Should Churches File for 501(c)(3) Tax Exemption?

Should Churches File for 501(c)(3) Tax Exemption?

The Internal Revenue Code section 508(c) sets out that churches are automatically recognized as tax-exempt under 501(c)(3), and the IRS does not require churches to apply for tax-exempt status if they meet the following criteria:

  • a distinct legal existence;
  • a recognized creed and form of worship;
  • a definite and distinct ecclesiastical government;
  • a formal code of doctrine and discipline;
  • a distinct religious history;
  • a membership not associated with any other church or denomination;
  • an organization of ordained ministers;
  • ordained ministers selected after completing prescribed studies;
  • a literature of its own;
  • established places of worship;
  • regular congregations;
  • regular religious services;
  • Sunday schools for religious instruction of the young; and
  • schools for the preparation of its ministers.

Additionally, some churches with a parent organization may be tax-exempt if the parent organization has a group ruling and it includes the specific church on its list of affiliated organizations.

Churches are not technically required to file Form 1023 to be considered a tax-exempt organization. However, by filing Form 1023, churches can obtain a Determination Letter from the IRS that is considered proof that the church is a 501(c)(3) tax-exempt organization. Without a Determination Letter, the church and its donors risk that the IRS could later determine that the church did not qualify as a tax-exempt organization.

There are several reasons why many churches apply for tax-exemption:

  • Having 501(c)(3) status allows churches the ability to guarantee that tithes, offerings, and donations are tax-deductible to donors because there is written proof from the IRS that the church is a registered charity.
  • Many states do not automatically guarantee sales tax exemption without a 501(c)(3) letter from the IRS.
  • Bulk mailing rates and most grants will not be extended to your church or ministry without 501(c)(3) status.

Generally speaking, there are three steps to gaining 501(c)(3) exemption status:

  • Obtain an Employer Identification Number (EIN): You can request an EIN from the IRS by filing Form SS-4 (PDF). (An organization will need an EIN whether or not they have employees.)
  • File the IRS Form 1023 (PDF): Submit this and a filing fee (amount determined by the average yearly gross receipts).
  • Receive IRS approval: Your church will be issued a determination letter that says the IRS recognizes your church as having exempt status.

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