Churches are automatically considered nonprofit organizations under the Internal Revenue Code. As such, these religious institutions enjoy limited privileges and protections. Church leaders should understand what churches may and may not do. The consequences for making an error could be dire for a ministry.
According to the IRS Publication for nonprofits, certain activities are prohibited or restricted for organizations exempt from federal income tax under Section 501(c) (3). Here is a list of restricted activities that apply to churches.
Refrain From Supporting or Opposing Candidates in Political Campaigns
Churches are 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. (Fed, State or local races)
Political campaign intervention includes any and all activities that favor or oppose one or more candidates for public office. Contributions to political campaign funds or public statements of position (verbal or written) made by or on behalf of a church in favor of or in opposition to any candidate for public office clearly violate this rule.
Distributing statements prepared by others that favor or oppose any candidate for public office will also violate the prohibition. Allowing a candidate to use a church’s assets or facilities will also violate the prohibition if other candidates are not treated the same.
Churches are permitted to conduct neutral voter education activities (including the presentation of public forums and the publication of voter education guides) if they are carried out in a non-partisan manner.
Ensure That Net Earnings Do Not Inure in Whole or in Part to The Benefit of Insiders
A church should not operate for the sole benefit of private shareholders or individuals. The term “private shareholder or individual” refers to persons who have a personal and private interest in the organization, such as an officer, a director, or a key employee. Any amount of personal benefits may be grounds for loss of tax-exempt status.
Operate for the Primary Purpose of Conducting a Trade or Business that is Unrelated to Exempt Purpose(s)
A prohibited activity is an unrelated trade or business if it is regularly carried on and is not substantially related to furthering the exempt purpose(s) of the church.
The term “trade or business” generally includes any activity conducted for the production of income from selling goods or performing services.
Business activities of an exempt organization ordinarily are considered regularly conducted if they show a frequency and continuity similar to, and are pursued in a manner similar to, comparable commercial activities of nonexempt organizations.
Do Not Devote a Substantial Part of Activities to Influence Legislation
If a substantial part of a church’s activities consists of carrying on propaganda or otherwise attempting to influence legislation, the ministry does not qualify for tax exemption.
An organization will be regarded as attempting to influence legislation if it contacts, or urges the public to contact, members or employees of a legislative body for the purpose of proposing, supporting, or opposing legislation, or if the organization advocates the adoption or rejection of legislation.
Church leaders should consult with their legal counsel if an activity appears in doubt. The cost of a mistake here could lead to losing the church’s nonprofit status.