Church leaders are often confused by their well-meaning friends (or their Attorney’s), when they are told they must “Get” a 501(c)(3). What they mean to say is, “Do you have a favorable “Ruling Letter” from the IRS.” If a church chooses to file the IRS Form 1023, they will be reviewed and likely receive a “Ruling” or “Determination” letter. We have written much more about this subject in Chapter 3, pages 4, 5 & 6 in our 3 ring notebook The Church Administration “How To” Manual, and have recommended several professionals who do understand these issues if you need further help.
The Church must meet both the organizational and operational test. Whereas Section 501(c)(3) of the US Tax Code (and its’ various sub sections) describe the various organizations exempt from paying taxes, and requires specific (organizational) IRS terminology written in their Articles of Incorporation. The tax code does not define a “church.” The IRS has been careful not to ever officially in any way endorse any definition of “church,” or any list of criteria. The Courts have adopted a 14 point (operational) test as a matter of common law. The IRS has implicitly followed this test without ever officially adopting it. A church would have to “substantially” meet this test, (but would not have to meet every one of the 14 points) to be tax exempt. The 14 points are listed below.
Deduct-ability of contributions is determined under sections 509 and 170. Section 508 speaks to reporting requirements, and 508(a) requires all new non-profit organizations to file Form 1023 for recognition of exempt status within 27 months of their organization. However – 508(c) exempts churches from the requirement of filing the IRS Form 1023.
Is A Church Subject To Federal Income Tax Without An Exempt Ruling Letter? NO! Churches are immune (exempt), as long as they meet the 1) organizational and 2) operational test found in the Internal Revenue Code 501(c)(3), that is “organized and operated exclusively for religious purposes,” (and this “purpose” must be so stated in the churches Articles of Incorporation), and the 14 common law criteria.
“IRS News Release 1930″ issued to IRS agents, lists guidelines for determining whether an organization is a church. An organization would have to “substantially” meet this test, but not all of the 14 points have to be present. Following is the 14 point list:
- A distinct legal existence.
- A recognized creed and form of worship.
- A definite and distinct ecclesiastical government.
- A formal code of doctrine and discipline.
- A distinct religious history.
- A membership not associated with any other church or denomination.
- A complete organization of ordained ministers ministering to their congregations.
- Ordained ministers selected after completing prescribed courses of study.
- A literature of its own.
- An established place of worship.
- Regular congregation.
- Regular religious services.
- Sunday School for the religious instruction of the young.
- School for the preparation of its’ ministers.
If the church is essentially structured and functioning according to the above – IT IS an exempt 501(c)(3) church. The MAIN thing is to have structure [By-Laws]; Records [Minutes in the Corporate Minute Book; A few copies of “Flyers” or Bulletins of events the church has been involved in; Copies of advertizing in the paper or telephone book – that sort of thing.
THE PURPOSE OF THE 14 POINT CRITERIA The IRS uses this criteria to screen out the phony “house church,” often designed as a means of tax evasion – a money laundry scheme. This statement is not, in any wise, meant to cast aversion on the many great outreaches of today’s churches, which meet in the homes of their members, or for that matter are in the beginning stages of a new church.
Situations do exist where “churches” were established by anti-tax activists for the sole purpose of avoiding taxation. Then having paid a few dollars for a sham Ministerial Credential from the Universal Church of the Whatever; incorporated as a “church;” invited all their friends and neighbors to join and donate their income in exchange for tax deductible receipts. Having purchased a hunting lodge or duck pond for their “religious retreat,” they now pose as a tax exempt “religious organization.” They will likely not “measure up,” when screened against the required “purposes” clause of the Articles of Incorporation, and the above 14 point list.
It is also worth noting, that it is not only the Church that is tax exempt – but the Synagogue, Wicca (organized witchcraft), Muslims, and all the other “Religious Organizations,” who deny Jesus as the Christ, are also exempt. So you see – it is not a “church” issue, it is a “religious” issue.
You can easily determine this fact for yourself by looking at the IRS’s instruction sheet, on how to fill out this Form. http://www.irs.gov/pub/irs-pdf/i1023.pdf Does the law require, or even encourage, a church to organize as a 501c3? Let’s see what the IRS has to say about the church having to file.
Who Is Eligible for Section 501(c)(3) Status?
Form 1023 not necessary. The following types of organizations may be considered tax exempt under section even if they do not file Form 1023.
- Churches, including synagogues, temples, and mosques.
- Integrated auxiliaries of churches and conventions or associations of churches.
As shown in the above IRS’ own printed word – the church is exempt of taxes, even if they do not file the Form 1023. The church is automatically 501(c)(3).
Churches Have a Mandatory Exception To Filing Tax Returns:
PLEASE READ CAREFULLY THE FOLLOWING QUOTE
In the words of Steve Nestor, IRS Sr. Revenue Officer (ret.):
“Not only is it completely unnecessary for any church to seek 501c3 status, to do so becomes a grant of jurisdiction to the IRS by any church that obtains that State favor.”
“I am not the only IRS employee who’s wondered why churches go to the government and seek permission to be exempted from a tax they didn’t owe to begin with, and to seek a tax deductible status that they’ve always had anyway. Many of us have marveled at how church leaders want to be regulated and controlled by an agency of government that most Americans have prayed would just get out of their lives. Churches are in an amazingly unique position, but they don’t seem to know or appreciate the implications of what it would mean to be free of government control.”
Contributions To Church Are “Automatically Tax-Deductible”
And what about tax-deduct-ability? Doesn’t a church still need to become a 501c3 so that contributions to it can be taken as a tax deduction? The answer is no!
According to IRS Publication 526:
Organizations That Qualify To Receive Deductible Contributions
“You can deduct your contributions only if you make them to a qualified organization. To become a qualified organization, most organizations other than churches and governments, as described below, must apply to the IRS. ”
In the IRS’ own words a church “is automatically tax-deductible.”