Although there are a great many benefits which accompany becoming a tax exempt charitable trust, there is one significant drawback which has caused quite a bit of debate and not a few difficulties: a prohibition on political activity, specifically participation in political campaigns on behalf or any particular candidate.
It is important to understand that this prohibition does not mean that religious organizations and their officers are cannot speak out on any political, social, or moral issues. This is a common misconception which some have capitalized on for political purposes, but it is absolutely incorrect.
By not taxing churches, the government is prevented from directly interfering with how those churches operate. By the same token, those churches are also prevented from directly interfering with how the government operates in that they cannot endorse any political candidates, they cannot campaign on behalf of any candidates, and they cannot attack any political candidate such that the effectively endorse that persons opponent.
What this means is that charitable and religious organizations which receive a 501(c)(3) tax exemption have a clear and simple choice to make: they can engage in religious activities and retain their exemption, or they can engage in political activity and lose it, but they cannot engage in political activity and retain their exemption.
What sorts of things are churches and other religious organizations allowed to do? They can invite political candidates to speak so long as they dont explicitly endorse them. They can speak out about a wide variety of political and moral issues, including very controversial matters like abortion and euthanasia, war and peace, poverty and civil rights.
Commentary on such issues can appear in church bulletins, in purchased advertisements, in news conferences, in sermons, and wherever else the church or church leaders would like their message to be transmitted. What does matter, however, is that such comments are limited to the issues and do not stray towards where candidates and politicians stand on those issues.
Its fine to speak out against abortion, but not to attack a candidate who supports abortion rights or to tell a congregation to urge a representative to vote for a particular bill which would outlaw abortion. Its fine to speak out against war, but not to endorse a candidate who is also opposed to war. Contrary to what some partisan activists might like to claim, there are no barriers preventing the clergy from speaking out on the issues and there are no laws forcing clergy to remain silent on moral problems. Those who claim or even imply otherwise are deceiving people perhaps deliberately.
It is important to keep in mind that tax exemptions are a matter of legislative grace, which means that no one is necessarily entitled to tax exemptions and that they are not protected by the Constitution. If a government doesnt want to allow tax exemptions, it doesnt have to. It is up to taxpayers to establish that they are entitled to get any exemptions which the government allows: if they fail to meet that burden, the exemptions can be denied.
Such denial is not, however, an infringement upon their free exercise of religion. As the Supreme Court observed in the 1983 case of Regan v. Taxation With Representation of Washington, a legislatures decision not to subsidize the exercise of a fundamental right does not infringe the right.