February 7, 2017
Currently, charitable 501(c)(3) organizations are prohibited from participating in, or intervening in (including the publishing and distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office—a restriction that is often referred to as the Johnson Amendment.
This practice has been in place since 1954 when the initial law was passed, but has recently come under scrutiny by both Congressional Republicans and President Trump, who would like to see the law amended or overturned. During Trump's presidential campaign he frequently discussed his opposition to the Johnson Amendment. At the 2017 National Prayer Breakfast in February, President Trump reiterated his commitment to repealing the amendment stating, "I will get rid of and totally destroy the Johnson Amendment and allow our representatives of faith to speak freely and without fear of retribution." Three bills have been introduced in the 115th Congress which would alter or repeal the Johnson Amendment.
Named after then-Senator Lyndon B. Johnson, the Johnson amendment was enacted in 1954. “The purpose of the rule was to prevent tax-deductible money from being used to support or oppose candidates for public office. The Johnson Amendment does not prohibit all electoral activity, and 501(c)(3) organizations may still actively participate in the election process.”
Opponents of the Johnson Amendment see it as unfairly restricting religious leaders from supporting or opposing political candidates and believe the law specifically targets Christian conservatives. However, a recent survey from LifeWay Research—a Nashville-based evangelical polling firm—shows that 79 percent of Americans believe it is inappropriate for pastors to endorse a political candidate in church. Furthermore, a survey from 2012 found that 87 percent of pastors did not believe they should be able to do so.
While opponents may argue that the Johnson amendment is a religious freedom issue, a repeal of the amendment would have far-reaching, and potentially devastating effects, on charities, foundations, and nonprofits by allowing unlimited and tax deductible money to flow through them and into the political process.
Bills in the 115th Congress
Three bills introduced in the 115th Congress would adversely affect the long-standing policy known as the Johnson Amendment. H.R. 172, introduced by Rep. Walter Jones (R-NC), would completely repeal the Johnson Amendment. H.R. 781 and S. 264, identical bills introduced by Rep. Steve Scalise (R-LA) and Sen. Jim Lankford (R-OK) respectively, would create an exception to this part of the Internal Revenue Code, allowing 501(c)(3) charitable organizations to speak about government or electoral activity “in the ordinary course of the organization’s regular and customary activities” which “results in the organization incurring not more than a de minimis cost” without the risk of losing their tax-exempt status.
More specifically, the Jones bill would alter the current playing-field of 501(c)(3) organizations in the political landscape. There would be few restrictions on these organizations using money to support political campaigns and they would be able to shield donors from transparency. The companion bills by Scalise and Lankford seek to only create a “carve-out” for 501(c)(3) organizations to speak about the political process; however, in the current landscape after Citizens United v. Federal Election Commission (often referred to as Citizens United) where political spending is a form of protected speech under the First Amendment, this bill could pave the way for additional money to flow from charitable organizations into electoral activity.
Potential Executive Actions
As noted earlier, eliminating the Johnson Amendment was a campaign promise made by President Trump and he has continued to discuss doing so since he took office. A way for the president to do so would be to issue an Executive Order (EO), something he has already done eight times in his first three weeks in office. Furthermore, a leaked draft of a new EO that would focus on religious freedom, contained language that would essentially overturn the Johnson Amendment (NOTE: the White House has since walked back on the leaked draft of the EO, say that they may not issue it, but did not deny that the draft was authentic). The language states,
“(e) The Secretary of the Treasury shall ensure that the Department of the Treasury shall not impose any tax or tax penalty, delay or deny tax-exempt status, or disallow tax deductions for contributions made under 26 U.S.C. 501(c)(3), or otherwise make unavailable or deny any tax benefits to any person, church, synagogue, house of worship or other religious organization. (1) on the basis of such person or organization speaking on moral or political issues from a religious perspective where religious speech of similar character has, consistent with law, not ordinarily been treated as an intervention in a political campaign by the Department of the Treasury, or…”
This language would protect the tax-exempt status of 501(c)(3) organizations who chose to participate in political process.
What It Means for the Philanthropic Sector
If the Johnson Amendment is repealed, 501(c)(3) organizations could become entities that are given tax-deductible donations for the purpose of participating in the electoral process, and donors would be completely shielded from disclosure—hindering transparency. Because donors could deduct any contributions, it would create an incentive for people to switch from giving money to PACs and super PACs (which are required to identify their donors) to 501(c)(3)s.
These organizations would be able to participate in influencing elections without disclosing their donors as long as “no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation.” (NOTE: some estimates would limit this number to 10-20% of their budgets, while others have argued that as long as less than half of an organization’s budget was used for political activity, that would satisfy the “no substantial part” test—but the IRS has never defined this or assigned a percentage). Effectively, this would completely open the door to endorsing or opposing specific political candidates, while still maintaining restrictions for charities to lobby on behalf of issues and legislation.
As some 501(c)(3) organizations spend millions, and even billions, of dollars every year, this could result in exorbitant amounts of dollars being used to influence the electoral process without American taxpayers being able to scrutinize which parties are behind the contributions.
Treasury Regulation 53.4945-2(d)(3) confers a self-defense exception to private foundations for communications with a legislative body regarding legislation that affects the “existence of the private foundation, its powers and duties, its tax-exempt status or the deductibility of contributions to such foundation.” It is the Council’s position that any proposed legislation that would repeal or modify the Johnson amendment in such a way that would allow private foundations and other exempt organizations to participate in previously prohibited political activity, would directly affect the powers and duties of the exempt organization.
Accordingly, the Council takes the position that direct lobbying in support of or in opposition to such legislation would fall within the self-defense exception, and private foundations could engage in communications with legislators on this subject. This exception is not available for activities that would constitute grassroots lobbying—such as encouraging grantees or others to contact their legislators. However, the Council respects its members’ own determinations regarding legal issues, and individual policies or practices related to lobbying activity.
We encourage members to consult with their own legal counsel regarding any questions.