Billy Graham Evangelistic Association Changes Its Tax Status
Recently, the Billy Graham Evangelistic Association (BGEA) confirmed that the IRS approved the reclassification of its tax-exempt status from a traditional, religious nonprofit status to that of a church.
In this classification transition, the BGEA is not claiming that it operates as a “church” in the traditional sense of the word, but rather, it is operating as an association of churches.
The BGEA shared three main reasons for requesting a change to the classification of its tax-exempt status:
- All its resources and activities came from the assistance of local churches.
- Churches have more liberty of religious rights compared to religious nonprofits.
- The filing of its financial reports to the IRS became rather burdensome.
This change to their tax-exempt classification means that BGEA will no longer have to annually file with the IRS Form 990, a burdensome task for many ministries. Additionally, this recent change in BGEA’s classification has influenced similar nonprofit organizations, such as parachurch ministries, to consider seeking a change to their tax-exempt classification.
So, what does this mean for you?
Perhaps you have been considering what it would take to change your ministry’s classification to a church, but are not sure where to begin. Maybe when you initially applied for your tax-exempt status, you had to settle for classification as a ministry/religious nonprofit because the IRS determined that you did not meet the requirements of a church for tax-exempt purposes, and now you believe that you meet those requirements.
I will address what it means for your organization to reclassify and what you need to do for that to happen. However, before we get to that, it is important to have a firm understanding of the difference between a church and religious nonprofit for tax purposes.
The difference between churches and religious nonprofits for tax purposes
The fact is that not all nonprofit organizations are treated the same by the IRS. For tax purposes, churches are classified differently than all other religious charities. One of the biggest differences between churches and other religious charities is the requirement to file Form 990.
Nonprofit organizations, whether religious in nature or not, are required to disclose their gross income to the IRS. Churches, however, are exempt from disclosing this information. Section 6033(a)(3)(A)(i) of the U.S. Tax Code exempts churches, their integrated auxiliaries, and conventions of churches from filing Form 990.
What is the purpose of filing Form 990?
Since nonprofits rely on public support, they should not operate for the private benefit of individuals within the organizations. Form 990 keeps nonprofit organizations financially accountable (through the government) to its public donors. Keeping up with filing Form 990 every year allows a nonprofit to maintain its federal tax-exempt status.
The more money a nonprofit receives, the longer Form 990 and more burdensome it becomes. For BGEA, filing annual financial reports to the IRS had become burdensome (within the past several years).
This is due to the fact that the organization had seen over $100,000,000 in total revenue (as reported in 2015).
Not every ministry sees this kind of money come through its organization. Some may never see such money come through and may only need to concern itself with filing shorter versions of Form 990.
Keeping up with filing Form 990 every year allows a nonprofit to maintain its federal tax-exempt status.
Change your purpose, change your status
When an organization’s purpose and activities change in a substantial way, there is potential that the changes to operating will also affect the organization’s classification as a public charity.
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The IRS has certain criteria that is applied to every organization seeking church status. This criteria is known as the 14/15 point test, which gauges whether or not an organization qualifies as a church for tax purposes. This test is a guide used to determine whether the primary purpose of a charity is that of a church or not.
The way your church or ministry is formed determines how it is classified for tax-exempt purposes. How your church or ministry is classified determines its reporting requirements to the IRS.
What does it mean to be a “parachurch”?
Religious nonprofits may receive donations from the general public, individual donors, or may apply for available grants. A parachurch, on the other hand, does not fit in this category. For BGEA, funding, resources, and activities are all accomplished through the cooperation of churches in its area.
What does it mean to be a “parachurch”?
A parachurch is an organization that operates through the support of churches, but functions independently from church structure, or church governance. Basically, they are organizations that obtain the majority of their resources through churches, but are established separately.
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Besides BGEA, examples of other operating parachurch ministries include Campus Crusade for Christ (Cru), Habitat for Humanity, and Samaritan’s Purse, to name a few. It is important to know that just because an organization is a parachurch ministry, does not mean that all of these organizations have church status. Keep in mind that an organization’s purpose and formation determines its federal nonprofit classification.
Does your ministry meet the standards to reclassify?
As mentioned above, if your ministry’s purpose is changing substantially, your ministry may be eligible for reclassification. Reclassification occurs when an organization’s purpose and activities change significantly in that it warrants a need for its tax-exempt status to be classified differently.
For a ministry to reclassify its church status, the ministry has to do the following:
- File Form 8940, along with Schedule A of Form 1023;
- Share a written description of activities;
- Supply projected income and expenses for one year; and
- Provide a copy of any amended organizational documents.
All of this needs to be sent to the IRS with a filing fee of $400. A church may also find it necessary to reclassify as a ministry/religious nonprofit. For more information on what that entails, give us a call at 877-494-4655, or click on the article listed below.
So, where do you go from here?
There are plenty of great stories of ministries that have successfully reclassified to be that of a church status, and vice versa. BGEA’s story is one among the many success stories. Reclassification is advantageous, if done correctly.
Whether you have a ministry that has grown into becoming a church to better serve its community, or a church whose renewed vision in God requires a completely new direction, these changes are good.
No matter what changes that you are needing to make, we can help you navigate this transition. With your input and vision in mind, we can help you to establish governing documents that reflect the dream and vision God has placed in your heart. Join us at an upcoming conference or give us a call at 877-494-4655. We would love to hear from you and help you along your journey!