Wednesday, June 13, 2012

Henneberger on FoF and Tax Exemption

Melinda Henneberger:

The upcoming “Fortnight for Freedom” campaign to push back against this administration’s contraceptive health care mandate, however, sounds so much like a “Fortnight to Defeat Barack Obama” that I’ve gotten to wondering what our prelates would have to do to cost the church its tax-exempt status. (IRS rules are pretty clear that churches have to give up their exemption if they campaign for or against a political candidate.)

That is not going to happen, and I’m not suggesting it should. But as a thought exercise, what would it take to provoke such a thing?

This is not quite stated correctly. It's simply impossible for "the church" to lose tax-exempt status because (1) the Catholic Church as such is not a single taxable institution, but a very, very large number of affiliated institutions, each of which would have to be looked at individually; and (2) the most the IRS could seriously do is say that the income used for political campaigning is taxable. It's not illegal for churches to campaign for political candidates, by the way; it's just that if they do, their income can be treated as taxable if the IRS so determines. According to IRS rules, churches don't have any special tax exemption per se, since they just fall under educational or cultural institutions, but they do have one peculiarity in comparison with other institutions in this category, which is that churches and similar institutions get their exemption automatically as long as they meet other requirements. Since a lot of other tax-related benefits (affecting the charitable status of donations, audit procedures, etc.) are linked to tax-exempt status, this could be a pretty big matter, but the institution would qualify again the next year as long as they met the requirements for that year.

Moreover, not all activities that are political count: most of the prohibited activities can be avoided by simply framing everything in nonpartisan terms encouraging people of all parties to take an issue seriously, especially if the message of the institution in question is closely connected to things the church says even in non-election years. It doesn't actually matter how politically controversial an issue is: the IRS is quite clear that churches can still speak out on controversial topics in election years, even when they divide the candidates. It's favoritism for candidates and parties that has to be avoided -- whatever the action is, it can't be equivalent to telling people they can't vote for one candidate or must vote for another (whether or not it actually uses those words). Anything short of that is at most grey-area, and probably safe. So the basic point is:

(1) The Catholic Church, as such, has no tax exempt status because it is not for tax purposes a single institution but a very, very large group of affiliated institutions, each of which would have to be considered separately.

(2) The only institutions whose tax-exempt status could possibly be affected are those directly intervening in the problematic activity. That would in this context largely limit the matter to the diocesan level, although here and there it might reach further.

(3) The activity would have to be directly prejudicial to a candidate or party as such, would have to be clearly associated with the person's official work for that institution. Jenky's actions, as given in Henneberger's post, could potentially get Peoria diocese in trouble, because it is effectively equivalent to telling people not to vote for Obama. Dolan's, on the other hand, are much more grey-area. Many of the tweets, press releases, etc., that Henneberger mentions are certainly not even in the vicinity: merely coming down on an issue is not enough.

(4) While it would be a pretty serious matter for the institution for this fiscal year, it wouldn't be a serious long-term problem; institutions of this sort can't be permanently stripped of the status -- tax-exempt status is handled year-by-year.

Of course, Henneberger is right that this is unlikely to happen, for two reasons: (1) even very small, low-publicity cases where the IRS decides that a church fails to meet the tax exemption requirement are immensely difficult matters for the IRS -- it is highly unpopular, it is always bad press, and it can drag on and on because there are always people who will go to the wall to fight it; and (2) if the IRS tried to press the matter in this context, it would reflect very badly on the White House. Very politically sensitive territory. Actually doing it would just strengthen the arguments and worry more people.

My own view is that the campaigning restriction should be removed completely for all 501c3 institutions -- it is a technically-acceptable qualification that is at heart entirely out of step with the spirit of the American way of life. But this is unlikely -- the restriction actually has considerable bipartisan support, and whenever Congress has considered the matter it has always ended up strengthening the restriction. The reason's not hard to find: it's very convenient for both major parties to muzzle major cultural institutions in the context of election campaigns. That very fact should make us worry about it. But it would take an immense push to change it, and that's unlikely to happen.

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