Earlier this summer, the IRS issued a now-well-publicized rejection letter against Christians Engaged (CE) for being too political to qualify for Section 501(c)(3) tax-exempt status. But, as explained in its IRS Form 1023 application, Christians Engaged operates for religious purposes, encourages people to pray for our country’s leaders, educates on moral issues with public policy, and carries out other activities with political overlays. An uproar ensued in opposition to this denial among tax practitioners, religious organizations, and politicians – with the welcome result that the IRS reversed course and summarily recognized the organization’s tax-exempt status. Was the IRS initially right or wrong? What could Christians Engaged have done better? And what can other Section 501(c)(3) organizations learn from the IRS’s bizarre handling?
Christians Engaged’s Application Journey to Section 501(c)(3) Recognition
Christians Engaged was formed in Texas in July 2019 as a nonprofit corporation with three purposes: “To awaken, motivate, and empower ordinary believers in Jesus Christ to: pray for our nation regularly, vote in every election to impact our culture, [and] engage our hearts in some form of political education or activism for the furtherance of our nation.” Specifically, CE holds Bible studies, sends out prayer alerts, organizes gatherings, publishes various forms of media, invites people to pledge to pray regularly for the nation, reminds voters of upcoming elections, and provides educational resources for Christians that may be unfamiliar with civic and public policy processes. Shortly after incorporating in Texas, CE applied for exemption from federal income taxes under 26 U.S.C. § 501(c)(3).
Nearly two years later, on May 18, 2021, the IRS determined that CE was not qualified for exemption under 501(c)(3) because it “engage[s] in prohibited political campaign intervention,” and is “not operated exclusively for one or more exempt purposes within the meaning of Section 501(c)(3),” but is rather operated for “a substantial non-exempt private purpose and for the private interests of the [Republican] Party.” As a part of its ruling, the IRS strangely commented that CE’s “Bible teaching are typically affiliated with the [Republican] party and candidates,” thereby disqualifying CE from exemption under Section 501(c)(3).[1]
This decision left many practitioners scratching their heads and sparked a national backlash. Lawmakers, including Congressmen Chip Roy and Doug Lamborn and Senator Mike Lee, sent a letter to IRS Commissioner Charles Rettig expressing concern over the decision.[2] For its part, CE appealed the decision on June 16, 2021.[3]
Following this extensive criticism, and almost overnight, the IRS issued a second determination letter on July 7, 2021 recognizing CE as an exempt Section 501(c)(3) public charity. However, the IRS provided no explanation for why it ruled against CE in the first determination letter; nor did it apologize for any inconvenience caused to CE, any internal misapplication of the appropriate law, or even any lack in quality control that may have caught any IRS processing errors.
Fumbling Along, “Politically” Speaking
So, what did the IRS get wrong in its first determination letter? Plenty!
As an initial matter, the IRS missed basic tax-exempt principles. Section 501(c)(3) organizations are legally allowed wade into political conversations, so long as they do not engage in any political campaign activity or excessive lobbying.[4] Consequently, the IRS should have paid closer attention to key legal considerations such as the following: what amounts to “campaign activity; whether any of CE’s described communications consisted of advocacy for or against candidates for public office; and whether any of CE’s advocacy is expressly or implicitly for political candidates (as opposed to the political process more generally, and as a function of our democratic society). The IRS should also have addressed lobbying-related questions such as whether CE would engage in too much grassroots or direct lobbying (appropriately measured in dollars, as well as perhaps more qualitatively such as through volunteer engagement).
The IRS’s resulting answers to such questions should have determined whether CE crossed the legal line for political activity for Section 501(c)(3) status. More concretely, CE is not allowed to engage in any political campaign activity whatsoever, and CE may carry out only “insubstantial lobbying.” But educational issue advocacy – that is, to speak out on public policy and other issues - is fully permissible for CE, even if such issues carry political overtones. In other words, just because moral, social, cultural, and even religious issues carry political overtones does not mean that they are “hands-off” for CE – or any other nonprofit organizations seeking to garner Section 501(c)(3) recognition.[5]
The IRS then erroneously conflated the legal concepts of a tax- exempt organization’s “political activities” and its support of “political candidates,” as impermissible activities under Section 501(c)(3). In the determination letter, IRS Exempt Organizations Director Martin indicated that CE’s activities must be politically “neutral”: “While you educate voters on what the Bible says about issues, your educational activities are not neutral. The topics typically are affiliated with distinct candidates and specific political party platforms.” Such information may be true for CE, but it should not defeat Section 501(c)(3) qualification.
But Section 501(c)(3) only prohibits exempt organizations from intervening on behalf of or against any candidate for public office. CE sent election reminders and generally encouraged its members to vote but did not advocate for or against any candidate in an election. All of CE’s activities fell within the range of “educational issue advocacy,” such as “educating voters on what the Bible says about issues,” specifically, the sanctity of life, the definition of marriage, biblical justice, freedom of speech, defense, borders and immigration, and U.S. and Israel relations. Additionally, whether a particular candidate or party happens to also advocate for these issues does not imply intervention on CE’s part nor would it jeopardize its tax-exempt status. The IRS’s conflation errors are thus underscored by its failure to consider the underlying definitional questions that are critically relevant for any question of Section 501(c)(3) status and politics.
The IRS also disregarded CE’s substantial free speech rights and the IRS’ prescribed role of neutrality in handling tax-exemption applications. As the IRS previously recognized in its Revenue Ruling 86-43, the IRS is supposed to "maintain a position of disinterested neutrality" in examining a tax-exempt applicant's issue advocacy activities.[6] More foundationally as a constitutional matter, “[w]here at all possible, government must curtail speech only to the degree necessary to meet the particular problem at hand.”[7] This is because, as the U.S. Supreme Court has repeatedly recognized, freedom for politically related speech is foundational to our country’s democratic system. Consequently, any test regarding politically oriented speech thus should “reflect[] our profound national commitment to the principles that debate on public issues should be uninhibited, robust, and wide-open.”[8]
The IRS’s erroneous decision further reflects an odd view of religion in the proverbial public square. Are religious organizations not allowed to speak up about moral, societal, and other issues with political overtones, as a cost of Section 501(c)(3) status? Far from it! As countless favorable IRS determinations have recognized, religious organizations certainly may encourage people to engage vigorously for causes of all types, so long as they do not cross the line for political campaign activity or too much lobbying.[9]
Takeaways
The IRS’ denial, and subsequent 180-degree turnaround, seems to reflect a lack of competence at the IRS or, perhaps more graciously, a deeply concerning lack of attentiveness. Consequently, while many tax-exempt applications may breeze through the IRS’s review process without a hiccup, others may get stalled or even rejected. As CE learned, one cannot count on the IRS to apply its own legal standards correctly. Nonprofit applicants should thus be careful to articulate the basis of their tax-exempt status and to address any potential questions to clearly demonstrate Section 501(c)(3) status well, thereby dispelling any notion of illegality or nonconformity with tax-exempt standards.
How much information should CE have shared with the IRS, through its IRS Form 1023 application? One simple answer: enough to garner tax-exempt recognition! A better answer would be to more fully explain how all of CE’s activities are religious in nature, pervasively grounded in theological concepts and beliefs, fully nonpartisan, not seeking in any way to get particular political candidates elected, and fully in accordance with its free speech rights. That seems to be the right approach, albeit more complicated than perhaps an average IRS application and calling for thoughtful IRS review.
But what about CE’s politically related activities? The IRS’ initial rejection letter focused on their “get out the vote” drives, political activism courses, and helping Christians engage in political environments. The IRS found such activities not only “non-neutral,” but also beyond the permissible scope of Section 501(c)(3) – impermissibly serving only “private interests.” Such concerns may be quite significant for other organizations too, whether seeking tax-exempt recognition or aiming to protect tax-exempt status, particularly for our hyper-partisan political times. Talking, educating, and otherwise engaging with political candidates may lead into grey legal areas for a Section 501(c)(3) organization, so extreme caution, discerning leadership, and good legal counsel may prove vitally important.
Last, nonprofits cannot count on politicians and public pressure to come to the rescue, as they did for Christians Engaged. It is encouraging that the IRS listened and swiftly issued a corrective determination letter, but doing so ironically may have only further politicized tax-exempt status. A wiser strategy for all nonprofits is thus to aim at all times to reflect full legal compliance with applicable tax requirements, particularly in the all-too-often complicated area of political activities and Section 501(c)(3) status.
[1] See the first determination letter here.
[2] See letter from Sen. Mike Lee and other politicians to IRS Commissioner Charles Rettig.
[3] See Christians Engaged's appeal here.
[4] For additional background information about applicable legal restrictions, see our blogs here and here.
[5] For further guidance on permissible educational issue advocacy for Section 501(c)(3) organizations, see S. Wagenmaker, Speak Up: Issue Advocacy in Increasingly Politicized Times, and our blog here.
[7] Federal Election Commission v. Massachusetts Citizens for Life, Inc., 479 U.S. 238 (1986).
[8] Federal Election Commission v. Wisconsin Right to Life, Inc., 551 U.S. 449 (2007).
[9] For an excellent explication of how religion inherently implicates politics, and how Christianity in particular calls for “faithfully engaging the public square,” see J. Ventrella Are Law And Public Policy Gospel Issues? (“Jerusalem will always clash with Athens . . . . [and] [t]hat clash is inherently political.”)
