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The Politics of Charity: Philanthropy and the New Tax Law

January 2, 2018

Part II. The Johnson Amendment and Implications for Fundraisers

One of the most controversial provisions in the House version of the recent tax bill was the repeal of the Johnson Amendment. The proposed repeal was not included in the final version of the bill and the Johnson Amendment remains in place. However, a Presidential Executive Order was signed in May of 2017, restricting its enforcement, and the amendment continues to be a subject of fierce debate.

The Johnson Amendment is part of a long history of tax laws that regulate the political activities that charitable organizations, including religious institutions, can pursue while maintaining their tax-exempt status. Key legal milestones in that process include a famous 1930 case Slee v. Commissioner of Internal Revenue. In this case, the petitioner, D.G. Slee, had donated to the American Birth Control League, which he later claimed as tax deductions. The Internal Revenue Board disallowed these deductions and the court upheld their finding. In his ruling, Judge Hand determined that the purpose of the lobbying efforts of the League (repealing laws preventing birth control) was not directly related to the provision of its charitable services (education and free health care) and therefore did not qualify for tax exemption. A 1934 ruling shifted the focus from the purpose of lobbying activities to their extent. Since that ruling, allowable lobbying activities have been more clearly defined, and limits on acceptable lobbying expenditures were established (generally 20% of tax exempt expenditures, with some variance according to the total organizational budget).

Twenty years later, the Johnson Amendment, introduced by then Senator Lyndon B. Johnson of Texas and adopted on July 2, 1954, extended nonprofit restrictions to include endorsing political candidates. In 1987, congress further expanded this prohibition to include opposing political candidates. Today, under the current IRS code, 501(c)(3) organizations and institutions are “absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office. Contributions to political campaign funds or public statements of position (verbal or written) made on behalf of the organization in favor of or in opposition to any candidate for public office clearly violate the prohibition against political campaign activity. Violating this prohibition may result in denial or revocation of tax-exempt status and the imposition of certain excise taxes.”

As decisive as this language is, the Johnson Amendment has rarely been enforced. But where it has been applied, it is often legally contested as conflicting with the right to free speech. One famous case involved revocation of the tax-exempt status of Christian Echoes National Ministry, for encouraging its member base to lobby their representatives for specific outcomes on legislation and endorsing then candidate Barry Goldwater for President. Christian Echoes challenged the revocation on the basis of the First Amendment but in 1973 the Christian Echoes National Ministry, Inc., v. United States of America decision upheld the IRS determination: “In light of the fact that tax exemption is a privilege, a matter of grace rather than right, we hold that the limitations contained in section 501(c)(3) withholding exemption from nonprofit corporations do not deprive Christian Echoes of its constitutionally guaranteed right of freedom of speech” and upheld “the principle that the government shall not subsidize, directly or indirectly, those organizations whose substantial activities are directed toward the accomplishment of legislative goals or the election or defeat of particular candidates.”

The Johnson Amendment recently became a matter for accelerated public debate during the 2016 presidential election and following the May 2017 Executive Order. Critics of the amendment continue to assert that it conflicts with constitutional guarantees of free speech, most notably for some faith leaders who consider sharing political convictions and endorsing candidates that reflect their values to be a meaningful part of ministering to their communities. But supporters of the amendment fear that a repeal would transform places of worship and charitable organizations into tools of political campaigns, turning charitable donations into a tax-deductible campaign finance loophole, and ultimately diverting resources from the spiritual comforts, or services and supports that so many nonprofits provide to people in need.

If charitable donations were to become essentially tax-deductible support for political campaigns, this would have an enormous impact on professional nonprofit fundraisers. Nonprofit development or fundraising is very much mission driven work, so it is not uncommon to find strong political or faith-based convictions among development professionals. But, unlike individual and crowd-sourced fundraising efforts, which are often very much about the personal beliefs and values of the fundraiser, professional fundraisers typically maintain a stance of neutrality in their work.

Grant writers for instance, are generally committed to serving nonprofits by helping them clarify their messaging, build their capacity, assemble stakeholder consortiums and other collaborations. This often includes partnering, as a neutral party, in designing programs and evaluation plans related to the grants they write and submit on the organization’s behalf. The primary purpose of the job is to facilitate funding for the services provided by nonprofits from the donors and grantors throughout the philanthropic community who want to help make that good work happen. Fundraising is a critical intermediary service, aligning the professional skills and expertise of the fundraiser with the missions of charitable organizations and the commitments and standards of dedicated philanthropists, always with the end goal of meeting urgent community needs.

Successful fundraisers must be collaborative at their core, and collaboration requires the ability to listen to, understand, and integrate diverse and often conflicting perspectives. There is something unique about this aspect of the nonprofit and philanthropic community circle, especially today when divisive, partisan electoral politics seem to penetrate all aspects of civil society. A statement by the Association of Fundraising Professionals in February of this year noted that the foundation of philanthropy is to “bring people together to advance causes and create change. People who believe in an issue—regardless of their creed, background, nationality, political leanings, or any other factor—unite to support a cause through giving, volunteering and other types of engagement. It doesn’t matter who you are as long as you support the issue and the cause.”

The tax code as it relates to nonprofits is complex and always evolving and there are still important issues to consider on all sides in the debate concerning the Johnson Amendment and where and how we separate charitable and political activity. But, it is important to acknowledge that political campaigns are about winning elections, not performing a social or spiritual service, which is the common existential basis of nonprofit entities. If the Johnson Amendment is repealed and charitable organizations and institutions direct their activities towards the competitive endorsement or opposition of political candidates it would alter the service-based end goal of nonprofit fundraising and erode its collaborative core, diminishing public trust in fundraiser’s integrity and a vital communal space where inclusive solutions can be invented, supported, and implemented.

In the conflict resolution and formal mediation fields, one strategy for reaching an effective and lasting agreement is to focus on problem solving techniques that are designed to encourage a focus on the real needs and interests of conflicting parties, instead of arguing, defending, and reinforcing positions. Similarly, partisan positions may be a political inevitability today, but those positions in and of themselves cannot solve problems or help people in need. Only listening to each other and working together can.

 

Contact: Myshel Prasad, Resource Development Officer, myshel@thegrantplantnm.com

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