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Churches and the IRS by Mike Jentes

Compiled June 2006
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"Churches" Defined

The term church is found, but not specifically defined, in the Internal Revenue Code. With the exception of the special rules for church audits, the use of the term church also includes conventions and associations of churches as well as integrated auxiliaries of a church.

Certain characteristics are generally attributed to churches. These attributes of a church have been developed by the IRS and by court decisions. They include:

  • Distinct legal existence
  • Recognized creed and form of worship
  • Definite and distinct ecclesiastical government
  • Formal code of doctrine and discipline
  • Distinct religious history
  • Membership not associated with any other church or denomination
  • Organization of ordained ministers
  • Ordained ministers selected after completing prescribed courses of study
  • Literature of its own
  • Established places of workshop
  • Regular congregations
  • Regular religious services
  • Sunday schools for the religious instruction of the young
  • Schools for the preparation of its members

The IRS generally uses a combination of these characteristics, together with other facts and circumstances, to determine whether an organization is considered a church for federal tax purposes.

Source: IRS Publication 1828, Tax Guide for Churches and Religious Organizations



501(c)(3) Status

All of the text (except for items in parentheses) in the section below is taken directly from IRS Publication 577 http://www.irs.gov/publications/p557/ch03.html#d0e2950

Organizations Not Required To File Form 1023 (Form 1023 is the application for recognized 501(c)3) status from the IRS.)

Some organizations are not required to file Form 1023.

These include:

  • Churches, interchurch organizations of local units of a church, conventions or associations of churches, or integrated auxiliaries of a church, such as a men's or women's organization, religious school, mission society, or youth group.
  • Any organization (other than a private foundation) normally having annual gross receipts of not more than $5,000 (see Gross receipts test, later).

These organizations are exempt automatically if they meet the requirements of section 501(c)(3). (see below for help in "meeting the requirements")

Religious Organizations

To determine whether an organization meets the religious purposes test of section 501(c)(3), the IRS maintains two basic guidelines.

1. That the particular religious beliefs of the organization are truly and sincerely held.

2. That the practices and rituals associated with the organization's religious belief or creed are not illegal or contrary to clearly defined public policy.

Therefore, your group (or organization) may not qualify for treatment as an exempt religious organization for tax purposes if its actions, as contrasted with its beliefs, are contrary to well established and clearly defined public policy. If there is a clear showing that the beliefs (or doctrines) are sincerely held by those professing them, the IRS will not question the religious nature of those beliefs.

Churches. Although a church, its integrated auxiliaries, or a convention or association of churches is not required to file Form 1023 to be exempt from federal income tax or to receive tax deductible contributions, the organization may find it advantageous to obtain recognition of exemption. In this event, you should submit information showing that your organization is a church, synagogue, association or convention of churches, religious order, or religious organization that is an integral part of a church, and that it is engaged in carrying out the function of a church.

In determining whether an admittedly religious organization is also a church, the IRS does not accept any and every assertion that the organization is a church. Because beliefs and practices vary so widely, there is no single definition of the word church for tax purposes. The IRS considers the facts and circumstances of each organization applying for church status.

Contributions

Contributions to domestic organizations described in this chapter, except organizations testing for public safety, are deductible as charitable contributions on the donor's federal income tax return.


Key points for" meeting the requirements of 501(c)(3)"

 

The IRS wants to see that the organizing documents of a church have "501(c)(3) language." These points were emphasized in discussions with several IRS representatives.

 

1) Your church is exclusively for Religious/Charitable Purposes To determine whether an organization meets the religious purposes test of section 501(c)(3), the IRS maintains two basic guidelines.

  1. That the particular religious beliefs of the organization are truly and sincerely held.
  2. That the practices and rituals associated with the organization's religious belief or creed are not illegal or contrary to clearly defined public policy.

Sample statement for Organizing Documents:

____________ is organized exclusively for charitable, religious, educational, and scientific purposes, including, for such purposes, the making of distributions to organizations that qualify as exempt organizations under section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code.*

 

2) If/when there is a dissolution of the church/association, the assets will be distributed to other 501(c)(3) organizations.

 

Sample statement for Organizing Documents

Upon the dissolution of the _________________, assets shall be distributed for one or more exempt purposes within the meaning of section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or shall be distributed to the federal government, or to a state or local government, for a public purpose. Any such assets not so disposed of shall be disposed of by a Court of Competent Jurisdiction of the county in which the principal office of the corporation is then located, exclusively for such purposes or to such organization or organizations, as said Court shall determine, which are organized and operated exclusively for such purposes.*

(*Samples are from the IRS site: http://www.irs.gov/charities/charitable/article/0,,id=123028,00.html )

 


Another Helpful Item for the IRS in Naming your Church

In addition, when setting up your church in your organizing documents (getting an EIN number, incorporating with the State, etc.), it is helpful for the IRS to designate you as a church if you have the word "church" in your name. If you don't do that, the IRS has a tough time counting your organization as a church.

For example, we struggled with that because our official name is "thequest" not "thequest church." With the word "church" in our name, we would have had an easy time with the IRS. Their policy would bump us right into the "church" category, but without it we had to demonstrate to the IRS that we are a church.

 


I hope this is helpful to you and the new churches that will form in the USA. We are fortunate to live in a country with some of these benefits. Please feel free to consult the current documents at the IRS website. In addition check out another article that has a helpful bibliography of publications the IRS has produced about these matters Important IRS Documents for Churches

In conclusion, I make the disclaimer that in as much as I have quoted the IRS documents and I believe the items above to be trustworthy, I am not an attorney or tax law specialist.

 


Also you can dowload this entire document as a PDF here

See also the article on Important IRS Documents for Churches

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