Tax professionals who advise tax-exempt organizations are aware of the stringent rules governing political activity, particularly for entities described under Internal Revenue Code (IRC) Section 501(c)(3). A significant legal development is currently under consideration by the United States District Court for the Eastern District of Texas: a proposed consent judgment in the case of National Religious Broadcasters, et al. v. Billy Long, et al., which addresses the interpretation of the "Johnson Amendment" as it applies to churches. This proposed agreement, while not yet binding, offers crucial insights into the ongoing dialogue surrounding religious organizations' political speech and their tax-exempt status.

The Johnson Amendment: Core Prohibition in IRC Section 501(c)(3)

IRC Section 501(a) establishes that an organization described in subsection (c) or (d), or Section 401(a), is exempt from taxation, unless such exemption is denied under Sections 502 or 503. Among the various types of exempt organizations, Section 501(c)(3) specifically details entities organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition, or for the prevention of cruelty to children or animals.

A fundamental requirement for 501(c)(3) status is that "no part of the net earnings...inures to the benefit of any private shareholder or individual". Furthermore, a significant restriction, often referred to as the "Johnson Amendment," mandates that "no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does 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". Subsection (h) provides specific rules for certain public charities regarding lobbying expenditures, distinguishing them from the outright prohibition on political campaign intervention. The litigation, however, specifically centers on the "political campaign" prohibition.

The Churches v. IRS Litigation

The lawsuit, initiated on August 28, 2024, by plaintiffs including National Religious Broadcasters, Intercessors for America, Sand Springs Church, and First Baptist Church Waskom, named Billy Long (in his official capacity as Commissioner of the Internal Revenue Service) and the Internal Revenue Service (IRS) as defendants. The plaintiffs' amended complaint alleged that the Johnson Amendment, both on its face and as applied, violates their First Amendment rights (freedom of speech and free exercise of religion), Fifth Amendment rights (due process of law and equal protection under the law), and the Religious Freedom Restoration Act. They sought declaratory relief that the Johnson Amendment unconstitutionally prohibits political speech by 501(c)(3) organizations and injunctive relief to prevent its enforcement insofar as it restricts such speech.

Key Interpretation in the Proposed Consent Judgment

The proposed consent judgment outlines a specific interpretation of the Johnson Amendment, particularly concerning houses of worship. The parties stipulate that when a house of worship "in good faith speaks to its congregation, through its customary channels of communication on matters of faith in connection with religious services, concerning electoral politics viewed through the lens of religious faith, it neither 'participate[s]' nor 'intervene[s]' in a 'political campaign,' within the ordinary meaning of those words".

The document clarifies these terms:

"Participate" in a political campaign means "to take part" in it.
"Intervene" in a political campaign means "to interfere with the outcome or course" of it.

Crucially, the parties agree that "bona fide communications internal to a house of worship, between the house of worship and its congregation, in connection with religious services, do neither of those things". This interpretation, according to the proposed judgment, aligns with the IRS's general practice of not enforcing the Johnson Amendment against houses of worship for speech concerning electoral politics in the context of worship services.

The proposed judgment emphasizes that this interpretation is supported by the doctrine of constitutional avoidance. Applying the Johnson Amendment to such communications would potentially create a "serious tension with the First Amendment's Establishment Clause" by favoring religions that do not engage in electoral politics over those that do, based on their internal speech to their congregations. This could be seen as officially preferring one religious denomination over another, which is a key prohibition of the Establishment Clause.

Implications for Tax-Exempt Organizations (Especially Religious Entities)

If approved by the court, this consent judgment would represent a formal acknowledgement of an interpretation that has largely guided IRS enforcement practice regarding religious organizations. For tax professionals, this means a reinforcement of the understanding that churches and other houses of worship generally have latitude to address electoral politics through the lens of religious faith in their internal communications to their congregations during religious services, without jeopardizing their 501(c)(3) status. The key limitations remain: "in good faith," "to its congregation," "through its customary channels of communication," "on matters of faith," and "in connection with religious services".

It is important to note that this proposed interpretation does not open the door for churches or other 501(c)(3) organizations to engage in broader political campaign activities, such as endorsing candidates, donating to campaigns, or engaging in public political advertising beyond their internal, faith-based communications. The judgment's proposed injunctive relief specifically pertains to the Plaintiff Churches and their internal, faith-based communications during religious services. Tax professionals must continue to advise clients on the strict prohibition against direct participation or intervention in political campaigns as generally understood outside of this specific, narrowly defined context.

Important Considerations for Practitioners

As this is a proposed consent judgment, it is not yet legally binding on the parties. It awaits the court's approval and entry. Practitioners should closely monitor the court's decision. If entered, the injunction would specifically apply to the Plaintiff Churches, prohibiting the IRS from enforcing the Johnson Amendment against them based on the described type of speech. While the interpretation articulated in the document is presented as the "best reading" of the Johnson Amendment, its direct legal effect through the injunction would initially be limited to the named plaintiffs. Nevertheless, it provides valuable insight into the IRS's stated position and may influence future guidance or enforcement actions for similar organizations.

For all 501(c)(3) organizations, including those that are not religious in nature, the general prohibition against participating in or intervening in political campaigns remains in full force. The distinction between permissible advocacy on issues (including via lobbying within limits for certain organizations under Section 501(h)) and prohibited campaign intervention remains critical for maintaining tax-exempt status.

Prepared with assistance from NotebookLM.