Churches enjoy automatic recognition as tax-exempt organizations under Internal Revenue Code Section 501(c)(3). That status brings significant benefits—exemption from federal income tax, eligibility to receive tax-deductible contributions, and often relief from certain state and local taxes.
But tax exemption is not unconditional.
While revocation is rare, it does happen. More often, churches face audits, penalties, excise taxes, or reputational damage because leaders misunderstand what the law requires.
Stay Ahead of Church Tax Risks
Church tax law is complex—and the consequences of getting it wrong can be serious. Church Law & Tax members receive expert analysis, real-world case studies, and practical guidance to help their churches operate confidently within the law.
Become a member today and equip your church to navigate these challenges wisely.
Here are five of the most common ways churches put their tax-exempt status at risk.
1. Engaging in Political Campaign Activity
The most well-known restriction involves churches and political candidates—although change may be afoot.
Under current federal tax law, a church may not directly or indirectly participate in, or intervene in, any political campaign supporting or opposing a candidate for public office. This includes:
- Endorsing candidates from the pulpit
- Publishing or distributing statements supporting or opposing a candidate
- Donating church funds to a political candidate’s campaign
- Allowing church resources to be used in a partisan way
The prohibition applies to federal, state, and local races.
However, note this caveat: A lawsuit settlement pending approval from a federal judge in Texas includes a statement from the Internal Revenue Service (IRS) that signals a potential laxing of this prohibition for churches and religious organizations. A decision is expected in 2026.
Separately, it’s also important to note that a limited amount of issue advocacy is still permitted for tax-exempt entities under the federal tax code. Churches may speak about moral and social issues. They may educate voters. They may encourage civic engagement. They need only exercise caution about the amount of time and resources spent on such activities when they relate to specific ballot measures or legislation (though the IRS is vague about how much is too much).
Lastly, even with the 501(c)(3) rules in place, the First Amendment rights of the free exercise of religion and freedom of speech still protect ministers and their abilities to preach about social and moral issues.
