Lighting the Way: the Johnson Amendment Stands Strong Against Dark Money in Politics

• Publication year: 2019

Lighting the Way: The Johnson Amendment Stands Strong against Dark Money in Politics

Whitney Untiedt

LIGHTING THE WAY: THE JOHNSON AMENDMENT STANDS STRONG AGAINST DARK MONEY IN POLITICS

Whitney Untiedt^*

I will get rid of and totally destroy the Johnson Amendment and allow our representatives of faith to speak freely and without fear of retribution. I will do that. Remember.

—President Donald J. Trump¹

Wrapping itself in the cloak of "religious freedom," the current administration, supported by many conservative members of Congress, has overtly pursued repeal of the Johnson Amendment,² an oft-cited clause in the Internal Revenue Code that prohibits certain nonprofit organizations from endorsing political candidates or making campaign contributions.³ The consequences of deregulating the prohibition on tax-deductible political donations could imperil our country's traditions of electoral process.

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The Johnson Amendment, Defined

The Johnson Amendment, named after its legislative sponsor then-Senator Lyndon B. Johnson, refers to statutory language adopted in 1954 providing that certain tax-exempt organizations may 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."⁴ Sen. Johnson's addition to H.R. 8300, a bill that was passed into law, adopted as the Internal Revenue Code of 1954, and codified at 26 U.S.C. § 501,⁵ was approved by the Republican-led Senate without discussion or debate.⁶

Importantly, the Johnson Amendment's bar on intervention in political campaigns and legislative processes does not apply to all entities organized as nonprofits; only organizations created under subsection 501(c)(3) of the Code are constrained by the prohibition.⁷ To grasp the full implications of the Johnson Amendment—and of the efforts to repeal it—one must look past the punditry hype to understand which organizations and individuals are regulated and what activities are, and are not, constrained.

Political Restrictions Limited to 501(c)(3) Organizations

The Internal Revenue Services has established 27 types of nonprofit organizations that may be exempted from paying state or federal taxes.⁸ Recognized tax-exempt entities include labor organizations,⁹ teachers' retirement funds,¹⁰ black lung trusts,¹¹ and civic leagues.¹² While all 27 types of nonprofits allow the entity itself to avoid taxation, only one organizational structure offers individual contributors a tax benefit: a 501(c)(3) "Religious, Educational, Charitable, Scientific, Literary, Testing for Public Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals" organization.¹³ Contributions made to a qualifying 501(c)(3) organization carry a two-part benefit—they are not taxable as income

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to the entity, and they may be deducted against the taxable income of the donor.¹⁴ While 501(c)(3) religious organizations have been at the forefront of the Johnson Amendment debate, it is important to understand that this section of the Code applies equally to nonprofit charities, private educational organizations including institutions of higher education, child and animal welfare organizations, and numerous other types of entities.

In order to qualify for and maintain 501(c)(3) status, a nonprofit organization must meet three requirements: "(1) it is organized and operated exclusively for an exempt purpose; (2) its net earnings do not inure to the benefit of any private shareholder or individual; and (3) its activities do not... attempt[ ] to influence legislation."¹⁵ Although unsubstantial or incidental activities in support of a non-exempt purpose may not encumber an entity's 501(c)(3) status, "[o]ne substantial non-exempt purpose will make an organization ineligible for tax-exempt status, even if all of its other purposes are exempt."¹⁶ In keeping with these requirements, qualifying organizations must refrain from overtly attempting to influence legislation and from endorsing or making financial contributions to—or in opposition to—a political candidate, in exchange for receiving the two-fold tax benefit under 501(c)(3).

However, the Johnson Amendment does not prohibit all politically-related activity of a 501(c)(3) entity. The Internal Revenue Service has provided guidance on some types of nonpartisan "voter education" activities that do not violate the Johnson Amendment, including publishing legislators' voting records and candidate questionnaire responses without commentary that may indicate the bias of the organization,¹⁷ broadcasting reasonable and equal air time to candidates for public office,¹⁸ providing public forums for lectures on

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political issues,¹⁹ and conducting public candidate debates.²⁰ Additionally, many 501(c)(3) nonprofits, including religious organizations, regularly participate in voter registration drives, lobby lawmakers, and take public positions on social and political "hot button" causes—none of which jeopardizes their tax-exempt status.

Further, the Code does not prohibit a 501(c)(3) entity from forming a separate but related nonprofit, such as a 501(c)(4) advocacy corporation,²¹ which is not constrained by the Johnson Amendment language—but which does not create a tax benefit for financial contributors. Indeed, this type of structure is common among politically-interested organizations on both the "left" and the "right" of the spectrum,²² with the advocacy corporations regularly contributing to political discourse through words, actions, and monetary donations that the charitable entities cannot undertake.²³

Constitutional Application of the Johnson Amendment

While the Supreme Court's evolving interpretation of the First Amendment as applied to corporate entities has chipped away at federal regulation of political spending by nonprofit organizations,²⁴ the Johnson Amendment language applicable to 501(c)(3) organizations has been uniformly upheld by the courts.

While the Court has found that the government does not have a compelling interest that justifies infringement of a corporate entity's political speech

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generally, such holdings have been issued in cases involving nonprofits organized under 501(c)(4)²⁵ —not 501(c)(3). To date, cases involving 501(c)(3) entities, including educational organizations and churches, have repeatedly held that enforcement of the Code's requirements for obtaining and maintaining tax-exempt status does not violate the Constitution.²⁶

In 1983, the Supreme Court rebuked a claim by two religiously-affiliated universities that their written policies endorsing institutional racial discrimination were protected by the First Amendment, because, the schools argued, they "engage[d] in racial discrimination on the basis of sincerely held religious beliefs."²⁷ In upholding the Internal Revenue Service's revocation of the organizations' 501(c)(3) status, the Court found that the discrimination violated "deeply and widely accepted views of elementary justice" that racism must be eradicated in education.²⁸ The Court acknowledged that revocation of donor tax benefits would impact the schools' funding, but reasoned that such action does not prevent or prohibit the observation of protected religious beliefs.²⁹

Seventeen years later, the D.C. Circuit took up the question of whether 501(c)(3) status revocation infringed upon an organization's constitutionally-protected religious freedom.³⁰ In Branch Ministries, an Arkansas church took out newspaper advertisements urging Christians not to vote for then-candidate Bill Clinton in the 1992...