Q: I am aware that churches risk the loss of their tax-exempt status if they participate in political campaigns. Several people in our congregation would like for our church to be more politically active. As a practical matter, what difference would it make if we lost our tax-exempt status?
A: Loss of your church's exemption from federal income taxation would have several consequences, including the following:
- The church's net income would be subject to federal income taxation.
- The church's net income would be subject to state income taxation (except in the few states not having an income tax).
- Donors no longer could deduct charitable contributions they make to the church.
- The church would be ineligible to establish or maintain 403(b) tax-sheltered annuities.
- The church could lose its property tax exemption under state law.
- The church could lose its sales tax exemption under state law.
- The church could lose its exemption from unemployment tax under state and federal law.
- The church could suffer an adverse impact on its zoning classification.
- The church could lose its preferential mailing rates.
- The church could lose its exemption from registration of securities under state law.
- Nondiscrimination rules pertaining to various fringe benefits (including an employer's payment of medical insurance premiums) would apply.
- In some cases a minister's housing allowance may be affected.
- In some cases the exempt status of ministers who opted out of Social Security may be affected.
- The significant protections available to a church under the Church Audit Procedures Act may no longer apply.