Recent Developments

Issues that affect ministers and churches
Political Activities
Impact on Tax-exempt Status
New York
State:

In a case that will be of considerable relevance to churches and religious organizations, a federal appeals court ruled that the New York City bar association did not qualify for exemption from federal income taxation under section 501(c)(3) of the Internal Revenue Code since its practice of rating candidates for judgeships constituted a prohibited participation in political campaigns. Section 501(c)(3) of the Code provides for the exemption from federal income taxation of organizations that satisfy five conditions. One of those conditions is that the organization must not "participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office." A committee of the New York City bar association evaluates candidates' professional ability, experience, character, and temperament, and then rates them as either "approved," "not approved," or "approved as highly qualified." The bar association's bylaws specify that the evaluation committee "shall endeavor to secure the nomination, election, or appointment" of qualified candidates, and to prevent the nomination, election, or appointment of unqualified candidates. The bar association claimed that its rating system did not constitute prohibited participation in political campaigns since the ratings (1) were "nonpartisan," (2) involved merely the collection and dissemination of objective data, and (3) were not a "substantial" part of its activities. The court rejected these claims, and revoked the exempt status of the bar association. In rejecting the association's first claim (i.e., that its ratings were nonpartisan), the court observed that "a candidate who receives a `not qualified' rating will derive little comfort from the fact that the rating may have been made in a nonpartisan manner." As to the association's second claim (i.e., that the ratings were mere presentations of objective facts), the court observed that "a representation that a candidate is able and has proper character and temperament is a subjective expression of opinion" rather than a mere recital of facts. Finally, the court rejected the association's argument that its exempt status was not affected since the ratings were not a "substantial" part of its activities. "The short answer to this argument," noted the court, "is that Congress did not write the statute that way." While section 501(c)(3) provides that an exempt organization's attempts to influence legislation will not jeopardize its exempt status unless such activities are "substantial" in nature, the requirement of substantiality does not apply to participation in political campaigns. The court did refer with approval to a 1980 IRS ruling upholding the exempt status of an organization that published a "voter education" newsletter. The IRS emphasized the following factors: (1) the voting records of all incumbents were presented; (2) candidates for reelection were not identified; (3) no comments were made of a candidate's overall qualifications for public office; (4) no statements were made indorsing or rejecting any incumbent as a candidate for public office; (5) the organization did not widely distribute its compilation of incumbents' voting records; and (6) no attempt was made to target the publication toward particular areas in which elections were occurring nor was the publication timed to coincide with election campaigns. Revenue Ruling 80-282. The appeals court's ruling is of relevance to churches for a number of reasons. It demonstrates that (1) intervention or participation in political campaigns will jeopardize a church's exemption from federal income taxation; (2) the participation or intervention in political campaigns need not be a substantial part of a church's activities; (3) participation or intervention in political campaigns cannot be justified on the basis of "nonpartisanship" without compliance with strict guidelines; and (4) statements to the effect that a particular candidate is "fit," "qualified," or "capable" are not mere "statements of fact" that will have no effect upon a church's exempt status. The Association of the Bar of the City of New York v. Commissioner, 88-2 USTC para. 9535 (2nd Cir. 1988).

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Posted: January 2, 1989
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