May 10, 2017 President signs executive order to loosen restrictions on political speech by religious entities On May 4, 2017, President Trump signed an Executive Order that directs federal agencies generally, and the Treasury Department in particular, to take "no adverse action" against any individual, house of worship or religious organization that "speaks or has spoken about moral or political issues from a religious perspective," to the extent permitted by law. The Executive Order does not preclude the IRS from enforcing the prohibition on Section 501(c)(3) organizations supporting or opposing a candidate for public office. Background During the presidential campaign, then-candidate Trump spoke often about doing away with the "Johnson Amendment" — a provision of the Internal Revenue Code prohibiting Section 501(c)(3) tax-exempt organizations from intervening or participating in political campaigns on behalf of or in opposition to a candidate for public office. The Johnson Amendment, named for its sponsor, then-Senator Lyndon Baines Johnson, has been in place since 1954. Under Section 7611, the IRS must follow detailed procedures when it is involved in a "church tax inquiry." A church tax inquiry requires that an appropriate high-level Treasury official submit, in writing, that he or she reasonably believes that a church may not be exempt. Notice must also be given to a church that explains the concerns that gave rise to the inquiry, its legal basis, and the need to examine church records. In part because of these restrictions, IRS enforcement of the Johnson Amendment has traditionally been limited. However, the Johnson Amendment has been the source of much debate, particularly in recent years. Executive Order The "Presidential Executive Order Promoting Free Speech and Religious Liberty" attempts to dull the effect of the Johnson Amendment by directing the executive branch (including the Treasury Secretary and Internal Revenue Service), to the extent permitted by law, not to take adverse action against any individual, house of worship or religious organization (e.g., threaten to revoke a religious entity's Section 501(c)(3) status) as a result of an individual's or organization's speaking about moral or political issues from a religious perspective (e.g., the clergy's enunciating political messages from the pulpit). Under the Executive Order, the types of "adverse action" that federal agencies are prohibited from taking include "the imposition of any tax or tax penalty; the delay or denial of tax-exempt status; the disallowance of tax deductions for contributions made to entities exempted from taxation under section 501(c)(3) of title 26, United States Code; or any other action that makes unavailable or denies any tax deduction, exemption, credit, or benefit." The Executive Order further states that to be protected under the order, the political speech by clergy and houses of worship must be analogous to "speech of a similar character [that] has, consistent with law, not ordinarily been treated as participation or intervention in a political campaign on behalf of (or in opposition to) a candidate for public office by the Department of the Treasury." The Executive Order does not specify how the IRS or other federal agencies should determine whether speech has not ordinarily been treated as participation in a political campaign. In addition to addressing religious and political speech, the Executive Order directs the secretaries of Treasury, Labor, and Health and Human Services to "consider issuing amended regulations, consistent with applicable law, to address conscience-based objections to the preventative-care mandate promulgated under section 300gg-13(a)(4) of title 42, United States Code." This provision in the Executive Order is aimed at extending to certain religiously affiliated institutions (e.g., universities, hospitals) an exemption from the Affordable Care Act (ACA) requirement to provide certain preventative-care services, which is currently available to churches and other houses of worship. Implications This Executive Order is intended to strengthen protections for religious and political speech by individuals, houses of worship and other religious organizations that engage in political speech from a religious perspective. It is unclear whether the Executive Order carries any real teeth, however, because the order protects speech that has "not ordinarily been treated as participation or intervention in a political campaign" by Treasury, and does not preclude the IRS from enforcing the Johnson Amendment against organizations or persons engaged in political campaign activity. Yet, the Executive Order could be a precursor to more robust legislative changes concerning the Johnson Amendment. It is not clear whether or how the Executive Order might affect IRS application of Section 4955, which allows the IRS to impose an excise tax on a Section 501(c)(3) organization and its organization managers for political expenditures of the organization. The Section 4955 excise tax may be imposed as a type of intermediate sanction in lieu of revocation of tax exemption. An Executive Order cannot be used to repeal the Johnson Amendment or Section 4955; a repeal would require legislative action. Legislation has been proposed in both the House and Senate to permit Section 501(c)(3) organizations to engage in certain political campaign activities, similar to legislation proposed in previous sessions of Congress. But because the tax law has not changed and it is not clear how the Executive Order will be carried out, Section 501(c)(3) tax-exempt organizations should be mindful of the continued prohibition on endorsing candidates for political office and engaging in other political campaign activities. ——————————————— — For more information about EY's Exempt Organization Tax Services group, visit us at www.ey.com/ExemptOrg ———————————————
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