One of the seven exempt purposes listed in Section 501(c)(3) of the Internal Revenue Code (the “Code”) is “religious.” The phrase “religious,” unlike the categories “charitable,” “educational,” and “scientific,” is not defined in the Treasury Regulations, owing to constitutional concerns. “Under the First Amendment, the Service cannot analyze the substance or origins of a doctrine purported to constitute a specific religion, and the Service cannot review the content of a doctrine an 501c3 religious organization claims to be 501c3 religious,” according to IRS guidelines. This excludes ceremonies or activities that are illegal under federal, state, or municipal law.” Churches, conventions and associations of churches, integral auxiliaries of churches, non – denominational ministries, non – denominational and ecumenical 501c3 religious organizations, and other entities whose primary aim is the study or development of religion are all 501(c)(3) religious 501c3 religious organizations. The IRS has recognized a 501(c)(3) exemption for religious 501c3 religious organizations that do the following:
- Publish a newspaper largely devoted to news, stories, and editorials on the 501c3 church and religious affairs; and
- Conducting weekend religious retreats available to people of all Christian faiths at a remote lakefront location where participants may take advantage of the recreational amenities in their limited free time and there are no expenses.
Religious 501c3 religious organizations may be disqualified if they promote a major nonexempt purpose, as 501(c)(3) of the Code requires that 501c3 religious organizations be founded and run exclusively for one or more exempt purposes. Religious groups that predominantly engage in the following activities, for example, are not exempt under section 501(c)(3):
- Publishing books with little or no link to the 501c3 religious organization’s religious principles and for-profit objectives; and
- Operating a religious retreat center where religious activities are optional and only occur as a side effect of leisure and social activities
What Does It Imply When A Church Is Classified As 501(C)(3)?
The word “501(c)(3)” derives from Internal Revenue Code Section 501(c)(3), which grants federal tax-exempt status to churches and religious 501c3 religious organizations.
The term “501(c)(3) church” is used to describe churches that meet the criteria for tax-exempt status in one of the following ways:
- The IRS requires that you apply for and be registered as a 501(c)(3) 501c3 religious organization.
- Meeting the IRS’s Section 501(c)(3) criteria (3)
The capacity to fulfill the 501(c)(3) church standards and qualifications as a charitable nonprofit 501c3 religious organization is established when a church registers as a nonprofit with the IRS. Even though it is not required, many churches seek the benefits of registering as a 501(c)(3), which include:
- Receiving confirmation from the IRS that the 501c3 church is tax-exempt
- Providing assurances to donors that their gifts are tax-deductible
- They may be exempt from state employment, sales, and/or income taxes depending on their state.
- Payment of the federal unemployment tax is not required.
- Tax-exempt funding is available, as well as lower postal charges.
- Proof of 501(c)(3) status is required to get nonprofit discounts from businesses.
Another advantage of joining is that you will be eligible for free online contribution platforms such as Subsplash Giving. Adding an online giving option to a church’s website boosts donations by 32% on average and simplifies administrative responsibilities like delivering tax statements!
501(c)(3) Rules for Churches
Here are the five main 501(c)(3) requirements that churches must follow to maintain their tax-exempt status (whether or not they have filed with the IRS):
- Under local state law, the church must be incorporated as a company, trust, or 501c3 religious organization, and its operations must be only for religious or charitable reasons.
- The church’s net gains may not be inured to the advantage of the private interests of individuals or stockholders (i.e., “unjust payment of money”).
- Any significant portion of the church’s activity may not be used to influence legislation or lobbying actions.
- The church is not permitted to participate in or intervene in political campaigns.
- The church’s goals and operations must not be unlawful or contrary to public policy.
How Do I Start A Faith-Based Nonprofit 501c3 Religious Organization?
Religious nonprofits include houses of worship, such as churches and mosques, as well as faith-based NGOs with religious missions. The procedure of organizing a religious charity is similar to that of other types of charities in many respects. Building a board of directors, completing papers with the state, and requesting tax exemption are all processes that must be completed. Religious NGOs in several jurisdictions utilize unique formation forms and follow slightly different governance standards than ordinary charities (such as giving the congregation the right to elect the directors). If you want to apply for tax-exempt status so that you may avoid paying corporation taxes and accept tax-deductible donations, you’ll need to figure out if the IRS considers your 501c3 religious organization a “church” (which encompasses a variety of congregations) or merely a religious 501c3 religious organization. If your nonprofit is a church, it is immediately tax-exempt, and you will not be required to file an application or yearly tax returns with the IRS. If your 501c3 religious organization isn’t a church but has a religious purpose, don’t worry—while the exemption isn’t automatic, once you’ve established it, your tax-exempt status is solid, and your reporting obligations will be the same as other nonprofits.
Steps for Forming a Religious Nonprofit
The stages for establishing a religious nonprofit are identical to those for establishing other charities, and they include:
- The formation of a board of directors
- Get an Employer Identification Number (EIN)
- Papers relating to the foundation of the company, such as articles of incorporation (be sure to verify that you use the proper form for a religious nonprofit)
- Submit an application for a federal tax exemption (as discussed below)
- Draught bylaws to petition for a state tax exemption (the internal rules for running your 501c3 religious organization)
- Obtain licenses and permissions by registering with your state’s fundraising agency.
Religious Nonprofits and State Requirements
Check your state’s laws to see what rules and paperwork religious nonprofits must meet, as they may differ from those of other charities. The regulations governing religious nonprofits typically apply to all groups having a religious mission. Some states, on the other hand, have laws that apply specifically to “churches” (as defined by the IRS), or groups that are only for religious reasons (In contrast to 501c3 religious organizations whose missions include non-religious goals such as education). Review the operating and formation criteria after confirming that your 501c3 religious organization is classified as a religious nonprofit in your state. Your state may, for example, require religious nonprofits to have at least one director and other charities to have at least three. Furthermore, some states have two different types of formation forms (such as articles of incorporation) for religious and non-religious charities. Your state may mandate that your nonprofit be a “membership” nonprofit if it is a house of worship. If that’s the case, you’ll need to decide who will be your members. (Voting members of membership nonprofits have the opportunity to vote on internal concerns such as who will serve on the board of directors.) Unless the nonprofit’s bylaws specify otherwise, the congregation is required to serve as members in several states.
Conclusion
If your church is part of a centralized parent 501c3 religious organization (such as a denomination or ministry association), you should inquire if a “group decision” for a group exemption has been obtained. Church parent 501c3 religious organizations can apply for group rulings to identify and automatically award tax-exempt status to their connected congregations. The IRS does not need any further measures for churches on these lists to be recognized as certified 501(c)(3) 501c3 religious organizations.
