Political Activity by Religious Organizations: The Unpardonable Sin
Mounce, Patricia H., Mauldin, Shawn, The National Public Accountant
THE ACCOUNTANT'S CONNECTION
As Election Day 2000 draws near, so does controversy over political activity from religious organizations. Accounting professionals are connected to this controversy by serving as paid or volunteer advisors to directors and administrators of religious organizations, pastors, and others in positions responsible for preparing financial reports, filing returns or paying taxes. In a recent survey, 226 church administrators were asked to rank individuals or organizations they had consulted with regarding tax issues  Administrators consulted accountants most frequently about tax matters. Considering the advisor role that the accounting professional has with religious organizations, it is important that he or she understands what these organizations can and cannot do related to political activities.
The purpose of this article is to provide guidance to accounting professionals who serve in advisory capacities to religious organizations. Specifically, they should be prepared to advise these organizations of the prohibition of political activity, provide specific situations that might be deemed as noncompliance with the Internal Revenue Code (IRC) provisions prohibiting political activity, and provide information on the consequences of noncompliance. Accordingly, this article is divided into five sections. The first section presents a brief overview of the history of the political activity prohibition. The provision of the IRC relating to the political activity prohibition is discussed in the second section. The third section presents illustrative cases of religious organizations' troubles involving political activities. The current political activity environment is discussed in the fourth section. The fifth section presents lessons learned that include a summary of potential violations and probable non-violations.
HISTORY OF POLITICAL ACTIVITY PROHIBITION
In the United States, the practice of income tax exemption for religious organizations began with independence and the adoption of the Constitution and the First Amendment. Congress' decision to exempt charitable organizations, including religious organizations, from income taxation was based on the theory that the government is compensated for lost revenue by its relief from the financial burden that would otherwise have to be met from public funds by appropriations, and by the benefits resulting from the promotion of the general welfare.  The IRC of 1939, in [sections]101(6), provided for the tax exemption of religious organizations. The IRC of 1954 moved the provision to [sections]501(c)(3).Although tax-exempt organizations, including religious organizations, were prohibited from conducting a substantial part of their activities in carrying on propaganda, or attempting to influence legislation, there was no prohibition against intervening in political campaigns.
The political activity limitation of the provision was introduced as a Congressman's retaliation against a political foe. Lyndon B. Johnson, who was at that time, a Senator from Texas, proposed the limitation on political activity in 1954. Apparently, Senator Johnson was attempting to limit the political activities of tax-exempt entities that had supported one of his opponents in a Texas election.  Senator Johnson proposed to extend the provision of [sections]501 to deny tax-exempt status to those people who intervene in any political campaign on behalf of any candidate for any public office.  The proposal was made as a floor amendment to the Internal Revenue Code and passed without explanation.
As previously stated, IRC [sections]501(c)(3) prohibits political activity by religious organizations and was enacted as an amendment to the Code in 1954. The consequences are so severe that even one instance of noncompliance could result in revocation of an organization's tax-exempt status. To avoid loss of tax-exempt status for federal income tax purposes, religious organizations must not participate or intervene in any political campaign on behalf of or in opposition to any candidate for public office at the local, state or federal level [IRC [sections]501(c)(3)]. …