To get you started, here is a link to the most recent Internal Revenue
Service Tax Guide for Churches and Religious Organizations
Publication 1828 (Rev. 7-2002), Catalog No. 21096G (http://www.irs.gov/pub/irs-pdf/p1828.pdf),
Applying for 501(c)(3) Tax-Exempt Status (http://www.irs.ustreas.gov/pub/irs-pdf/p4220.pdf),
and Compliance Guide for 501(c)(3) Tax-Exempt Organizations (http://www.irs.ustreas.gov/pub/irs-pdf/p4221.pdf).
Please study these
documents thoroughly before making your decision to continue on the path of
seeking to become a legal nonprofit entity. We will, however, try to answer
some of the most frequently asked questions about becoming a legal church
Some of the
information used in this section is taken from the Internal Revenue Service
Tax Guide for Churches and Religious Organizations Publication 1828.
We strongly urge you to refer to the above mentioned publication or contact
the IRS directly, as well as seek legal assistance if you decide to move
For purposes of
continuity we will use similar language and descriptions used by the IRS.
For example, “the term church is found, but not specifically
defined, in the Internal Revenue Code (IRC). The term is not used by all
faiths; however . . .we use it in its generic sense as a place of worship
including, for example, mosques and synagogues.” In our case we use the
term “Temple” but for the purposes of discussing legal status and conformity
with the IRS in this information pack, we will use the term church as
Please note that with
the exception of the special rules for church audits, the use of the term
church also includes conventions and associations of churches as well as
integrated auxiliaries of a church. (See detailed explanation
for “integrated auxiliaries of a church” below.)
The same is true for
the use of the term Minister. It is understood the term
minister is not used by all faiths to designate their clergy but for the
purpose of the Internal Revenue Codes and because it is generally understood
by the public, the term “minister denotes members of clergy of
all religions and denominations and includes priests, rabbis, imams, and
similar members of the clergy,” as well as Priestess and any clergy
referring to the female gender.
The Internal Revenue
Service uses the term integrated auxiliary of a church to
refer to “a class of organizations that are related to a church or
convention or association of churches but are not such organizations
themselves.” When discerning whether or not an organization qualifies as an
integrated auxiliary of a church, the IRS looks at the following
described both as an IRS Section 501(c)(3) charitable organization and as a
public charity under IRS Sections 509(a)(1), (2), or (3),
affiliated with a church or convention or association of churches, and
financial support primarily from internal church sources as opposed to
public or governmental sources.
Most groups that
satisfy the first two requirements above are considered integrated
auxiliaries whether or not they meet the internal support requirements.
Examples of these groups are: Mens and women’s organizations, seminaries,
mission societies, and youth groups.
Please note there is
a distinct difference between “churches, including their integrated
auxiliaries” and “religious organizations.” The principal purpose of a
Religious Organization is the study or advancement of religion.
These religious organizations that are not churches might typically include
nondenominational ministries, interdenominational and ecumenical
organizations to name a few.
For the purposes of
this document we are referring to “churches.”
are the benefits of becoming a Tax Exempt organization?
Though at this point
we are specifically looking at the benefits of becoming a Tax Exempt
Organization, it should be noted that the responsibilities that come with
these benefits are very great and therefore it must be reiterated that this
is not a step to be taken lightly.
organizations including churches and religious organizations, qualify for
exemption from Federal income tax under IRC Section 501(c)(3)
and as such are:
eligible to receive tax-deductible contributions and donations.
organizations should not be required to pay taxes on income derived as a
result of religious activities.
3. Any land
owned by the church, and used for nonprofit purposes, is not taxable.
and accountability of funds and assets.
postage rates using nonprofit bulk mailing rates.
6. Free radio
and TV ads.
liability. Since most nonprofit corporations provide for limited liability,
the directors and officers of the corporation are usually protected from
legal actions against the organization. (Exceptions to this include a
Director or Officer that violates statutory duties of these offices;
violates the law or commits criminal acts; loans to the organization that
have been personally guaranteed by an individual; and failure to report and
pay any taxes due, where the Treasurer can be held personally responsible.)
Organizations desiring to pursue writing grant applications should note
that, most foundations and grant-making organizations require that a copy of
the IRS letter accompany the grant request.
9. Some local
vendors may also have a policy that they make donations or give discounts
only to 501(c) 3 organizations formally recognized by the IRS.
Concurrently with your federal tax exempt status, almost all states
automatically grant an exemption for nonprofit organizations from having to
pay state income tax. Most states also provide an exemption for nonprofit
groups from having to pay sales tax on goods and merchandise purchased by
the nonprofit. This allows the nonprofit organizations to purchase items
such as food and office supplies free from sales tax.
(Note: If your nonprofit organization sells items for fundraising, you must
generally obtain a retail sales tax license from their state and then
collect appropriate sales tax on items sold and periodically remit this
collected tax to the state or taxing authority. Additionally, a nonprofit
is not exempt from payroll related taxes if the organization has employees.
All of these benefits do come with a price. There is a good amount of
paperwork involved. In addition to preparing the organizing documents,
which are primarily the Articles of Incorporation and the corporate Bylaws,
there is ongoing paperwork and responsibilities to running a nonprofit
corporation. It entails keeping formal minutes to meetings and setting up
and maintaining financial records. There are also annual and informational
reports required by the Secretary of State and other governmental agencies.
All of these things take time and energy which can be challenging for
nonprofit groups which are usually run by volunteers at the outset who are
already pressed for time with their direct daily activities. Time must be
spent on keeping and maintaining financial records including minutes to
meetings; conducting meetings; and fundraising activities.
These are all things to consider before undertaking the task of becoming a
legal nonprofit church. Your organization should discuss the benefits and
responsibilities involved before you go further.
Since we are talking about people’s beliefs and faith, how
can the IRS rule on what is a church or not?
According to the IRS, they “make no attempt to evaluate the content of
whatever doctrine a particular organization claims is religious, provided
the particular beliefs of the organization are truly and sincerely held by
those professing them and the practices and rites associated with the
organization's belief or creed are not illegal or contrary to clearly
defined public policy.” The income tax regulations under Code 501 (c)(3) do
not contain any definitions of the term "religious.”
In a world that is becoming more and more diversified with an ever widening
awareness of the diversity within our global community, we are continuously
learning more and more about the many and varied religions and faiths of the
world. This same widening national diversity has left the government and
the courts cautious in attempting to define, for tax purposes, what is or is
not a "religious" activity or organization.
Does a Church automatically get a tax exemption?
“Churches that meet the requirements of IRC Section 501(c)(3) are
automatically considered exempt and are not required to apply for and obtain
recognition of tax-exempt status from the IRS. Although there is no
requirement to do so, many churches seek recognition of exempt status from
the IRS because such recognition assures church leaders, members and
contributors that the church is recognized as exempt and qualifies for
related tax benefits. For example, contributors to a church that has been
recognized as tax-exempt would know that their contributions are
What if our church joins a church (or Temple) association?
Your organization may qualify for tax exempt status by acquiring “Church
Exemption Through a Central/Parent Organization.” Your group or
organization will need to contact the parent association to verify whether
or not it has a group ruling. If the parent holds a group ruling,
then the IRS may already recognize your church as tax-exempt when you
are accepted into the association.
How does a group exemption work?
“Under the group exemption process, the parent organization becomes the
holder of a
group ruling that identifies other affiliated churches or other affiliated
organizations. A church is recognized as tax-exempt if it is included in a
list provided by the parent organization. The parent is then required to
submit an annual group exemption update to the IRS in which it provides
additions, deletions and changes within the group. If the church or other
affiliated organization is included on such a list, it does not need to take
further action in order to obtain recognition of tax-exempt status.
An organization that is not covered under a group ruling should contact its
parent organization and see whether it is eligible to be included in the
parent’s application for the group ruling.
For general information on the group exemption process, see Revenue
Procedure 80-27, 1980-1 C.B. 677.”
Even though your group may be covered under a group ruling through Temple of the Goddess or through another association, your group will also
need to complete any state paperwork as well. Please note that the rules
may vary from state to state so you will need to be responsible for assuring
that your organization has met state requirements, in addition to its group
exemption. Churches and religious organizations
may be legally organized in a variety of ways under state law including:
unincorporated associations, nonprofit corporations, corporations, sole
What designates an
organization’s eligibility to become a legal non profit church?
According to the IRS,
certain characteristics are generally attributed to churches.
These attributes of a church have been developed by the IRS and by court
decisions and they include:
1. A distinct
recognized creed and form of worship.
3. A definite
and distinct ecclesiastical government.
4. A formal
code of doctrine and discipline.
5. A distinct
membership not associated with any other church or denomination.
organization of ordained ministers.
ministers selected after completing prescribed courses of study.
of its own.
places of worship.
schools for the religious instruction of the young.
14. Schools for
the preparation of its ministers.
According to IRS
Publication 1828, the IRS generally uses a combination of these
characteristics, together with other facts and circumstances, to determine
whether or not an organization will be considered a “church” for Federal tax