effective January 1, 2014, U.S. citizens and legal residents must have qualifying health coverage or be subject to a tax penalty. The full penalty will be phased in over several years.

There are several exemptions to the insurance requirement, including low income, unaffordable coverage and hardships. Two religious exemptions, however, are of specific interest to church employees: a religious sect exemption and participation in a health care sharing ministry.

Religious exemption

The religious sect exemption requires that the individual be a practicing member of a religious group with a religious tenant opposing public or private insurance. The group must have been in existence since December 31, 1950. This category may apply to the Amish and similar groups. This is different from some ministers’ Social Security exemptions, which require opposition to public retirement benefits with respect to religious employment but allow private retirement plans. The religious sect exemption for the health plan coverage does not allow either public or private health insurance.

Exempt from requirement

A person who participates in a health care sharing ministry is also exempt from the coverage requirement. The health care sharing ministry must have been in continual existence since December 31, 1999 and meet other requirements.

Effective January 1, 2014, a church that averaged at least 50 full-time employees (“full-time” being more than 30 hours a week) during the preceding calendar year may be subject to penalties if it does not offer affordable minimum essential coverage. The penalty only applies if a full-time employee is certified to the church as having enrolled in health insurance coverage purchased through a state exchange that results in a premium tax credit or cost-sharing reduction allowed or paid to the employee.

A church health plan with more than  200 employees may be subject to automatic enrollment requirements for new employees.

In counting employees for either the 50 or 200 employee threshold, ministers will be treated like any other worker.

Many Christians participate in health care sharing ministries. These ministries often allow Christians to assist one another with medical expenses, at a substantially lower cost than insurance premiums. More information about 
such ministries is available at www.healthcaresharing.org.

A specific exception written into the health care reform legislation allows a participant in a health care sharing ministry to be exempt from the individual health care coverage requirement. The exemption, however, does not make such participation “insurance” for any tax purposes.

For tax purposes, participation is considered a series of gifts. When a participant makes a “payment” they are making a gift and the person who receives a payment to cover medical expenses is receiving a gift.

Since the payments are considered personal gifts, they do not qualify for reimbursement under health insurance policies, employer’s self-insurance, or cafeteria plan medical reimbursement.

It currently appears that an employer’s payment for participation in health care sharing ministries will not meet two requirements of the health care reform legislation. It will not count as payment of insurance or health care under non-discrimination requirements for self-insured or insured health plans. It also will not count as insurance under the provision for penalties in the large employer health plan requirement described above.

Many people believe the loss of tax benefits with health care sharing ministries is more than offset by the reduced medical expenses and sense of sharing among believers. Our goal is simply to alert church employers of some limitations associated with these programs.

John Butler is tax counsel for Capin Crouse LLP, Greenwood, IN.   www.capincrouse.com

This article is intended to provide accurate and authoritative information in regard to the tax issues covered. It is provided with the understanding that the authors are not engaged in rendering specific accounting or tax advice. If tax or other expert assistance is required, the services of competent professional persons should be obtained.

In this modern era, many churches are offering more and more services to its congregants to attract new members, retain established members and create revenue to operate the church or fund its programs. Common examples may include a bookstore or coffee bar. As a general rule, a church is not taxed on its income or revenues from an activity that is substantially related to the religious or charitable purposes of the organization.

For example, a church’s income received from tithes and offerings is not taxable because the receipt of tithes and offerings is related to the church’s exempt religious purpose. People contribute money to the church as part of a religious conviction, to help the church offer religious services, and not because they expect anything of equal financial value in exchange. However, if a church regularly carries on business that is not substantially related to its exempt purpose then the organization is subject to tax on the unrelated business.

If a church owns a commercial restaurant, any income that the restaurant generates will be taxed because it is not related to the church’s primary exempt purposes. The income from the restaurant is considered by the IRS to be unrelated business income tax or UBIT as it is commonly referred to by professionals in the industry.

This is the case even if the church were to use the profits of the restaurant for exempt purposes (i.e. it used the profits for church expenses or to fund a church mission trip). By the way, the restaurant example is based upon an actual case.

Three-part test of involvement

Whether or not a church is involved in an activity that could result in it owing UBIT is based upon a three-part test (all three have to be present):

1. Is the activity generally considered a trade or business? This usually means that the activity involves providing the sale of goods and services in exchange for payment. Potentially, a church bake sale could be characterized as a trade or business because it involves providing goods (cookies) in exchange for money, although for the reasons set out below, it is usually not going to be treated as generating UBIT.

2. Is the activity regularly carried on? Most church bake sales occur on certain designated weekends, and accordingly are not viewed as being regularly carried on. However, if the church sells baked goods every weekend, or even every day, this could satisfy the requirement.

3. Is the activity substantially related to an exempt purpose? If the activity does not contribute in an important way to the exempt purposes of the church, it could lead to tax liability. Many churches offer services that have an appearance of commerciality but are not treated that way because their underlying purpose is to help the church be effective in spreading religious understanding or promoting fellowship.

Bookstores and coffee bars run by the church are considered to be for the convenience of the church members and visitors. This makes it more likely that they will come to church and not leave to get coffee, have access to books that the church believes are relevant to religious study and similar matters of convenience.

On the other hand, if a church has a billboard on the highway advertising its bookstore or coffee bar, it begins to have a greater commercial appearance and will more likely be viewed as a commercial trade or business.

Raising red flags

Depending on how much UBIT is generated will depend on how the IRS is likely to respond. A church can generate an “insubstantial” amount of UBIT and not jeopardize its tax-exempt recognition (it would still need to pay tax on the unrelated business activity). If a church generates a “substantial” amount of UBIT, it will raise red flags to the IRS and potentially jeopardize the church’s tax-exempt recognition.

Unfortunately, there is usually no way to quantify what amounts to substantial unrelated business or to determine how much unrelated business an exempt organization can engage in. In certain circumstances the IRS will consider formulas such as an 85 percent rule regarding use of square footage at a church for religious purposes, meaning if the church uses less than 85 percent of its space for commercial activity, then this is considered not substantial. Rather, the IRS considers all of the facts and circumstances of the particular case.

If a substantial portion of the church’s income is from sources unrelated to its exempt purposes, then it’s likely risking its tax-exempt status by virtue of engaging in the unrelated business or is risking facing a tax bill. That being the case, the general rule of thumb regarding UBIT should be: Substantial revenue + unrelated activity = Jeopardizing of tax-exempt recognition.

If the church has UBIT of $1,000 or more annually then the church is required (as of this writing),  to file Form 990T with the IRS (generally, unlike other nonprofit organizations, a church is exempt from filing an annual Form 990). Many churches do want to have to file this form because it is a publicly available document and requires the church to disclose the salaries of its top employees and other financial information that they normally wish to remain confidential.

Growing sentiment for disclosure

Each church will have to balance their need for revenues compared with the desire for privacy in church financial matters. Incidentally, there appears to be some growing sentiment that churches should no longer be given special protection or status under the First Amendment and should have to disclose all financial activities just like any other charity.

Certain kinds of income or revenue are also usually considered exempt from unrelated business taxes. These include rental income, capital gains such as from the sale of a property, dividends, royalties and interest income. However, for each of these categories there will be factual differences and certain other rules that can affect whether or not a tax may be due.

The church should not just assume that because its income is derived from one of these sources that it is tax-exempt, but should have its tax, financial and legal professionals help make that determination.

David Middlebrook is a partner and Robert W. Rucker is an attorney with Anthony and Middlebrook P.C., The Church Law Group, Grapevine, TX. [www.churchlawgroup.com]

How important to a church is having an Accountable Reimbursement Plan (ARP)? With an ARP, expense reimbursements and advances are not reported as wages and are exempt from withholding and employment taxes. Without an ARP, reimbursed expenses, even when legitimate, must be reported as wages and are subject to withholding and employment taxes. Even if an employee or minister takes the deduction on their personal return, some additional tax will be paid.

An ARP has three essential elements:

1.) Expenses are only reimbursed for deductible expenses submitted under the requirements of the church’s plan.

2.) Expenses must be substantiated to the church by IRS required documentation, within a “reasonable” time of being incurred.

3.) Excess advances must be returned to the church within a reasonable period.
The expense reimbursement element has three subparts:

• The employer must establish and operate the ARP. An employee cannot be reimbursed tax-free simply because they submit expense records. While a plan does not have to be in writing, having a written plan facilitates proving its existence to the IRS if challenged, and provides a structure for describing employer specific requirements.
• The ARP must only reimburse expenses meeting the requirements of the ARP, and the ARP reimbursements must be in addition to the regular compensation. An employee who does not meet all the requirements of the plan cannot receive a taxable reimbursement in lieu of meeting requirements. An employer cannot substitute tax-free reimbursements for compensation the employee otherwise would have received.
• The ARP must only reimburse for deductible business expenses and specifically identify the reimbursement or expense payment, keeping these amounts separate from other amounts (such as wages).
• The expense substantiation element has two subparts:
• Travel, entertainment, gift, and car expenses describes the information and documentation requirements in more detail.
• Required documentation must be submitted within a “reasonable time.” The IRS regulations provide that documentation submitted within 60 days of the expense being incurred is always reasonable. Longer periods would be subject to IRS challenge. Even if the church cannot afford to pay the expense immediately, it must be submitted to be non-taxable when finally paid.
• Excess advances must be refunded and not converted to taxable income. Advances and refunds must be done within a reasonable time. IRS regulations provide that advances made not more than 30 days before the anticipated expenses are paid or incurred, and refunds made within 120 days after expenses are paid or incurred are always reasonable. Again, longer periods would be subject to IRS challenge.

The IRS has identified two significant issues for attempted ARPs that fail to comply with the requirements:

1.) Under the regulations, a rare or occasional failure may only result in that expense reimbursement being taxable, but inconsistent compliance or chronic failure may result in all reimbursements under the program being taxable, even those that complied.

2.) For senior pastors and other executive level employees, unreported taxable income due to a flawed reimbursement ARP would be an “automatic excess benefit.” Top level employees are treated more harshly than other employees for these mistakes. If the church secretary’s flawed reimbursement is discovered in an IRS audit, the reimbursement simply becomes taxable and subject to interest and penalties. If the senior pastor’s reimbursement is discovered, the amount, plus interest, must be refunded to the church and a 25 percent penalty paid to the IRS.

Implementing an ARP is a two step process:

1.) The church board adopts a resolution that church ministry expenses will only be reimbursed when IRS required documentation is submitted within a reasonable time of the expense being incurred.

2.) The church administrator begins enforcing the resolution, by only reimbursing when required documentation is provided within a reasonable time.

More details and forms are in IRS Publication 463, and Dan Busby’s book, 2009 Church and Nonprofit Tax & Financial Guide, available in bookstores and at www.ecfa.org.

A qualified ARP saves the employee taxes and personal record keeping. For the lay employee, the savings may amount to 10 percent or more of each expense they reimburse under the ARP. Minister employees also benefit, though the savings are less easy to quantify. Consider your church’s reimbursement process, and assure your employees the maximum tax savings.

John Butler is tax counsel at Capin Crouse, Greenwood, IN. [www.capincrouse.com]

Churches often maintain benevolence funds to assist needy individuals in times of financial crisis. However, these churches may not have enough structure in place to provide essential direction and documentation.

It is important to follow a written policy and maintain records of assistance provided to protect the tax exempt status of the church, the deductibility of donations designated to the fund, and the persons receiving assistance from mistaken taxation. A well designed process also provides direction and accountability to those responsible for making disbursements from the fund.

Benevolence program don’ts:

1. Distribute funds to people without supporting documentation.

2. Disburse funds out of a bookstore cash register or out of uncounted offerings.

3. Disburse funds without a written record of the transaction.

4. Allow members to donate to a specific family 
or individual and receipt these donations as tax deductible.

5. Give one individual control over benevolence distributions, without oversight or accountability measures in place.

Benevolence program do’s:

1. Adopt and adhere to a written policy.

2. Make distributions from a general fund or benevolence fund.

3. Pay assistance directly to service providers (rent, mortgage, utilities, etc.).

4. Allow contributions only to the fund, not to any specific individual or family.

5. Develop adequate criteria to determine individual need.

6. Document the need including external verification for larger amounts.

7. Assign personnel or a committee to approve requests.

8. Include reasonable limits of support per person during a specified time period.

9. Determine the kinds of needs that will receive support, keeping in mind typically assistance is allowed for basic needs: food, shelter, clothing and medical.

Why is a written policy so important? A written policy helps prevent misunderstandings about the purpose of your program and its parameters. Having written criteria helps decision-makers affect consistent evaluations and holds them accountable to these pre-determined guidelines. If your program or disbursements are challenged in an audit, a written policy provides evidence that the church has established a benevolence program in keeping with your exempt purpose.

What’s wrong with taking cash out of the offering plate to help someone in need? (1) Using cash from the offering plate does not provide a record of the assistance. (2) The opportunity for abuse is high. Even a trusted employee under enough pressure (others may not even know about the pressure), given the opportunity, can rationalize an inappropriate disbursement. Limiting opportunity for misuse of funds protects the church, its employees, and volunteers.

What information should be gathered for an assessment of need? The extent of your data gathering depends on the type of request. For short term assistance during a disaster it could be sufficient to view the disaster and confirm the individuals live in that area. In the case of longer term or a greater amount of assistance we recommend a financial assessment through completion of an application.

Items to consider requesting in the application include but are not limited to: employment status, dependents, church involvement, references inside and/or outside of the church, a list of present income and expenses, and/or a list of assets owned. A sample application is available online at www.ecfa.org.

What is the minimum required record that must be kept when a church provides benevolence aid? 
A church (or other organization) which provides benevolence assistance should maintain adequate records and case histories to show:

• The name and address of each recipient of aid
• The amount distributed to each
• The purpose for which the aid was given
• The manner in which the recipient was selected
• The relationship, if any, between the recipient and other members, officers, or  trustees/directors of the organization

What is external verification? Verifying the information provided by the applicant with another source. This could be individuals listed as references on the application, an employer or another church member.

Does the church need to issue a 1099-Misc when assistance over $600 is provided to a needy person? No. Benevolence is not a payment for services, but a gift.

Can we assist an employee with benevolence and not show it as taxable income on their W-2? This may be accomplished by having a formal hardship assistance plan in place in advance of the assistance being given. IRS Publication 3833 describes the requirements of an employee hardship assistance plan.

Is it ever okay for the church to receive amounts from members which are designated to a specific individual or family? In some cases churches agree to collect specifically designated funds but should only do so with a clear communication to donors that their payment will not be credited as a tax deductible contribution. In other instances a church member might recommend a needy individual to the benevolence committee. The committee will determine what if any amount to grant any individual.

Christine Abrams is tax manager and John Butler is tax counsel for Capin Crouse LLP, Greenwood, IN. [www.capincrouse.com]

The Alliance Defense Fund (ADF), an advocacy and action alliance group in Scottsdale, AZ, which has the stated purpose of defending religious freedom, sponsored a project to challenge the 54-year-old ban on churches being allowed to participate in political activities. The project, called “Pulpit Freedom Sunday,” took place Sept. 28, 2008, and appealed to as many church leaders as possible to purposely violate the federal law by stating their views about scriptural teachings and how current political candidates may or may not be following those teachings. One report said that 33 churches signed up to participate and the organizers viewed it as a success.

It has also been widely reported that this planned violation of the law is being watched by various legal experts and interested parties. In particular, the Americans United for Separation of Church and State (AUSCS), a nonprofit organization that describes itself as one of the “foremost defenders of the separation of church and state.”

This organization has publicly criticized the “Pulpit Freedom Sunday” project as being partisan politicking. According to AUSCS, endorsing political candidates from the pulpit is not only against the current law, but threatens to divide congregations and communities and replace the theological mission of the church with one focused on partisanship and division.

Investigated by the IRS

Both sides of the argument agree that that it is against the law for a church or religious organization to engage in political activity related to endorsing or supporting a particular political candidate. But groups such as the ADF want to see that law changed. In their view, the law will not change until it is challenged and the Pulpit Freedom Sunday project would be an effective way to make that challenge. Presumably, the churches who allow their pastors to endorse a political candidate on Pulpit Freedom Sunday will have their tax exempt status investigated by the Internal Revenue Service (IRS).

The IRS has the responsibility to enforce the laws as they exist and any church found to have engaged in endorsing a political candidate should expect the IRS to revoke recognition of that church’s tax exempt status. Once that occurs, the church will then have the opportunity to take their challenge into the court system. While the ADF does not elaborate on their desired outcome, having an active court challenge to the law could have the effect of changing the law either by getting a higher-level appellate court to declare the law as being unconstitutional or by raising awareness of the dispute in order to stimulate public outcry that would lead to legislative reform.

In American history, the Dred Scott case, decided in 1857 was a case that essentially maintained the status quo of slavery, but that led to dramatic social and legislative change. In that case, the United States Supreme Court issued an opinion that supported slavery and required Scott to remain as a slave even though he had resided in several states that did not recognize slavery as a legal status. Northern critics were outraged at the court’s decision. The Dred Scott case was one of the watershed events that led to the American Civil War and a change in the laws to ban slavery.

To seek change in social justice

Our country has often recognized civil disobedience, that is, purposely violating certain laws in order to challenge them, as being a viable method to seek change in social justice. Henry David Thoreau is often credited with being the first American writer to clearly describe the concept. He wrote an essay entitled “Civil Disobedience” in 1849 that encouraged citizens to resist laws that were unjust.

He said that “[i]n a republic like ours, people often think that the proper response to an unjust law is to try to use the political process to change the law, but to obey and respect the law until it is changed. But if the law is itself clearly unjust, and the lawmaking process is not designed to quickly obliterate such unjust laws, then the law deserves no respect — break the law.” In modern times, Martin Luther King Jr., a Baptist minister, advocated civil disobedience as being an effective way to bring attention to the need for civil rights reform. On the other hand, churches and Christians are expected to follow the law. There are plenty of examples of scriptural teachings on obedience to civil authorities.

The prohibition against churches endorsing political candidates has been challenged in court before. In the notable Branch Ministries case, the Federal Court of Appeals for the District of Columbia ruled in favor of the IRS when it revoked the church’s tax exempt status due to participation in political activities. Four days before the 1992 presidential elections, The Branch Ministries, a New York church took out two full-page ads, one in USA Today and one in the Washington Post, encouraging Christians to not vote for candidate Bill Clinton based upon his views about certain social issues. The IRS notified the church that it was initiating a church inquiry based upon the ads.

Revoked tax exempt status

The church responded that it had not engaged in improper political activities and declined to provide the IRS with certain requested documentation. The IRS revoked the church’s tax exempt status and the church sued. During the appeal, the church argued, among other things, that the law against political involvement by churches was a violation of the First Amendment free exercise of religion. The court rejected that argument and held that if a church wants to engage in such political activities it could do so by establishing a separate Section 501(c)(4) civic organization. The court also said that the church’s free speech rights were not being violated because the restriction was “viewpoint neutral,” meaning the restriction did not create a situation where one candidate would be favored over another.

While the Branch Ministries case was decided by a federal appeals court, the ADF would probably argue that it is not the highest judicial authority, the United States Supreme Court. However, even if the ADF manages to create a court case to challenge the law, there is no guarantee that the case would be heard by the Supreme Court. That court has discretion as to which cases it will hear, and when it refuses to hear a particular case, the ruling from the lower federal appellate court stands.

The IRS has a growing concern that churches are becoming involved in political activities and in 2006 issued the findings of a study where it found that 72 percent of churches that had been reported to it as having violated the law did engage in illegal intervention. As a result, the IRS announced that it has created a dedicated enforcement program to investigate these matters.

Part of the continuing debate in these matters remains that churches benefit from having tax exempt recognition from the government.

Their available resources are increased by not having to pay taxes, and that tax break was not given so that the churches could use them in political campaigns, but to promote religious worship activities. By accepting the tax exempt status, many commentators argue that churches should accept whatever limitations come with it.

Robert W. Rucker is an attorney with Anthony and Middlebrook, P.C., in Irving, TX, which specializes in the practice of nonprofit law. [churchlawgroup.com]

For the most current information on what a pastor or a church can legally do politically without jeopardizing their tax status, click on the appropriate following link, courtesy of Focus on the Family: http://www.citizenlink.org/pdfs/PastorsGuidelines_summary.pdf