Recent Developments

Issues that affect ministers and churches
Churches—Definition
The tax code prohibits churches and other public charities from participating in political campaigns on behalf of or in opposition to candidates for public office.
Key point. The tax code prohibits churches and other public charities from participating in political campaigns on behalf of or in opposition to candidates for public office. Violations of this prohibition can result in revocation of a church's tax-exempt status, or the imposition of excise taxes under section 4955 of the tax code, or both.

* The IRS issued a ruling in which it addressed a number of important issues including (1) the impact an accumulation of assets has on a church's tax-exempt status; (2) the prohibition of political campaign intervention by churches and church leaders; and (3) the definition of the term "church" for federal tax purposes. A church conducted three or four weekly worship services on its premises for a number of years. These services were attended by up to 350 persons. Over time, the church stopped conducting regular worship services and embarked upon radio and publishing activities and occasional regional seminars where the church's founder disseminated his religious views, counseled the audience, and raised funds. These ventures proved successful, and the church accumulated large sums of money and acquired substantial real estate properties. On a couple of its radio broadcasts the founder urged listeners not to vote for a particular candidate in a presidential election. The IRS reviewed the church's status, and its political activities, and reached the following conclusions:

accumulation of assets

The first issue was whether the church's accumulation of substantial assets, including commercial properties, affected its tax-exempt status. The IRS noted that a tax-exempt organization can justify a significant accumulation of assets only if it can demonstrate that the assets are necessary for its reasonably anticipated needs. To do this, the organization "must demonstrate a need warranting such accumulation and the existence, as of the end of the relevant taxable year, of specific, definite and feasible plans to use the accumulation within a reasonable time to meet this need." The IRS concluded, "While this case is close, we think that the church has provided sufficient information as to its needs and reasonably anticipated needs for its accumulations." The IRS pointed out that for several years the church operated its tax-exempt programs at substantial deficits, and the income from the investment real estate was available to cover the deficits.

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