Do Churches Need 501(c)(3) Status?

Written by Chaston Asbury on Jun 10, 2021 in IRS Compliance

Read Time: 4 Minutes

A solid legal foundation is essential for a church to be lasting and impactful within its community. As every pastor knows, starting a church is a marathon, not a sprint. Part of running a successful church marathon is incorporating your church, adopting governing documents, and obtaining the 501(c)(3) status. Today, we will be focusing on churches obtaining the 501(c)(3) status.

You may be asking yourself, should my church obtain 501(c)(3) status? What are the benefits of doing so? Am I inviting the government to intervene in my church’s affairs?

Why should you trust StartCHURCH to answer these questions? StartCHURCH has over 20 years of experience in IRS compliance. In that time, we have helped launch thousands of churches, ministries, and nonprofits honestly and thoroughly. 

Now, let’s talk about why your church should obtain the 501(c)(3) status.

Why get the 501(c)(3) status?

One of the main reasons that pastors have chosen to pursue the 501(c)(3) status for their church is the simple fact that it alleviates the burden of proof for their donors. 

In court cases, such as Jack Lane Taylor v. Commissioner, we see the burden placed on donors of churches without 501(c)(3) status. If a donor is audited, he or she must establish or prove that the church meets the requirements and qualifications of section 501(c)(3) organization. What a burden for an individual to carry!

For this reason, many donors may choose not to donate to organizations without 501(c)(3) approval. Or worse, they may contribute, get audited, and all the money they gave could be used against them. Churches that already have the 501(c)(3) status have taken it upon themselves to do their due diligence in protecting their donors and their donations. 

What about a 508 church?

We often speak with pastors who have received information from other pastors, friends, or illegitimate online articles without checking the sources.

One of the most common misconceptions we hear is, “We don’t need the 501(c)(3) status because we are a 508 church.” Many believe a “508 church” to be a church outside of the law. The information about a church operating under 508(c)(1)(A) is misleading at best and destructive at worst. 

To be clear, section 508(c)(1)(A) of the Internal Revenue Code relieves churches of the obligation to apply for 501(c)(3) tax-exempt status to be considered charitable organizations. By its very nature, a church is regarded as a charitable organization and thus, does not have to apply for the 501(c)(3) status to be deemed so. 

However, there is no provision under the law that allows any organization, church, or otherwise to receive tax-exempt donations without meeting the requirements under section 501(c)(3). This means that even though churches do not have to file the 1023 Application to apply for the 501(c)(3) status, they still have to operate following 501(c)(3) standards. 

In Brach Ministries v. Rossotti, Branch Ministries, a church, applied for and received 501(c)(3) exemption. The church was later found guilty of intervening in a political campaign, and its tax-exempt status was revoked.

The revocation went back to the beginning of the tax year, where it was found to be out of compliance. Had the church not applied for 501(c)(3) exemption, it would have likely been deemed a non-tax-exempt organization from the beginning of its existence.

Having 501(c)(3) status protected this church, not hindered its religious liberties.  

Applying for 501(c)(3) status is optional for churches, but to not do so can limit your church and ultimately be detrimental to its congregants.

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Church Organizations Defined

Some churches come to us years after their first service and already have hundreds of attendees. Other churches we work with are still in the planning phases or have just begun meeting in a home with a handful of congregants.

“The term church is found, but not explicitly defined, in the Internal Revenue Code. 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.

Specific characteristics are generally attributed to churches. These attributes of a church have been developed by the IRS and by court decisions.

They include:

  • Distinct legal existence
  • Recognized creed and form of worship
  • Definite and distinct ecclesiastical government
  • Formal code of doctrine and discipline
  • Distinct religious history
  • Membership not associated with any other church or denomination
  • Organization of ordained ministers
  • Ordained ministers selected after completing prescribed courses of study
  • Literature of its own
  • Established places of worship
  • Regular congregations
  • Regular religious services
  • Sunday schools for the religious instruction of the young
  • Schools for the preparation of its members

The IRS generally uses a combination of these characteristics, together with other facts and circumstances, to determine whether an organization is considered a church for federal tax purposes.*”

*Source: Publication 1828, Tax Guide for Churches and Religious Organizations

Protecting what God has Called You to Lead

501(c)(3) is not about government restrictions but a God-given tool that removes unnecessary pressure from your church and your donors.  

Our goal at StartCHURCH is to help you establish a solid legal foundation for your church or ministry. Keep in mind that you must take time to consider all options when establishing your church’s legal foundation. This includes not only obtaining the 501(c)(3) status but also incorporating your church and adopting appropriate governing documents. 

Give us a call at 877-494-4655 or schedule a free 30-minute consultation with a church planting specialist below to discuss our StartRIGHT Service.

Pace yourself to run the race that God has set before you, for he will give you the strength and resources you need to succeed. Let StartCHURCH come alongside you to run this marathon together! 

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Please feel free to comment. We always appreciate good dialogue. However, we do moderate each comment to ensure that it is on topic and not derogatory to other participants. We ask that you keep your comments brief and pertinent to the topic so that others may benefit.

Blessings,
Raul Rivera


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