|
Return to Christian-Attorney.net SHOULD A
CHRISTIAN CHURCH SEEK OFFICIAL I.R.S. 501(c)(3) Incorporation: First, ought a church remain or seek to be
a nonprofit corporation? Alternatively, should a church remain or convert
to an unincorporated association (or a corporation sole or charitable trust)? Independence: Second, should a Christian church remain
or become an independent, nondenominational church? Alternatively, ought
a church join or affiliate under another denomination or other tax exempt
organization? IRS Tax Exempt Status: Third, should a church elect to seek
official IRS recognition as a 501(c)(3) organization? Alternatively,
might a Christian church decide to simply utilize the automatic exception
without seeking formal IRS recognition (after taking into consideration the
benefits or risks of such course of action)? This article only addresses the third
issue of whether or not to seek official Internal Revenue Service 501(c)(3)
recognition. OFFICIAL
VERSUS AUTOMATIC TAX EXEMPT STATUS According to IRS Publication 1828 (Tax
Guide for Churches and Religious Organizations), “churches that meet the
requirements of IRC Section 501(c)(3) are automatically considered
exempt and are not required to apply for and obtain recognition of
tax-exempt status from the IRS.” Further, if a church wrongly assumed it
was a “church,” and the IRS determines otherwise, then the IRS could take the
position that: (1) Donations made to the entity were and are not tax deductible
to the donors and are subject to income tax, (2) The entity does not qualify
for special mailing rates, and (3) The organization is not exempt from
unemployment insurance; and (4) The entity is generally subject to ERISA
related to employee benefit plans. See related article entitled, “What
is a Church?” Several other IRS publications state that churches
are automatically tax-exempt, even without seeking official IRS recognized
501(c)(3) status, including: Package 1023, Application
for Recognition of Exemption. This document identifies “churches,”
and “[i]ntegrated auxiliaries of churches, and conventions or associations of
churches” as not being required to file Form 1023 (Application for
Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code). “Organizations, including churches and
religious organizations, that wish to be recognized as tax-exempt under IRC
Section 501(c)(3) must use IRS Form 1023.” On the one hand, when a Christian church incorporates and
applies for 501(c)(3) status, critics say that it invites government scrutiny
into church finances, activities, and
membership. Moreover, some feel incorporation and seeking
official tax exemption has the effect of subordinating the headship of Christ
below the State who, in exchange for money (tax exemption) and other benefits,
tells the church that it can’t support a political candidate, even a godly one.
On the other hand, perhaps the
greatest benefit that being an officially recognized 501(c)(3) organization is
the extra assurance to all donors that their tithes, offerings, and
gifts are fully tax deductible. Further, under California law, a religious nonprofit
corporation is not automatically exempt from California state taxes, but it
must first file a California Form 3500 which is an involved, time consuming
form to prepare. However, if
the corporation first obtains formal IRS 501(c)(3) recognition status, then
California Form 3500A can be utilized which is a simple and short form
to prepare. My general recommendation is that a California
Christian church corporation formally apply for 501(c)(3) recognition. If a church joins or
affiliates under another denomination or other tax exempt organization, then
such church may be able proceed along a relatively simple
“subordination” course, so as to come under a parent organizations IRS tax
exempt recognition blanket. In summary, there are potential and/or actual
spiritual, practical and/or legal implications of how a Christian church seeks
to handle its tax exempt status. Accordingly, a church and its members
need to pray about and investigate these matters fully before making a final
decision as to how to proceed. Please feel free to contact my office for
a free initial consultation.
|