Update: Although the conference committee on the 2017 Tax Cuts and Jobs Act did not include any changes to the Johnson Amendment in the final tax reform bill, efforts are underway to either weaken enforcement of the Johnson Amendment for churches or exempt political communications involving minimal expenditures as described below. Visit our webpage for updates on other efforts to weaken the Johnson Amendment in 2018.
Section 501(c)(3) of the IRS code defines the characteristics of tax-exempt charities indicating that “no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation, and which does not participate in, or intervene in (including the publishing or distributing of statements) any political campaign on behalf of (or in opposition to) any candidate for public office.”
To summarize, nonprofits may lobby provided it is an insubstantial part of their organizational activities. Nonprofits may not participate in political campaigns to support or oppose candidates for elected public office. The latter provision of 501(c)(3) was added in 1954 due to an amendment to the IRS code offered by Senator Lyndon B. Johnson.
2018 year end tax legislation, similar to Section 5201 of the 2017 House version of the Tax Cuts and Jobs Act, proposes an exception to the Johnson Amendment. To summarize, making a political statement would not cause a charitable organization to lose its 501(c)(3) tax exemption or be considered participation in a political campaign. This exception applies only if the statement is made in the context of the organization’s “regular and customary activities in carrying out its exempt purpose” and does not result in more than minimal expenses.
In other words, political communications can be part of a nonprofit’s ordinary charitable activities provided they don’t spend more than minimal amounts of money. “Speech, not money” sounds like a good compromise between the status quo and repealing the Johnson Amendment entirely. However, proponents base their support for weakening the Johnson Amendment on a number of myths, including the following:
Myth #1: The Johnson Amendment infringes the free speech rights of religious and nonprofit leaders.
Subject to the insubstantial part limit, religious and nonprofit leaders are free to speak on behalf of their organizations on social or public policy issues. Like any individual, a leader can support or oppose candidates or make campaign contributions. However, leaders cannot represent their organization or use organizational resources when engaging in political activity. A 501(c)(3) organization can also form a separate but affiliated 501(c)(4) organization to lawfully engage in political activity.
Myth #2: The Johnson Amendment should be amended to keep the IRS from policing the speech of religious and nonprofit leaders.
Implementing this exception will likely require the IRS to collect more, not less, information on the communications of churches and nonprofits. This includes proposing new regulations and guidance to help the IRS determine whether statements and communications are political, whether they occur as part of the organization’s “regularly and customary activities,” and whether expenses are minimal. Churches may be required to file annual information returns or other IRS forms to collect this information even though such filings are currently voluntary. This change could also increase enforcement actions by state charity officials because common law forbids use of charitable assets for political activity.
Myth #3: This provision only creates a narrow exception to the Johnson Amendment for political speech, not campaign contributions.
This exception would keep nonprofits from making political communications that entail significant expenditures or new and extraordinary activities. But it does not limit how much a nonprofit could raise for political communications. Unlike contributions to support political activity by PACS, 527s, or 501(c)(4) organizations, donors could take the charitable deduction for contributions to newly politicized nonprofits.
The Joint Committee on Taxation projects that this change would reduce tax revenue from political contributions by $2 billion over the next decade. This amounts to $6 to $8 billion in political contributions diverted from political campaigns to nonprofits and churches. With this change, it’s likely that new “charities” would form before elections, and dissolve following them, solely to engage in tax-deductible political activity.
Myth #4: Allowing nonprofits to make political communications will not have a significant effect on giving.
Subject to the minimum expenditure limit, nonprofits would be allowed to use unrestricted funds for political communications. Email and social media communications can have a broad reach with a limited amount of expense for nonprofits.
Having trust that nonprofits will use their donations honestly and ethically can be an important factor in a donor's decision to give. Giving would be reduced if donors lack confidence that nonprofits and churches will use donations for their operations or services rather than political communications.