How to Start a Church as a 501(C)(3)

By David Carnes

501(c)(3) nonprofit status offers significant tax advantages to churches. These nonprofits are exempt from most federal income tax, and their donors may deduct contributions from their own taxable incomes. The IRS applies special rules on churches that qualify for 501(c)(3) status. Some of these rules impose restrictions, while others offer advantages.

501(c)(3) nonprofit status offers significant tax advantages to churches. These nonprofits are exempt from most federal income tax, and their donors may deduct contributions from their own taxable incomes. The IRS applies special rules on churches that qualify for 501(c)(3) status. Some of these rules impose restrictions, while others offer advantages.

Definition of a "Church" for Tax Purposes

To qualify as a church under IRS rules, you must structure your organization to comply with the legal definition of a "church." A church must have a particular creed and form of worship, at least one established place of worship, a regular congregation, regular services, and ordained ministers. Even though the houses of worship of some faiths are not called churches -- synagogues and mosques, for example -- they can still qualify as churches for tax purposes. A religious organization that fails to comply with the legal definition of a church can still qualify for tax benefits as a "religious organization," but certain legal benefits will not apply.

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Starting a Nonprofit

To start a nonprofit, you must establish your church as a corporation, trust, or unincorporated association. Many churches choose to incorporate due to the advantages of limited liability. To incorporate, you must file a special type of nonprofit incorporation document with the state secretary of state and pay a filing fee. The incorporation document is typically only a page or two long. The main differences between a for-profit and a nonprofit incorporation document is that a non-profit incorporation document must include the names of the corporation's directors, and it must specifically state the corporation's purpose.

501(c)(3) Recognition Process

A church does not have to apply for 501(c)(3) status to receive it. Nevertheless, it is a good idea to apply and receive approval from the IRS. If the IRS later decides that your organization doesn't qualify as a "church" for tax purposes, it will classify it as a "religious organization," which must apply for 501(c)(3) status in advance. You can apply for 501(c)(3) status on behalf of your organization by filing Form 1023 with the IRS. Form 1023 is dozens of pages long and requires detailed information about your organization.

Operating Restrictions

Obtaining 501(c)(3) status offers no lasting benefits if it is revoked. If your organization violates the restrictions on its nonprofit status, the IRS might even retroactively revoke it and assess tax bills for previous years. All 501(c)(3) organizations must refrain from distributing profits, including profits disguised as excessive "salaries." Nevertheless, the IRS is subject to special legal restrictions on its authority to audit churches. Churches are required to operate primarily for religious purposes. They must also refrain from substantial political lobbying activity, and from supporting particular any particular candidate for public office.

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501(c)(3) Auxiliary Restrictions

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How Can a Church Lose Its 501(c) Status?

The IRS generally recognizes any distinct legal organization with a recognized creed and form of worship, a formal religious doctrine, a religious history, or a defined ecclesiastical government as a church. Churches like many other charitable organizations, qualify for exemption from federal income tax under IRC section 501(c)(3). Contributions to an IRC section 501(c) organization are deductible for the donor to a certain extent. By taking certain actions or participating in certain activities, a church can lose its 501(c)(3) status.

Rules & Regulations for Non Profit Foundations

Nonprofit foundations that meet certain requirements are eligible for special tax treatment by the IRS under Section 501(c)(3) of the Internal Revenue Code. Donors to such organizations enjoy tax benefits as well. Most nonprofit organizations must apply for 510(c)(3) status before taking advantage of its benefits. Under certain circumstances, however, the IRS may revoke a nonprofit foundation's status.

How to Become a Nonprofit Entity

If your charitable organization, church, or private foundation exists for what the IRS deems “exempt purposes,” you may be able to register as a nonprofit, or tax-exempt entity. Exempt purposes include helping the underprivileged, protecting the rights of children or animals, and “advancement of religion.” Nonprofit entities do not have to pay federal income tax, and they can accept tax-deductible contributions from the public. However, they are limited with respect to political or lobbying activities.

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