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Church Tax Exempt Status Under Attack, IRS One-Two Punch
By Raul Rivera
Over the last several years we have noticed a trend in which the IRS has tightened the review process of organizations applying for tax-exempt status. This tax-exempt status is most commonly known as getting 501(c)(3) recognition. Last year, we noticed that the IRS began to more thoroughly question the size of a church. Many IRS agents have tried to deny churches tax-exempt status because they believed these churches did not have enough people to constitute a church. Many court cases, though, have established that a church is a body of believers or communicants that assembles regularly in order to worship. Additionally, in The Church of Eternal Life and Liberty, Inc. v. Commissioner, the court recognized that "while incipient churches may have only two or three gathered together, a church membership will grow well beyond those small numbers given the vitality of its associational role." Regardless of the established precedence, the IRS has made numerous attempts to deny church status to many legitimate, small, and startup churches. We have had to fight some real battles getting smaller churches approved with our StartRight program.
A new attack is forming
On January 20th, Kathleen Sebelius, Secretary of the U.S. Health and Human Services, announced that all religious organizations except churches must offer free birth control for employees under the organization's health insurance. Because this requirement exempts churches, the government will soon begin to more closely scrutinize churches applying for 501(c)(3) status, fearing that many ministries and other parachurch organizations will seek exempt status as churches to avoid the new requirements of the healthcare law. I predict that in the near future we will see a new set of criteria that the IRS will adopt and apply across the board to all organizations applying for 501(c)(3) status as churches. Greater efforts will be made to reclassify many applicants by sending follow up letters and making phone calls in an attempt to lower the number of approved applicants as churches, while strong-arming numerous others into believing they will only be granted 501(c)(3) status if they opt for "religious organization" status.
What should I do?
There are two things you can do to have an easier time with this dilemma. The first thing to do is DON'T WAIT! Get your church's 501(c)(3) ASAP! The longer you wait the harder it becomes. Getting churches started on the right path is what we do every day! Our StartRight program is exactly what you need. The second thing you can do is to stay right. Many churches that we know may get started on the right track, but they fail to stay right. Now more than ever, it is very important to make sure that your church or ministry stays in compliance with all of the ever-changing rules and regulations. We help many churches through our Tax Compliance and Ministry Empowerment Conferences to form action plans that get them started right and also help them stay right. If you are in doubt concerning your church or ministry's tax and legal compliance, please call us at 770-638-3444 and we will be happy to spend time over the phone hearing your heart and helping you accomplish the call and vision that the Lord has placed in you by helping make it right with God and man.