Court Rejects Proposed Settlement Allowing Churches to Endorse Political Candidates

(Parker Tax Publishing April 2026)

A district court held that it did not have jurisdiction to enter a proposed consent judgment, agreed to by the IRS two churches and two other nonprofit groups focused on religious practice, that would have declared unconstitutional the provision in Code Sec. 501(c)(3) that bars exempt organizations from participating in political campaigns (i.e., the Johnson Amendment). The court found that the lawsuit sought to restrain the assessment or collection of a tax and was therefore barred by the Tax Anti-Injunction Act and the Declaratory Judgment Act. National Religious Broadcasters, et al. v. Bessent et al., 2026 PTC 76 (E.D. Tex. 2026).

Background

Code Sec. 501(c)(3) grants an income-tax exemption to defined religious, educational, and public-interest organizations, and Code Sec. 170(c)(2) makes donations to covered organizations deductible from one's taxable income.

Qualifying as such an organization requires a covered purpose, non-profit status, and that "no substantial part" of the organization's activities involves "carrying on propaganda, or otherwise attempting, to influence legislation." Code Sec. 501(c)(3) also provides that an exempt organization 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." This requirement was added in 1954 and is known as the Johnson Amendment. Organizations that engage in the political activity defined in the Johnson Amendment can potentially lose their tax-exempt status.

National Religious Broadcasters is a 501(c)(3) organization that, along with other religious groups and churches, sued the IRS seeking a declaration that the Johnson Amendment is an unconstitutional violation of the First Amendment rights to freedom of speech and free exercise of religion. They also sought an an injunction prohibiting the IRS from enforcing the Johnson Amendment. The IRS initially moved to dismiss the complaint for lack of standing, lack of jurisdiction, and on the merits. Under a new administration, the government answered and then joined the organizations in moving for entry of a consent judgment as a final resolution of the organizations' claims. Americans United for Separation of Church and State then filed a motion to intervene in the case or, in the alternative, file an amicus curiae brief. The court denied Americans United's motion to intervene but granted its request to file an amicus brief.

Analysis

The district court, considering its jurisdiction to enter the proposed relief, found that it was barred by the Tax Anti-Injunction Act (AIA) under Code Sec. 7421 and the related tax-suit bar in the Declaratory Judgment Act (DJA) under 28 U.S.C. Sec. 2201.

The organizations and the government argued that the AIA does not limit a federal court's jurisdiction if the government agrees to an injunction as part of a settlement. But the court rejected that argument because it found that the AIA's and DJA's tax-suit provisions are jurisdictional, and a court's jurisdiction is determined from the operative complaint. It cannot be waived or created by litigation conduct. The court found that the DJA and AIA applied in this case because the organizations' claims were "in respect to" taxes and sought to restrain the threat of tax collection or assessment based on certain activity.

The court explained that the Johnson Amendment is a condition of tax-exempt status under Code Sec. 501(c)(3) and the tax-deductibility of donations under Code Sec. 170(c)(2). Relief enjoining the Johnson Amendment's enforcement or declaring that it does not apply to specific conduct would, in the court's view, directly bear on the amount of tax that could be collected. It would prevent revoking an organization's tax-exempt status under Code Sec. 501(c)(3) based on the specified conduct, imposing an excise tax for that conduct as a prohibited political expenditure under Code Sec. 4955, or seeking to enjoin an organization under Code Sec. 7409 to abandon either that conduct or tax-exempt status. Put differently, if the organizations here gave up their Code Sec. 501(c)(3) tax-exempt status, none of the harms they alleged would occur.

The court contrasted this case with CIC Services LLC v. IRS, 2021 PTC 140 (S. Ct. 2021),

where the Supreme Court held that the AIA did not preclude material advisors to micro-captive insurance arrangements from challenging the information reporting requirements set forth in Notice 2016-66. In that case, the Court found that the notice imposed costs "separate and apart from" any potential tax liability that might accrued based on the information and was enforced by a freestanding criminal penalty for failure to report. This case, the district court observed, did not involve any penalty independent of tax status. It did not involve reporting costs with no proximate relation to tax collection. The organizations' claims, the court noted, alleged that the Johnson Amendment could not lawfully be applied to condition tax consequences on certain expressive conduct.

The court pointed out that other avenues for relief may be available to the organizations. For example, a refund lawsuit could be brought if a tax were ultimately collected, and a declaratory suit could be brought if the IRS were to make any determination with respect to an organization's 501(c)(3) tax-exempt status. The court noted that a dispute of that kind would also have the benefit of a specific set of facts upon which the IRS made a determination.

For a discussion of Code Sec. 501(c)(3) organizations, see Parker Tax ¶60,502. For a discussion of the Anti-Injunction Act, see Parker Tax ¶260,515.

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