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E. IRS Enforcement and Consequences: Congregations and the IRS Guidelines on Advocacy, Lobbying, and Elections

1) Enforcement[1]

There are special audit procedures that the IRS must follow before commencing any inquiry about potential violation by a church of the political campaign intervention prohibition. The IRS may begin a church tax inquiry only if the Director, Exempt Organizations, Examinations, reasonably believes, based on facts and circumstances recorded in writing, that the church may not be qualified for section 501(c)(3) tax exemption, including potential violations of the political campaign intervention prohibition. Once an inquiry is begun, the IRS must follow special procedures set forth in the Internal Revenue Code in its further dealings with the church. Thus, the IRS does not have unfettered discretion to investigate activities by churches, including violations of the political campaign intervention prohibition, and must obtain high-level authorization before doing so. Generally, IRS inquiries about potential violations by churches of the political campaign intervention prohibition are initiated based upon facts reported by the media or complaints submitted by third parties.

2) Consequences of Political Campaign Activity[2]

When it participates in political campaign activity, a congregation or religious organization jeopardizes both its tax-exempt status under IRC section 501(c)(3) and its eligibility to receive tax-deductible contributions. In addition, it may become subject to an excise tax on its political expenditures. This excise tax may be imposed in addition to revocation, or it may be imposed instead of revocation. Also, the congregation or religious organization should correct the violation.

Excise tax. An initial tax is imposed on an organization at the rate of 10 percent of the political expenditures. Also, a tax at the rate of 2.5 percent of the expenditures is imposed against the organization managers (jointly and severally) who, without reasonable cause, agreed to the expenditures knowing they were political expenditures. The tax on management may not exceed $5,000 with respect to any one expenditure.

In any case in which an initial tax is imposed against an organization, and the expenditures are not corrected within the period allowed by law, an additional tax equal to 100 percent of the expenditures is imposed against the organization. In that case, an additional tax is also imposed against the organization managers (jointly and severally) who refused to agree to make the correction. The additional tax on management is equal to 50 percent of the expenditures and may not exceed $10,000 with respect to any one expenditure.

Correction. Correction of a political expenditure requires the recovery of the expenditure, to the extent possible, and establishment of safeguards to prevent future political expenditures.

Please note that a congregation or religious organization that engages in any political campaign activity also needs to determine whether it is in compliance with the appropriate federal, state or local election laws, as these may differ from the requirements under IRC section 501(c)(3).

Footnotes

  1. Section E1 is a direct quote from Politics and the Pulpit 2008: A Guide to the Internal Revenue Code Restrictions on the Political Activity of Religious Organizations Pew Forum on Religion and Public Life, p. 14.
  2. Section E2 is a direct quote from IRS Publication 1828, p. 11.

For more information contact socialjustice @ uua.org.

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Last updated on Thursday, September 13, 2012.

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