Consequences of a Church’s Political Participation
What happens if we lose our tax-exempt status?

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.

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