To be clear at the outset, no one outside of the Internal Revenue Service (IRS) can accurately answer this question. The IRS is the ultimate arbiter of whether or not LDS violated their tax-exempt status. While it remains uncertain whether or not the IRS will pursue any course of action relating to LDS’ involvement in the passage of Proposition 8, let us consider the law governing its activity and the inherent roadblocks to IRS action against LDS or any other church.

We begin with the very simple fact that any 501(c)(3) tax-exempt public charity organization, which includes churches, can engage in a limited amount of lobbying activity. For tax law purposes, the IRS considers any work drafting, supporting or opposing ballot measures to be lobbying activity. Think of it this way—whenever ballot initiatives, referenda, state constitutional amendments, or bond measures are placed on the ballot, the voting public essentially takes on the role of “legislator,” and therefore any attempts to sway the voting public on a ballot measure are counted as direct lobbying activities, not partisan election-related advocacy, which churches and other 501(c)(3) organizations are strictly forbidden from engaging in. The LDS and any other interested 501(c)(3) public charity can actively participate in ballot measure activities provided they do not exceed their lobbying limits set forth by section 501(c) of the Internal Revenue Code.

Lobbying limits are based on one of two tests that the IRS uses to measure public charity lobbying: the insubstantial part test and the 501(h) expenditure test. While most public charities can choose between the two tests, churches, such as LDS, by law must measure their lobbying under the insubstantial part test. This test states that an organization may engage in an insubstantial amount of lobbying activity, however, the IRS does not define the difference between substantial and insubstantial. In other words, there is no known line in the sand that delineates the difference between a permissible insubstantial amount of lobbying and an impermissible substantial amount of lobbying.

Most tax practitioners who represent clients that measure their lobbying under the insubstantial part test recommend that these organizations restrict their lobbying activity to something less than 5% of the organization’s overall activity.

That guidance is the legal community’s best guess as to what constitutes “insubstantial.” The only way LDS, or any other organization measuring its lobbying under the insubstantial part test would know if they had violated (or were within) their lobbying limits is if they have been audited by the IRS.

The IRS has a special audit procedure for churches called a Church Tax Inquiry. This investigative process is designed to respect the freedom of religion guaranteed in the first amendment. It determines how and when the IRS may conduct civil tax inquiries and examinations (or audits) of churches.