MEMORANDUM

TO:                 Churches, Pastors, Elders, Trustees

FROM:           James S. Cole, General Counsel, Missouri Right to Life

DATE:            September 11, 2006

RE:                 Church Opposition to Amendment 2 Does Not Affect Tax Exemption

Summary

            It may be useful for pastors, elders, and other church officials to know what the tax laws say about a church’s expressing opposition to Amendment 2.  Churches may freely oppose Amendment 2 without any impact on their status as tax-exempt organizations under the Internal Revenue Code and under Missouri law.  The only legal requirement that applies may be one of reporting certain expenses to a Missouri state agency.

Discussion

Section 501(c)(3) of the Internal Revenue Code (26 U.S.C. § 501(c)(3)), under which churches are exempt from federal income taxes, forbids intervention in political campaigns “on behalf of (or in opposition to) any candidate for public office.”  26 U.S.C. § 501(c)(3).  The statutory language does not forbid favoring or opposing ballot initiatives; it forbids only activities for or against candidates for office.  Thus, advocating a position on a ballot issue does not constitute illegitimate political activity for churches.  Participating in ballot issues is classified as “lobbying” for the purpose of the federal tax exemption.  Treas. Reg. § 1.501(c)(3)-1(c)(3)(ii). 

            The federal tax laws allow churches to conduct limited activities related to lobbying, so long as their lobbying activities do not constitute a “substantial part” of their total activities during a particular year, as measured by time, effort, expenditures and other relevant factors.  26 U.S.C. § 501(c)(3); IRS Publication 1828, Tax Guide for Churches and Religious Organizations pp. 5-6 (July 2002).  The law does not include a precise definition of “substantial part.”  Case law includes rulings that 16-20% of an annual budget is “substantial,” while less than 5% of time and effort spent on lobbying activities is not “substantial.”  Haswell v. U. S., 500 F.2d 1133 (Ct. Cl. 1974) (16-20% too much); Murray Seasongood v. Commissioner, 227 F.2d 907 (6th Cir. 1955) (under 5% of time and effort acceptable).

            Under Missouri state tax laws, a church is exempt from state taxes if it is exempt from federal taxes.  § 143.321, RSMo. 2000 (if church is not incorporated as a nonprofit corporation); § 143.441.2(1), RSMo. 2000 (if church is incorporated).  Therefore, what is allowed to churches under their federal tax exemption is automatically allowed under their Missouri state tax exemption as well.

Under Missouri state election laws, a church (among other organizations) may advocate the passage or defeat of a ballot measure.  The only obligation imposed by state government  appears to be reporting certain expenditures to the Missouri Ethics Commission.  In the interests of erring on the safe side, the requirements are described herein.*

Under the statutes that may apply, if a church engages in advocacy for or against a ballot proposal in communications to the church’s own members, and if the expenses of such advocacy exceed $2,000.00, then a “noncommittee” report is due to the Missouri Ethics Commission within fourteen (14) days of making the expenditure.  § 130.048, RSMo. 2000.  If a church disseminates its advocacy of passage or defeat of a ballot measure to an audience broader than its members, and if the expenses of such dissemination exceed $500.00, then a “noncommittee” report is due to the Missouri Ethics Commission within the same deadline.  § 130.047, RSMo. 2000.

Conclusion

            The end result of the foregoing statutes is that a church that enters the fray in opposition to Amendment 2 will not endanger its state or federal tax exemption.  At most, it may have “noncommittee” reports to file with the Missouri Ethics Commission if it spends over the amounts described above in its advocacy efforts.