The IRS has signaled a shift in its interpretation of the Johnson Amendment, stating it will not treat political endorsements made during worship services as violations of tax-exempt rules. The announcement follows a proposed consent judgment with the National Religious Broadcasters Association and two Texas churches. As Giselle Ruhiyyih Ewing for Politico reported on July 8, 2025, the move has significant implications for religious organizations and raises important considerations for tax professionals advising nonprofits.

The background: challenging the Johnson Amendment

At the heart of this development is the long-standing 1954 Johnson Amendment, which prohibits §501(c)(3) organizations (including churches) from participating in or intervening in political campaigns. Though the IRS has rarely enforced this provision, it has remained a key boundary separating tax-exempt religious activities from partisan politics.

That boundary may now shift. As outlined in the proposed settlement, political endorsements shared in the context of a religious service are interpreted as personal expressions within a spiritual community, rather than institutional campaign activity. This distinction effectively shields such speech from violating IRS tax-exempt status rules.

The lawsuit and the IRS response

The National Religious Broadcasters Association, together with two churches, filed the lawsuit in August 2024, arguing that the Johnson Amendment restricted their First Amendment rights. In response, the IRS acknowledged that it has not pursued enforcement actions against churches engaging in electoral commentary during services, and asserted that such practices resemble “family discussions” rather than campaign interventions.

The new guidance appears to formalize this long-unspoken policy, stating that political discussions within the context of worship services do not necessarily constitute prohibited political activity.

Implications for tax professionals

While the move may seem limited in scope, it introduces ambiguity into an already nuanced compliance area. Tax professionals advising churches, religious or other §501(c)(3) organizations should take note of the following considerations:

• Guidance vs. law: This shift comes through a legal settlement applicable to the involved parties, not a formal regulatory change or legislative repeal. Practitioners should stay alert for further IRS updates or court rulings before advising clients to make significant changes.
• Narrow scope: The change pertains specifically to verbal endorsements within religious services. It does not authorize churches to spend money on political campaigns, distribute campaign materials or engage in broader political advertising. These activities are still considered violations.
• Audit risk: Although enforcement has historically been rare, nonprofits navigating political expression should ensure they document the nature, timing and setting of any candidate-related statements to demonstrate compliance.
• Slippery slope concerns: Critics, including the National Council of Nonprofits, warn that this could allow political operatives to route campaign messaging or donations through charitable organizations, undermining the spirit of tax-exempt law. Evangelical groups, however, have praised this development as a long-awaited affirmation of free speech rights within faith communities.

NATP perspective

At NATP, we are monitoring this shift closely. Tax professionals must walk a fine line between enabling lawful free speech and ensuring organizations maintain compliance with §501(c)(3) restrictions. As the IRS redefines that boundary, tax preparers need clear guidance and continuing education to help clients stay on the right side of the law.

We encourage tax preparers to review Giselle Ruhiyyih Ewing’s original reporting for Politico, “IRS moves to allow political engagement from churches, in a win for evangelical groups,” published July 8, 2025.

NATP will continue to provide updates as more guidance is provided.

Question: Maya is a freelance software developer. In 2025, she completed a project for a client who agreed to pay her in Bitcoin (BTC) instead of U.S. dollars. The client transferred 0.02 BTC to Maya’s digital wallet. Is this taxable to Maya?

Answer: Yes, it is taxable to Maya. Maya must pay taxes on the virtual currency (aka cryptocurrency) she receives. When receiving cryptocurrency in exchange for services, it is considered taxable income. For tax purposes, cryptocurrency is treated as property and must be reported as ordinary income. The amount of income is determined by the fair market value (FMV) of the cryptocurrency in U.S. dollars on the date it is received.

In Maya’s case, since she is operating as a business rather than an employee, she should report her earnings from these payments as self-employment income.

When your clients show up with missing basis records (or none at all), it puts you in the tough position of sorting through years of incomplete information. You know the IRS doesn’t accept “We didn’t know” as an excuse, and a poorly calculated basis can mean disallowed losses or unexpected taxes.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their corresponding answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.

Q: If you issue a Form 1099-NEC for a barter exchange for a partner, does this become the partner’s basis?

A: Yes. If Form 1099-NEC is issued for barter income received by a partner (on behalf of the partnership), it is generally considered income to the partnership and increases the partner’s basis, assuming the partner is entitled to the income under the partnership agreement.

Q: For a limited liability company (LLC) converted to an S corporation, what is the starting basis for the new S corporation?

A: When an LLC (treated as a partnership or disregarded entity) elects to be taxed as an S corporation, the starting basis for the S corporation depends on the structure (sole proprietorship, partnership or C corporation) before the election. For example, if the LLC is a single-member LLC taxed as a sole proprietorship, generally the starting basis is the tax basis of the sole proprietorship’s assets, assuming the requirements of §351 have been met.

Q: If you contribute additional capital to an S corporation, can you take it out in another year, if the shareholder has enough basis?

A: Yes. If you have enough basis (from cash contributions, additional capital contributions, etc.), you can take cash distributions and have no tax due.

Q: If you take distributions in excess of basis, do you need to report capital gains for that amount?

A: No. You must report capital gains if you take distributions in excess of basis. It is treated as a deemed sale of the stock, reported on Form 8949, Sales and Other Dispositions of Capital Assets.

To learn more about reconstructing basis for shareholders and partners, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.