How to Legally Make Changes to Your Church

Written by Chaston Asbury on Mar 25, 2021 in IRS Compliance

4 Min Read

Churches are ever-evolving entities. If your organization has been in existence for two years or more, it has likely grown from when it first incorporated, adopted bylaws, and obtained the 501(c)(3) status. 

The IRS understands that, just like any regular corporation, nonprofits will grow to adopt new activities, increase their revenue, and sometimes even change their tax-exempt purpose.

After your Church has received its 501(c)(3) status, you will want to make sure that you are familiar with what StartCHURCH calls "The 3 R's of Church Compliance." Reconsiderations, Reclassifications, and Reinstatements are what we are going to be talking about today.

Reconsideration

The necessity for a church to do a reconsideration (or "letter of due diligence") comes from IRS Publication 557. This IRS publication essentially informs us that it is best practice for nonprofit organizations (churches included) to update the IRS when substantial changes have occurred within the organization.

Changes that necessitate a reconsideration would include any modifications to a church's governmental structure that would require updates to the articles of incorporation and/or bylaws. 

The term "substantial" is a broad term. However, we have deduced it to a few key changes:

  • Changes to your articles of incorporation (amendment to the purpose or dissolution clause, name change)
  • Changes to your constitution and bylaws
  • Changes to the voting membership

Unlike the first time you applied for 501(c)(3) status and had to include a fee, you do NOT have to pay another filing fee when you submit a "reconsideration packet" to the IRS. Now, that is some good news! 

Completing a reconsideration packet is also necessary when a nonprofit organization wishes to move states and wants to take its 501(c)(3) status with it. As of January 1, 2018, Section 1 of Rev. Proc. 2018-15 "reduces compliance burdens on certain exempt organizations by providing the circumstances under which the Internal Revenue Service (IRS) generally will not require domestic business entities to file a new exemption application when they change their form or state of the organization. This revenue procedure obsoletes Rev. Rul. 67-390 and Rev. Rul. 77-469."

Simply put, some organizations that want to move their nonprofit from one state to another may not have to complete a brand new 501(c)(3) application. Specific requirements do apply. Give us a call at 877-494-4655, to find out if you meet the criteria.

One last thing to note is that if your organization wants to change its mailing address (to a new mailing address within the same state that it was originally incorporated in), all you have to do is file Form 8822-B send it to the IRS.

Reclassification

A reclassification is necessary when an organization's tax-exempt purpose and activities change in such a manner that its charitable status needs to be classified differently. The two most common forms of reclassification we see are when a church reclassifies as a ministry (non-church nonprofit) and when a ministry reclassifies as a church.

A religious organization not initially classified as a church may begin to operate as a church by holding weekly worship services with an established congregation and offering other "church-like" activities such as Sunday School, children's ministry, and Bible studies. In such cases, it becomes advantageous for a ministry to reclassify as a church since churches are not required to file Form 990 annually with the IRS.

Conversely, some churches may find it necessary to reclassify as a religious nonprofit if they cease holding regular worship services to instead focus on community outreach activities. To do this, the church would need to file Form 8940 with a written description of its new activities and a copy of any amended organizational documents. In addition, the church would need to file Form 990-EZ or 990-LONG (depending on income and assets) for the preceding tax year that the request for reclassification is made. All of this needs to be sent to the IRS with appropriate filing fees. 

Reinstatement

There are several ways in which a charitable organization can lose its tax-exempt status, but the most common way is by failing to file Form 990. This is an annual informational return that all tax-exempt organizations, except for churches, must file to the IRS. If your organization goes three consecutive years without filing a 990, the IRS will revoke the 501(c)(3) status.

If your organization has had its 501(c)(3) status revoked, it can apply to become reinstated. The revoked organization must submit a new Form 1023 application with the appropriate filing fee to be reinstated. 

Revenue Procedure 2014-11 provides four procedures in which an organization may apply for reinstatement based upon facts and circumstances:

  1. Streamlined retroactive reinstatement.
  2. Retroactive reinstatement process (within 15 months of revocation).
  3. Retroactive reinstatement process.
  4. Post-mark date process. 

In general terms, an organization applying for retroactive reinstatement from the date of revocation must submit the following:

  • A written request and statement that has a compelling and reasonable argument for why the organization did not submit the necessary Form 990's for three consecutive years (or more if applicable).
  • Proof that it has implemented the necessary procedures to ensure that it does not happen again.
  • All missing and necessary Form 990s previously required but not filed.
  • A declaration signed under penalty of perjury that all information is accurate and true.

If you are not sure if you are revoked or in good standing, I strongly suggest checking Publication 78 to check your status. You can also give StartCHURCH a call at 877-494-4655, and we can check on your status for you. We can help you get back on track if you are revoked.

Let Our Specialists Help Your Church

At StartCHURCH, we want to serve our clients as best we can. Ultimately, the best way we can serve you is to provide practical, simple solutions to what can feel like highly complex scenarios. Click the banner below to schedule a call to speak to a specialst and ask about our reconsideration, reclassification, and reinstatement services.

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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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