On May 4, 2017, President Trump signed an executive order directing the agencies of the executive branch (principally the IRS) to limit enforcement of the “Johnson Amendment”. This amendment is a provision of the federal tax laws that prohibits organizations that are exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code from engaging in political campaign activities. 

The executive order limits enforcement of the Johnson Amendment or any other adverse administrative or judicial action against any individual or religious organization for addressing moral or political issues from a religious perspective. As with many “actions” in Washington, D.C., this executive order is more symbolism than substance. The practical effect of this executive order is limited as the Johnson Amendment is not currently being enforced.

As noted above, the Johnson Amendment prohibits section 501(c)(3) organizations from participating or intervening in (including the publishing or distributing of statements) any political campaign on behalf of (or in opposition to) any candidate for public office. An organization that violates the prohibition potentially is subject to excise (penalty) taxes, loss of exemption, and a civil injunction. The classic example of enforcement of the Johnson Amendment is the case of Branch Ministries v. Commissioner, where a church had its Section 501(c)(3) status revoked for placing anti-Bill Clinton ads in newspapers before the 1992 presidential election.

The executive order directs that all executive departments and agencies must, “to the greatest extent practicable and to the extent permitted by law, respect and protect the freedom of persons and organizations to engage in religious and political speech.” Specifically, the Department of Treasury (IRS) is not to take any “adverse action” against an individual, house of worship or other religious organization because the individual or organization addresses moral or political issues from a religious perspective, if similar speech has not generally been treated as participating or intervening in a political campaign on behalf or against a politician. The executive order defines “adverse action” to include the assessment of tax, penalties, delay or denial of tax-exempt status, and disallowance of tax deductions for contributions made to organizations exempt under section 501(c)(3) of the Code.

The Internal Revenue Code already recognizes the special status of churches. For instance, before the Internal Revenue Service (“IRS”) may initiate an audit or other inquiry that may lead to revocation of a church’s section 501(c)(3) status, section 7611 of the Code requires an “appropriate high-level Treasury official” to first reasonably believe that the church may not be exempt under Section 501(c)(3). A federal district court has held that the IRS’s Director of Exempt Organizations Examination is insufficiently high-ranking to qualify under section 7611, and no other person has been so designated. Thus, exemption audits for religious organizations have been administratively suspended since 2009.

The Freedom from Religion Foundation has filed a lawsuit in the U.S. District Court for the Western District of Wisconsin seeking an order that would prohibit the IRS from implementing the executive order, and directing President Trump and the IRS Commissioner to enforce the Johnson Amendment equally on all non-profit organizations, whether religious or not.

The Tax Group at Woods Rogers PLC will monitor the challenges to the executive order as well as any pronouncements from the IRS or other executive branch departments and agencies concerning implementation of this executive order.

Article brought to you by:

Neil V. Birkhoff
Chair, Tax Practice Group
Woods Rogers PLC