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.

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.

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.

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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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Rules & Regulations for Non Profit Foundations
 

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What is the Difference Between a 501C3 & 501C4?

Many nonprofit organizations are created for the purposes of providing some benefit to the public. Depending on the specific civic purpose of the organization and its anticipated level of involvement in politics, it may be eligible for a federal income tax exemption under subchapter 501(c)(3) or 501(c)(4) of the Internal Revenue Code. Knowing the eligibly requirements and costs and benefits to each classification will help you determine the best way to register your nonprofit.

Foundation Vs. 501(c)(4)

According to the Internal Revenue Code, a foundation qualifies as a 501(c)(3) nonprofit organization. The Internal Revenue Code identifies 501(c)(4) organizations as nonprofits as well. However, these two types of nonprofits are distinct from each other in that they provide different services and are organized for different purposes.

501(c)(3) Types

Federal taxes are a significant expense for many businesses, but not for exempt non-profits. Non-profit charities that are organized under Internal Revenue Code Section 501(c)(3) are generally tax-exempt, and their donors usually get tax breaks for supporting them. The IRS divides these charities into two categories: public charities and private foundations.

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