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Top 3 Myths About 501(c)(3) Status

By Angie Joya

“You have to have 501(c)(3) status!” 

“Don’t apply for 501(c)(3)!” 

“The government can’t tell you what you can and can’t preach!” 

With so many opinions and so much information to sift through, pastors may still be faced with the ultimate question, “What does getting 501(c)(3) status mean for my church, and do I have to have it?”

Every day, pastors, new and old, are bombarded by conflicting, well-intentioned, but downright wrong information. With so many opinions and so much information so readily available, it’s difficult to decipher what is fact from what is an opinion.

In today’s blog, we’ll take a look at the top three most common myths floating around about 501(c)(3) status, and we will take a look at how true they really are. 

3 common myths

Myth #1: “Obtaining 501(c)(3) means that the IRS can tell me what I can and can’t preach.”

Ever heard this one before? It’s definitely a myth. Unfortunately, a lack of understanding has led many to believe and spread this misconception. When you search the internet for whether churches should obtain 501(c)(3) status, it is easy to find website after website discouraging pastors and church leaders from obtaining 501(c)(3) status. Some even claim that obtaining 501(c)(3) status makes the church an organization under the control of the federal court. But this is simply not true. 

The IRS doesn’t look for us to water down the gospel or keep us from preaching it. It simply raises the level of accountability in order to avoid an improper use of tax-exempt status. In fact, Congress passed section 7611, which states that unincorporated churches shall be treated the same as incorporated churches for tax purposes, meaning that regardless if they have obtained their 501(c)(3) status, all churches have to obey all nonprofit requirements. 

Myth #2: “Having 501(c)(3) would subject my church to participate in activities it does not condone.”

On June 26, 2015, in the case of Obergefell v. Hodges, same-sex marriage was established in all 50 states as a result of a landmark civil rights ruling by the Supreme Court of the United States. This ruling poses a major question in the minds of pastors: Does having 501(c)(3) status mean I have to perform same-sex marriages? 

Though this question is understandable, it comes from a place of fear, and pastors do not have to live in fear. 

Although there is nothing within section 501(c)(3) or the tax code that specifically requires churches to participate in activities they do not condone, we at StartCHURCH believe that now is the time for all churches, whether they have or have not obtained 501(c)(3) status, to be prepared for what is to come. 

The church is called to be the head and not the tail. Therefore, we believe your church can prepare and protect itself by implementing the following:

  1. Add a “Prohibited Activities Clause” to your church’s bylaws. This clause simply states that a church is prohibited from engaging in activities that violate its written doctrines. In addition, the church is also prohibited from condoning, promoting, or allowing any of its assets to be used for activities that violate its written doctrines.
  2. Establish written doctrines. Written doctrines are separate from your church’s bylaws. Your written doctrines should be detailed in describing how your church’s specific beliefs are carried out in day-to-day life. While it is important for bylaws to state major beliefs backed by Scripture, written doctrines allow you to write out your church’s stance on any and all issues that your church believes in. This document is meant to be updated whenever you or your fellow church leaders see fit. 

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Myth #3: “Obtaining 501(c)(3) approval is not required.”

Because information is so readily available on the internet, it is easy to come across so much information from groups promoting the idea that applying for 501(c)(3) is not necessary for churches because of section 508(c)(1)(a). 

These groups have the mistaken and misinformed notion that by not applying for 501(c)(3) status, the church entity is not required to meet any of the requirements of section 501, and the IRS cannot revoke its exempt status. However, this is also not true.

Section 508(c)(1)(a) does state that churches do not have to apply for 501(c)(3) status. However, in a case heard before the United States Tax Court (Jack Lane Taylor v. Commissioner), the court ruled that, “Section 508(c)(1) simply relieves churches from applying for a favorable determination letter regarding their exempt status as required by section 508(a).” 

Please note: Nothing in section 508(c)(1) relieves a church from having to meet the requirements of section 501(c)(3). In short, just because a church does not apply for 501(c)(3) does not mean they are exempt from complying with the regulations. You can learn more about the differences between 501(c)(3) and section 508 by reading this blog, “What’s the Difference Between 508 and 501(c)(3)?

Obtaining 501(c)(3) isn’t just a matter of protection for your church, there are plenty of benefits of obtaining 501(c)(3) status such as tax-deductible contributions for donors and grant funding. You can read a more detailed list by clicking here. 

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No longer misinformed

Applying for 501(c)(3) status can be time-consuming and complicated. The IRS has even estimated it takes the average person over 100 hours to complete the 501(c)(3) process! Getting tax-exempt status doesn’t have to be so difficult. 

At StartCHURCH, we are firm believers that obtaining 501(c)(3) approval for your church is an essential step in the church planting process. With the StartRIGHT Service, our specialists will walk alongside you throughout the entire process. 

Whether you’re  starting a new church and don’t know where to begin, or you’ve been operating for a while and you’re not sure if your documents include adequate protective language, the StartRIGHT Service can help you obtain the coverage you need. Protect your church and the vision God has given you with a team that is eager to do the same. Give us a call today at 877-494-4655 or click the button below to have a specialist call you. 

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