How the IRS Views an Online Church Vs. Traditional Church

By Chaston Asbury

Read Time: 3 Mins

In March of 2020, the world as we once knew it changed, and we had to adjust to the impact of that. It's now February of 2022, and the Covid-19 pandemic is still affecting many aspects of our lives. One aspect of life that has been significantly impacted is the way that churches operate and interact with their congregation.

Many churches have used this time to increase their online presence. The internet is an exceptional tool for churches to engage with their congregation and increase their scope of influence. However, the IRS makes a clear distinction between fully online churches vs. churches that have a physical presence.

The IRS currently defines a church as an organization that is holding regular worship services at a public location with an established and growing congregation. Here at StartCHURCH, we want to make sure that your organization has the correct classification so you can protect what God has called you to lead!

Different Status Equals Different Requirements

Throughout this blog, we will refer to organizations by the layman terms of "church" and "ministry." The IRS, however, defines organizations based upon their classification in the tax code. Church organizations are described in sections 509(a)(1) and 170(b)(1)(A)(i). Ministry organizations are described in sections 509(a)(1) and 170(b)(1)(A)(vi). 

It is important to know that both churches and ministries are considered tax-exempt organizations under section 501(c)(3) of the Internal Revenue Code. However, they are treated differently by the IRS for tax purposes. Failure to fall under the correct classification will result in issues in your organization's future. These issues usually result in trouble with annual filings, incorrect purpose and language in your articles of incorporation, and hindrances with funding.

To learn more about the differences between running a church organization and a ministry organization, please review our blog, Am I Running a Church or Ministry? https://www.startchurch.com/blog/view/name/am-i-running-a-church-or-ministry

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Are Online Churches Considered Church Organizations to the IRS?

The IRS considers the 14/15 Point Test to determine whether or not a nonprofit organization meets church classification. To read the entire test, click here. https://www.irs.gov/pub/irs-tege/eotopica94.pdf. Online churches may meet some of the requirements to be considered a church, but the lack of an established place of worship will most likely sway the IRS to classify the organization as a ministry, 170(b)(1)(A)(vi).

As a Phase 2 Specialist at StartCHURCH, I have personally seen the IRS letters that question an organization's church status (170(b)(1)(A)(i)) because of the fact that they only meet online. Given this information, it is a reasonably safe assumption that the IRS does not currently consider online churches to be church organizations.

To learn even more on this topic and to perform your own IRS audit, read our blog, Your 5-Point Compliance Checklist. https://www.startchurch.com/blog/view/name/your-5-point-compliance-checklist-for-online-church

Stay Encouraged

Do not be discouraged if the Lord has called you to start an online church! You can still carry on all of the activities you were initially planning to do. Many activities that online churches conduct include: 

• Hold online worship services
• Create online small groups and bible studies
• Establish online ministry training programs
• Organize community outreach events
• Create online content like sermon videos, podcasts, and worship music

Even though the IRS may not consider your nonprofit organization as a church, your online ministry will still be considered a tax-exempt organization! This means that individuals can give donations to your organization and receive charitable giving receipts!

The main difference in operating a ministry versus a church is that ministries must file annual 990 reports. Organizations required to file Form 990 must submit the return by the 15th day of the 5th month of their fiscal year. For instance, if your ministry's fiscal year ends on December 31st, you are required to file your ministry's Form 990 by May 15th of the following year. If your fiscal year ends June 30th, you are required to file Form 990 by November 15th of the same year.

Trust the Process and Serve with Integrity

Whether you feel called to start a traditional church organization or an online ministry, StartCHURCH can help you! The StartRIGHT Service empowers you to select the correct governing structure for your organization to protect your vision and your ministry while staying in compliance with IRS regulations. Give us a call at 877-494-4655, or click the link below to schedule a call with a specialist. We will be pleased to assist you!

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