Sunday, September 12, 2010

IRS Section 501(c)(3) vs Freedom of Speech

"Tax-Exempt Organization" - Sounds pretty good and sort of makes you wish you were one, doesn't it?  You must ask, whenever the government (IRS) tells you that you can keep some dollars in your right pocket, what are they taking out of your left pocket? 

When was the last time you heard of a church that was not approved by the IRS as a 501(c)(3), tax-exempt organization?  It seems that it is almost automatic that a church is approved by the IRS for this status.  What is the benefit to churches to be classified as a 501(c)(3) organization?  Receiving this status allows individuals who contribute to the church to deduct their contributions as an itemized deduction on their income taxes.  If a church did not meet the requirements of a 501(c)(3) organization, those contributions could not be deducted for income tax purposes. 

Sounds like a win-win situation!  Not so fast, the IRS is not Santa Claus.  It does not give away revenue out of the kindness of its heart.  Be skeptical anytime the government appears to be giving you something for nothing.  We accepted money from Washington for our public schools - now the Department of Education dictates some curriculum and mandates local spending on liberal agenda items.  We accepted highway money from Washington - now we are threatened with the loss of these on-going funds if we do not tow the line in other areas.

Why does the government let us deduct contributions to churches?  What do they get out of it?  When a church is approved as a 501(c)(3) organization, they forfeit part of their freedom of speech rights.  That is the payoff to the government.  From that point on, that church cannot risk being fined and the loss of their tax-exempt status by speaking out on political matters or passing out material for or against any political campaign. 

The government has just silenced organized religion when it comes to the affairs of politicians.  Churches are afraid that the loss of their IRS status would mean the loss of contributions. 

But, aren't all churches required by the IRS to file for 501(c)(3) approval?  No, they are not, based on the IRS tax guide for "Churches and Religious Organizations".  Quoted from page 3, "Churches that meet the requirements of IRC section 501(c)(3) are automatically considered tax exempt and are not required to apply for and obtain recognition of tax-exempt status from the IRS."  It goes on to say, "Although there is no requirement to do so, many churches seek recognition of tax-exempt status from the IRS because such recognition assures church leaders, members, and contributors that the church is recognized as exempt and qualifies for related tax benefits."

So, what are the "requirements of IRC section 501(c)(3)"?  There are several, but two of importance in this discussion are summarized as follows:  first, "no substantial part of its activity may be attempting to influence legislation," and, "the organization may not intervene in political campaigns".  They explain that intervening includes speaking out for or against any candidate, raising funds for political activities, passing out literature for or against any candidate, etc.

It was not always the case that the government restricted political speech in churches.  In the early part of this country, preachers speaking about political issues were not uncommon.  Four of the signers of the Declaration of Independence were preachers.  Most of the Founding Fathers were religious. 

The IRS web site has a link to a document, "Election Year Issues".  Within this article is contained some background to IRS 501(c)(3).  Page 336, "Prior to 1954, there was no statutory provision absolutely prohibiting organizations described in the antecedents of IRC 501(c)(3) from engaging in political campaign activities."  The Revenue Act of 1934 had established the lobbying (legislation) restriction of 501(c)(3), but the campaign activity restriction was not included.  In the Revenue Act of 1954, Lyndon Johnson had successfully added an amendment restricting 501(c)(3) organizations from campaign activity. 

As I am not an attorney or an accountant, there are other issues relating to whether or not a church should or should not apply with the IRS for 501(c)(3) status (consult your professional for legal advise).  But, the government has been successful, by offering tax benefits to those who comply, in closing America's pulpits to political speech.  Soon after the Revenue Act of 1954, with the preachers effectively silenced, government became more bold in its attack on religion and America became more lax in its morality.  By the 1960's, we were dealing with the removal of prayer in schools and the "free love" movement.  We also began to see the dismantling of the typical family unit and the "women's lib" movement. 

How has the trade-off worked for better?  The churches may have more contributions from their members, but probably have less members due to the decline in morality and the lack of interest in organized religion. 

How were churches able to generate necessary funds prior to the IRS letting contributions be deductible?  That is easy, the members did not expect special tax benefits and gave out of love of the church or at least obedience to the Word.  If a church were to give up its 501(c)(3) status, gain back the free speech from the pulpit, but lose the tax benefits to the members; what would the members do?  Would they change churches or stop giving to their church?  I would hope not.  I believe that with the proper education the members would understand the importance of not having the preachers censored by the government and would appreciate the stand being taken by the church leaders.  God did not instruct us to give where we gained a financial benefit from the gift, He just told us to give.

Sometimes, the old-fashioned way of doing things was just better!

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