"I am not the only IRS employee who’s wondered why churches go to the government and seek permission to be exempted from a tax they didn’t owe to begin with, and to seek a tax deductible status that they’ve always had anyway”; “Churches are in an amazingly unique position".
- Steve Nestor, IRS Sr. Revenue Officer (ret.)
Many churches today follow what has recently become a standard for legally defining and recognizing their gathering. Many believe that in order to become recognized as a tax-exempt ministry or church they must file for nonprofit status with the Internal Revenue Service (IRS). This process is an application for a request to be recognized as a 501(c)(3) nonprofit organization. There are many problems created for the local church when petitioning the government for recognition. Some of the major conflicts with being recognized as a 501(c)(3) nonprofit organization is that the government now dictates (1) positions and roles that must be held in the organization, (2) required meeting frequencies, recording meetings, and what topics are covered, (3) financial documentation and reporting requirements, (4) restricting the type of speech and political involvement of said organization, and (5) 501(c)(3) organizations legally become a “product of the state”. This is in addition to the fact that a church is simply not a nonprofit organization, as defined in the U.S. Code. The church is not an “entity organized and gathered for public or social benefit”. The church is a gathering of redeemed people to glorify God through worship. We must also consider what was rightly established in the first amendment to the U.S. Constitution:
Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.
What many people do not know is that the United States government lawfully recognizes that they do not have authority over local congregations that gather as the church, nor should the Church be taxed by the government. Thoughtful effort has been made with both the U.S. Constitution and U.S. Code to protect local churches from government overreach. Churches, their integrated auxiliaries, and conventional or associations of churches are mandatorily exempt from taxation from the United States government without needing to take any action (see 26 U.S. Code § 508(c)(1)(A) - Special rules with respect to section 501(c)(3) organizations). This means that without ever requesting recognition from the government, churches are automatically considered tax-exempt and do not need to be burdened with the heavy restrictions and oversight placed on nonprofit organizations by the government. Moreover, when a church requests and is granted recognition by the government as a 501(c)(3) nonprofit organization, said government can now strip away the requested and approved tax-exempt status that was petitioned for. In other words, churches that willfully, and needlessly, request recognition and tax-exemption from the government now risk the legal ability of the government to revoke it. This is particularly concerning in a time where speech is deemed so offensive by many and attempts to silence the mission and proclamation of the gospel are abundant.
What is the legal status of a church? Churches are rightly identified, recognized, and exempted from oversight and taxation under 26 U.S. Code § 508(c)(1)(A).
The Church is local gatherings of freed individuals all over the world, people who have been redeemed by the blood of Jesus, gathered together to worship God, scattered to proclaim his kingship to the nations, and to ensure others are rightly brought under submission to his rule (Psalm 2:7-8; Matthew 28:19-20).
References and resources:
First Amendment of the U.S. Constitution
26 U.S. Code § 508 - Special rules with respect to section 501(c)(3) organizations
508(c)(1)(A)
(a) New organizations must notify Secretary that they are applying for recognition of section 501(c)(3) status Except as provided in subsection (c), an organization organized after October 9, 1969, shall not be treated as an organization described in section 501(c)(3)
(c) Exceptions
(1) Mandatory exceptions Subsections (a) and (b) shall not apply to—
(A) churches, their integrated auxiliaries, and conventions or associations of churches, or
(B) any organization which is not a private foundation (as defined in section 509(a)) and the gross receipts of which in each taxable year are normally not more than $5,000.
IRS Publication 557 - Churches, Integrated Auxiliaries, and Conventions or Associations of Churches
Churches (including integrated auxiliaries and conventions or associations of churches) that meet the requirements of section 501(c)(3) of the Internal Revenue Code are automatically considered tax exempt and are not required to apply for and obtain recognition of exempt status from the IRS. Donors are allowed to claim a charitable deduction for donations to a church that meets the section 501(c)(3) requirements even though the church has neither sought nor received IRS recognition that it is tax exempt. In addition, because churches and certain other religious organizations are not required to file an annual return or notice with the IRS, they are not subject to automatic revocation of exemption for failure to file. See Annual Return Filing Exceptions for a complete list of organizations that are not required to file.
501(c)(3) requirements:
To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual. In addition, it may not be an action organization, i.e., it may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates.
Exemption purposes:
The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.
IRS Publication 1028 (Page 2)
Recognition of Tax-Exempt Status
Automatic Exemption for Churches
Churches that meet the requirements of IRC Section 501(c)(3) are automatically considered tax exempt and are not required to apply for and obtain recognition of tax-exempt status from the IRS.
P1028 Introduction: Congress has enacted special tax laws that apply to churches, religious organizations and ministers in recognition of their unique status in American society and of their rights guaranteed by the First Amendment of the Constitution of the United States. Churches and religious organizations are generally exempt from income tax and receive other favorable treatment under the tax law; however, certain income of a church or religious organization may be subject to tax, such as income from an unrelated business.
IRS Publication 526 - Organizations That Qualify To Receive Deductible Contributions
You can deduct your contributions only if you make them to a qualified organization. Most organizations, other than churches and governments, must apply to the IRS to become a qualified organization.
Table 1 - Examples of Charitable Contributions
Money or property you give to:
Churches, synagogues, temples, mosques, and other religious organizations.
