Sec. 501(c)(3) restricts charities from influencing legislation or intervening in any political campaign or from benefiting insiders through private inurement. Ministers must tread carefully to prevent their preaching from crossing into politics. This issue defined a recent tax conflict involving All Saints Episcopal Church in Pasadena, California.
The conflict highlighted the vagueness of the rules governing what is acceptable, the cost that a church may have to incur in defending itself, and the possible element of political persecution.
The safest course for a minister is to not preach about anything political. However, drawing a line against political speech is difficult, especially when the organization feels its primary mission is at stake.
All Saints Episcopal Church in Pasadena is one of Southern California’s largest and most liberal churches, with 3,500 members. On October 31, 2004, the Rev’d George F. Regas delivered a sermon titled, “If Jesus Debated Senator Kerry and President Bush.” In the sermon, he depicted Jesus taking both candidates to task for their positions on war, poverty, and abortion. It appeared to be a typical All Saints antiwar, anti-poverty, and pro-choice sermon. But it came just two days before the presidential election. Though it castigated both candidates and endorsed neither, it was interpreted by some as being a bit harder on President Bush. An IRS employee read about the sermon the following day in the Los Angeles Times, and by June 2005 a probe had been initiated.
Sec. 7611 Restrictions
Church inquiries and examinations are restricted by Sec. 7611, which requires a reasonable belief by “an appropriate high-level Treasury official,” based on “facts and circumstances recorded in writing,” that the church may be carrying on an unrelated trade or business or may not be tax exempt as a church. The items identified as potential offenses must be explained in a notice to the church of IRS concerns. Such an inquiry would provide the church with an opportunity for a conference with regional counsel at which it might dispel IRS concerns.
Only after meeting these requirements can a formal IRS examination begin. Such an examination can only review records germane to determining whether the organization has an unrelated business income tax liability or is entitled to tax exemption as a church. The examination must be completed within two years, and, absent special circumstances, a church cannot be examined again for five years (Secs. 7611(c), (f)).
Otherwise, churches are subject to the same restrictions as any other tax-exempt organization. If violations are found, Sec. 4955 specifies penalties against both the organization and its management. Auditing a church is a serious matter, and unless there is unrelated business income, real or imagined political persecution is sometimes inferred.
All Saints could probably have negotiated with the IRS to drop its investigation in exchange for an advisory letter rather than risk revocation of its tax-exempt status. Instead, the church decided to challenge the IRS. It hired former IRS Exempt Organizations Director Marcus Owens to represent it and started a publicity campaign. All Saints argued that it had engaged in free speech and had a history of being “boldly political without being partisan.” It complained that the IRS position that the sermon constituted intervention in a political campaign would effectively prohibit the church from preaching its core values in connection with political issues. Marcus Owens asked whether a pastor might discuss “thou shalt not kill” in the context of the present Iraq war without adverse tax consequences (letter to IRS Exempt Organization Specialist Pat Schneiders, December 13, 2005).
An indefinite decision: After a prolonged dispute, the IRS announced in September 2007 that it was dropping the investigation, while at the same time declaring victory. It said that the October 2004 sermon appeared to be the only time the church had intervened in a campaign and that the church had policies to prevent partisan political activity. The Service recommended that the church tell future guest speakers about the policy and that it be careful about posting references to political candidates on its website (2007 TNT 186-24, Doc. 2007-21641, September 10, 2007). Fr. Regas’s sermon is still posted at www.allsaints-pas.org/modules/toc/uploads/files/aid959_if_jesus_debated_sen_46b5669b_2eb3_a0f3_u1.pdf.
There is no bright-line guidance from the IRS on this topic, so confusion reigns. How much political speech is allowed? The answer may be, as much as the political atmosphere will tolerate, because no one really knows. IRS Pub. 1828, Tax Guide for Churches and Religious Organizations, notes that church leaders are “[not] prohibited from speaking out about important issues of public policy . . . [but] cannot make partisan comments in official organization publications or at official church functions.” But no clear definition of “partisan comments” is provided, leaving it up to churches to try to conform to an indefinite directive.
The rules about what a church may preach on politics are quite vague. The best advice is caution. When the IRS pursues a church that is alleged to have engaged in political speech, there are audit protections that should be aggressively pursued (see Regs. Sec. 301.7611-1), tempered by the possibility of reaching a settlement through an advisory letter of reprimand. In addition, the cause of the audit should be determined as well as any political angle that might be exploited. The church should also be prepared to pay potentially steep professional fees: All Saints spent $275,000 in successfully challenging the IRS.
John L. Miller, CPA, Faculty Instructor, Metropolitan Community College, Omaha, NE
Mr. Miller and Mr. Starkman are members of the AICPA Tax Division’s IRS Practice and Procedures Committee.
For further information about this column, contact Mr. Miller at email@example.com.