President Trump and Congress have recently undertaken measures to preserve the ability of tax-exempt organizations to engage in limited forms of political speech, and efforts in Congress may signal a willingness to provide further relief to tax-exempt organizations.
The Presidential Executive Order. On May 4, 2017, President Trump signed an executive order entitled “Promoting Free Speech and Religious Liberty” that directs the executive branch “to vigorously enforce Federal law’s robust protections for religious freedom.” The executive order further instructs the Treasury Department, to the extent permitted by law, not to “take any adverse action against any individual, house of worship, or other religious organization” that discusses moral or political issues from a religious perspective, but only where such speech has not ordinarily been treated by the Treasury Department as the endorsement of or opposition to political candidates. The IRS has not typically brought enforcement actions against religious organizations for violating the prohibition on participating in a political campaign. The much-anticipated executive order is also limited insofar as it states that it shall not be construed to impair or otherwise affect the authority granted to any executive department or agency. Some organizations have expressed disappointment as to its limited scope (while others have sued the Administration to challenge the order). Nevertheless, the executive order reflects a commitment by the Administration to loosen restrictions on political speech by religious organizations and to bring attention to an issue pursued by a number of Republicans.
House Bills to Repeal the Johnson Amendment. As we mentioned in our prior post, the Johnson Amendment prohibits section 501(c)(3) organizations, including churches and other religious organizations, from “participat[ing] in, or interven[ing] in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.” In January, Rep. Walter Jones (R-NC 3rd) introduced H.R. 172, which aims to “restore the Free Speech and First Amendment rights of churches and exempt organizations” through the complete repeal of the Johnson Amendment. While high-profile staffers in the House of Representatives have indicated support for the bill, various commentators have expressed concern that the wholesale repeal of the Johnson Amendment could result in an increasingly unregulated flow of political contributions funneled through religious organizations.
Another measure introduced in the House proposes a more limited repeal of the Johnson Amendment, which would expand the rights of section 501(c)(3) organizations to engage in political speech made “in the ordinary course of the organization’s regular and customary activities in carrying out its exempt purpose” and that results only in de minimis incremental expenses. H.R. 781, which was introduced by Rep. Steve Scalise (R-LA 1st) and Rep. Jody Hice (R-GA 10th) in February, would permit section 501(c)(3) organizations to make political statements in those circumstances without jeopardizing their tax-exempt status. Some commentators have expressed concern as to the administrability of the approach and have suggested that organizations may be subjected to burdensome audits under the unclear standard, although in that regard the approach of the Executive Order would constitute an important signal to IRS examiners.
Congress’ FY 2016 Budget. Congress has also expressed an interest in protecting the ability of tax-exempt organizations to engage in politically-related activity that is permissible under current law. The budget bill for the fiscal year ended September 30, 2016, prohibits the Treasury Department from using available funds to provide guidance on the standards used to determine whether organizations are operated exclusively “for the promotion of social welfare” for purposes of section 501(c)(4), including through the implementation of Treasury Regulations proposed in 2013 that would restrict section 501(c)(4) organizations from engaging in certain candidate-related political activities, and effectively codifies the standards in effect under prior law, which are similar for both 501(c)(3) and 501(c)(4) organizations with respect to interventions in political campaigns (as opposed to the standards for other political activity, which are more permissive for 501(c)(4) organizations). This measure froze proposed regulations intended to help the IRS “more readily identify activities that constitute candidate-related political activity,” which under current law requires a facts-and-circumstances analysis. The proposed regulations treat certain actions that occur close in time to an election or that are election-related as prohibited political activity, for example “any public communication . . . within 30 days of a primary election or 60 days of a general election that refers to one or more candidates in that election.” At the least, Congress’ preference for a facts-and-circumstances approach indicates that there is not majority support in the legislature for more stringent policing of tax-exempt organizations for purported political activities. Whether that will translate to majority support for a limited repeal of the Johnson Amendment remains to be seen, but together these developments suggest that Congress may be able to find common ground with the Trump administration to provide further relief for tax-exempt organizations even outside the scope of comprehensive tax reform.