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.