5 Myths About Starting a Church, Part I

By Raul Rivera

There has never been a more exciting time in this young pastor’s life. He is full of vision and ideas for sermons, ministry departments, prayer meetings, and studies to really help his congregation grow in God and fulfill their destinies. After spending several years serving as a youth pastor at the church in which he grew up, God has released Pastor John to begin planting his own church.

But as Pastor John begins to talk with his friends about his church planting plans, he finds that there is a whole other side to church planting that he has never considered: the legal foundation of a church. He begins hearing words like, “incorporation,” “bylaws,” “meeting minutes,” and “501(c)(3).” Intent on doing things right from the start, Pastor John asks his mentors, who are pastors of churches around the U.S., how he should go about forming a corporation and a board of directors. He is also interested in learning more about applying for 501(c)(3) status.

But what Pastor John learns is very troubling. He learns that each of his mentors has different opinions about what he should do.

While some champion incorporating and getting 501(c)(3) status for the tax benefits and protection it will provide for his ministry, others warn him about submitting his church to the world’s system and encourage him to have as little involvement with the IRS as possible. 

You are not alone

Every day we speak with pastors and leaders and assist them with establishing a firm legal foundation for their ministries. Many of them share similarities with the story mentioned above. These pastors come from various backgrounds that diversify and strengthen their ministries. But sometimes, in the course of seeking wisdom for planting their churches, starting an evangelistic ministry, or beginning an outreach center, they receive well meaning advice that is incorrect and jeopardizes the firm foundation they are trying to establish for their organizations.

The fact is that over 80% of churches have significant compliance issues because they are misinformed or unaware of what it takes to correctly establish the legal foundation of a nonprofit organization. With increased church scrutiny and IRS enforcement presence, we must be as wise as serpents and as harmless as doves, rightly dividing fact and opinion so that we steward well the ministries that God has given us. Today, we will debunk the myths about starting a church that can greatly impact the future of your ministry.

The myths

Myth #1 - “I cannot start receiving donations until I get my 501(c)(3) approval from the IRS.”

Any organization desiring to receive a letter from the IRS recognizing it as a properly formed and operated 501(c)(3) charitable organization must file Form 1023 with the IRS. Many churches mistakenly believe that they cannot receive tax-deductible donations until they get their 501(c)(3) approval. This is not true. Churches are able to begin receiving tax-deductible donations the moment they begin operating, and even beforehand.

When you apply for federal 501(c)(3) recognition, your approval will be retroactive to the date of incorporation. This means that once you create a corporation through which to manage the corporate aspects of your church or ministry as a nonprofit, all of the donations your receive will be tax deductible, even before you apply for federal tax-exempt status.

It is important to note that if your church began operating and receiving donations before it incorporated, those donations are still tax-deductible; however, they will not be covered by the retroactive 501(c)(3) approval of the IRS. Therefore, it is very important to first form a corporation before beginning your church activities.

Not only does a corporation provide a “corporate veil” of protection, by including the proper IRS required purpose language for a tax-exempt organization, you will ensure that the IRS will recognize the charitable nature of your church’s activities and correctly approve your organization as tax-exempt when you file Form 1023. 

Once a church incorporates, it can wait for several years to apply for federal tax-exempt status with the IRS. All other nonprofits have 27 months from the date of incorporation to file Form 1023 for federal tax-exempt status to get an approval retroactive to the date of incorporation. This means that if your church has been incorporated since 1980, if you file Form 1023 this year, your 501(c)(3) approval will be retroactive all the way back to 1980.

Applying for federal tax-exempt status is a massive benefit to every church. We will discuss the details of these benefits in part 2 of this blog series when we get to Myth #5.

Myth #2 - “I cannot be ordained by my church until I am ordained by my covering church or pastor. If they do not ordain me first, my ordination will be invalid.”

For legal and tax purposes, the IRS requires that every church ordain its own ministers. This means that you do not need to be ordained in order to start a church. After starting a church/ministry, the founder can be legally ordained through a properly adopted resolution of its board of directors (elders or trustees).

In our country, our government wants to extend special privileges, such as granting legal authority to solemnize marriages or tax benefits like the housing allowance and Social Security tax exemption, to individuals with the spiritual call to the ministry. Yet, being a secular entity, our government recognizes its limitation to discern who has that spiritual call. Therefore, the government has put the ability to discern for them into the hands of churches and ministries. When a church or ministry recognizes the spiritual call on someone's life, and then takes the necessary steps to qualify and ordain that person as a pastor of their church, that is legal ordination.

There is more to know... 

The major myths about starting a church are so broad in scope that the discussion cannot take place in just one article. In another article soon to come, we talk about the three remaining myths you should be aware of and how they affect your ministry.

Here at StartCHURCH, our passion is to empower pastors with the knowledge and tools they need in order to strategically establish and protect the vision that God has given them. If you have not yet done so, I strongly encourage you to give us a call at StartCHURCH and speak to one of our church planting specialists. One of our team members will help you learn more details about the myths and how to keep them from harming your ministry.

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