Menu
Tax Notes logo

Will Dark-Money-Funded Churches Campaign in the 2020 Election?

Posted on Jan. 23, 2020

President Trump ordered executive agencies to stop enforcing the Johnson Amendment, a current law that prevents section 501(c)(3) entities from supporting or opposing political campaigns. Specifically, Executive Order 13798, issued May 4, 2017, provides that all executive departments and agencies will respect and “protect the freedom of persons and organizations” to engage in religious and political speech "to the extent permitted by law." Many agree with the administration’s desire to protect unnecessary disclosure of donors’ identities and the free speech of churches that might otherwise lose their tax-exempt status by supporting political candidates.

On January 15 the White House released the "Proclamation on Religious Freedom Day, 2020," stating that the Trump administration “remains cognizant of the stark realities for people seeking religious liberty abroad” and will “support those around the world who still struggle under oppressive regimes that impose restrictions on freedom of religion.” Churches now have executive encouragement to accept funds from domestic and global donors supporting their efforts to intervene in political campaigns and prop up free speech broadly.

While Trump’s executive order reflects his stance that churches may engage in political activity, “dark money,” or undisclosed donations, has historically been unavailable to section 501(c)(3) nonprofits. But on July 17, 2018, Senate Finance Committee ranking member Ron Wyden, D-Ore., released a statement asserting that “Trump’s Treasury Department made it easier for anonymous foreign donors to funnel dark money into nonprofits the same day a Russian national linked to the NRA was arrested for attempting to influence our elections.”

Wyden was referring to Rev. Proc. 2018-38, which is now embodied in proposed regs (REG-102508-16) issued in September 2019. Under the proposed rules, Treasury and the IRS would eliminate many donor reporting requirements to the IRS. Reporting disclosure requirements for “substantial contributors” would generally apply only to tax-exempt organizations described in section 501(c)(3) and to section 527 political groups. 

substantial contributor is generally any person who contributed more than $5,000 if the amount is more than 2 percent of the total contributions received. This definition of substantial contributor provides flexibility for large donations, particularly for big organizations that could have a great impact on electoral outcomes. The proposed regulations also provide that the IRS may exercise its discretion by scaling back these rules, because it doesn't need the names and addresses of substantial contributors to tax-exempt organizations that aren't section 501(c)(3) entities to be reported annually on Schedule B of Form 990 or Form 990-EZ to carry out the internal revenue laws. 

The executive order, proclamation, and recently proposed regulations may shield churches and other tax-exempt organizations relying on worldwide donors to fund their political objectives by discouraging enforcement of the donor disclosure rules to which the churches and donors would otherwise be subject. Some might believe this constitutes a threat to American democracy by allowing the use of money from foreign parties to overpower domestic political opponents, but there's no law stating that all donors’ identities must be disclosed, particularly to the public. 

If the IRS can satisfy the laws and follow its own directives without requiring public disclosure of all section 501(c)(3) donations, it's easy to see why many would be more eager to donate and engage in political activity. In the current political environment, some people are hesitant to share their views, knowing that disclosures could be required; the IRS and government representatives' abuse of their powers based on political views has led to scandals, including that involving former IRS Exempt Organizations Director Lois Lerner and the agency's mishandling of conservative groups’ exemption applications.

The president generally determines who runs the IRS and Treasury, and how enforcement is to be carried out. Presidents have used their enforcement powers to align with their constituents' views. That was equally true when President Obama relaxed enforcement of the federal marijuana law. Along with overseeing executive agencies, the president appoints the six members of the Federal Election Commission, which enforces campaign finance law in federal elections, and there are few legal limitations on his enforcement responsibilities. Through appointments to Treasury, the IRS, and the FEC, presidents can therefore select those whose views on enforcement align with their own. Given the recent policy declarations from the administration, Treasury and the IRS would therefore seem hard-pressed to claim that a section 501(c)(3) organization’s political activity would cause it to lose its tax-exempt status.

While some might believe that the administration’s recent enforcement decisions could harm the system of checks and balances, others may argue that its actions are consistent with its execution and enforcement role under Article II of the Constitution. Isn’t it reasonable for taxpayers to expect that executive agencies will follow an administration’s policies made plain in an executive order? If so, the only question becomes whether the phrase “to the extent permitted by law,” used in the executive order, requires execution of the Johnson Amendment and its policies on the separation of church and state or encompasses the administration’s views on its enforcement role.

Copy RID