What is a 501(c)(3) church, and what are some benefits and disadvantages of a church having a 501(c)(3) tax-exempt status? This is what you need to know. When starting a new church, one decision you will need to make early on is whether or not you will pursue a 501(c)(3) exempt status from the IRS. The American government has recognized that churches perform valuable social functions and, as a result, tax exemption is a long-held American tradition.
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According to the IRS, a church, or a body of believers, is exempt from taxation by the federal government. It is because of their special protected status that churches have the potential to influence their community and beyond in ways the government can’t.
What Is 501(c)(3) Tax Exemption Status?
So what does it mean to be a 501(c)(3) church, and is the designation beneficial? In short, if an organization, including a church, receives 501(c)(3) exemption status from the IRS, it is a recognition that they are exempt from federal income and property taxes. In addition, people who make contributions to 501(c)(3) organizations may deduct the contribution amount from their taxable income.
According to the IRS, “Churches that meet the requirements of Internal Revenue Code 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.” So it isn’t required for your church to apply for 501(c)(3) in order to be tax-exempt.
Keep in mind, churches may lobby for legislation or ballot initiatives, but they are prohibited from showing support for political candidates. If a church is shown to be in violation of this restriction, they risk losing its exempt status. What most people don’t realize is that churches and nonprofits exist under this definition whether or not they have officially received 501(c)(3) status from the IRS.
Why Get the Status?
While becoming a 501(c)(3) church is not a necessity, it does have benefits.
- The IRS recognition gives added assurance to church leaders, members, and contributors that the church is recognized as exempt and their contributions are generally tax-deductible.
- 501(c)(3) status enhances an organization’s financial transparency. Maintaining your status requires that informational tax returns be filed on an annual basis and this information is available to the public on GuideStar. As a result, potential contributors are able to gain an essential understanding of the organization and determine whether or not he or she would like to give to them. If your church administers a lot of charitable missions and services, this transparency has the potential to be highly beneficial.
How to Apply for 501(c)(3) Tax-Exempt Status
To find out about applying for an IRS 501(c)(3) exemption status, the IRS provides a Tax Guide for Churches and Religious Organizations (PDF).
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
Submit Form 1023 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.
Many religious organizations find it beneficial to hire an attorney to help them through this process. While cost may be considered a disadvantage of becoming a 501(c)(3) church, most organizations see it as worth it in the long run.
Conclusion
The fact is your church is already exempt from federal taxation, and your members are making contributions that they may deduct from their taxable income. However, if your church administers many charitable missions and services, it might benefit from the financial transparency that comes with 501(c)(3) tax-exempt status.
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25 comments
No mention of 508c1a? Ha. Of course not.
Hi Clayton,
I recently heard of 508C1A. Am just doing some research. What is your experience with it?
Lord bless,
Billie
I need to get 501c3 for my Church Goodwill Baptist Church 433 e.ave. Milano Texas 76556
Hi there,
We’d recommend contacting Foundation Group about this. They are a great company that helps new nonprofits get up and running. You can see more about them at http://www.501c3.org.
Beginning a new ministry; open for inside and suggestions concerning nonprofit organizations.
Are churches in non-profit ministries go under sole proprietorship, companies, organization, or LLC.
Which is the most efficient way to get started which one is appropriate.
This is a new CHURCH TRYING TO APPLY FOR TAX EXEMPTION. We don’t have no weside yet. We just started to build our new church by gathering people to worship together .
Hello our pastor died 4 months after starting up a church. She had a 5013c in church name and her name. Church meets & serves seniors in a retirement community. We are continuing with werkly services. We don’t have a replacement pastor yet but have people of the church filling in each week. Is the 5013c status still valid? Im the treasurer. We currently have about 20 people each week. I appreciate any help, as I was relying on the help of pastor. She started this church first in the 90’s but moved & it was taken over by someone else.Thank you
Hi Bob,
We would suggest contacting a CPA for this question. I’m sorry we couldn’t be of more help.
All the best,
Clay
Yes, letter of determination are perpetual as long the church meets the 501c3 even if the founder past away.
When applying for the 501c3, does each ministry have to be self sufficient, meaning the church is not able to assist with it’s youth department?
Hi there,
We would suggest contacting a CPA for this type of question. I’m sorry we couldn’t be of more help!
All the best,
Clay
Our Church has found some grants that we can apply for, but they are saying we need a 501 (c)3. We are already tax exempt, so how do we apply for a 501 (c)3 certificate?
I heard of some churches operating with out 501c3 filed and was told it was hush hush. So I googled the question ” Is it illegal for a church to not have a 501c3 ?” Your article (this one) from 2-27-2013 came up as the answer ! A beautiful article with gems of great info !!! It’s still out there and still informing us !!! Thank you so much !!! What a blessing !!! It had other info in it I needed and didn’t even know it !!! Blessings !!!
Hi Darlene,
We’re happy you found the information useful! We hope that you find useful information in our other articles too.
Clay
i liked your video.
Hi I have a question. We have a 501c3 from a church that has dissolved. Could this 501c3 be used for a religious organization that is not a church but works with and mostly within churches and church groups?
Hi Emilio,
It is possible for a church to request the IRS to be reclassified as a ministry using IRS Form 8940 along with some supporting documentation: https://www.irs.gov/charities-non-profits/form-8940-for-miscellaneous-determination-requests. If you are unsure about the process or if you would qualify, there are several nonprofit formation experts on our website you can reach out to for a consultation: http://www.aplos.com/find-an-accountant.
Hope that helps!
– Janie
Thanks for the info. I heard having one of these certificates beholds the church to the government In some way(s). Can you explain the whys or why nots??
Hi Carla,
If you receive a formal 501(c)(3) status for your church, you’ll need to file an informational return annually to the IRS called the Form 990 to maintain your status. If you have additional questions about requirements or benefits, I would suggest reaching out to an accountant to review your specific situation since the pros and cons can vary based on how you operate.
– Janie
We have a 501 3 c status already as a ministry helping the displaced but have since started church services to minister to the displace spiritual as well and want to start a church do we have to change or add to our status with the irs to form the church or can we us the original as a homeless shelter as an umbrella?
Hi Charles,
We aren’t able to provide tax or accounting advice on your specific organization’s situation, but if you are needing an expert opinion, the next best step would be to hire a professional who is familiar with nonprofit formation and operations that can review your current status and structure. There are a number of options available at http://www.aplos.com/find-an-accountant.
– Janie
We are a church with a 501c3status and have been approached by a gal wanting to have a daycare in our church building. The only benefit for the church is she will be helping to pay utilities or just giving a donation that we can put towards the heating bill. Is this considered a violation of the 501c3 regulations? Thank you for responding.
Hi Maggie,
Renting out a space can be possible while maintaining your 501c3 status, but you will want to discuss your situation with a tax and legal advisor. Tax laws vary by state and depend on your unique situation, so you will want to review if it would make you liable for any property tax or unrelated business income tax (even if they are calling it a donation). You may also need additional insurance or facility inspections for a daycare program to be compliant, since it would be on your campus.
I’m doing some research because our church didn’t initially apply for a 501c3 and I was looking for any benefit for not getting the designation. I noticed the article states filing an annual Form 990 information return is required, but the IRS exempts churches from filing an annual return.
Hi Erin,
Churches are considered tax-exempt by the IRS without formally registering as a 501(c)(3) and preparing an annual Form 990 return. However, if you choose to register with the IRS as a 501(c)(3) by preparing Form 1023, you would then need to prepare the annual 990 return in order to maintain this status. Churches sometimes choose to do this if they need the formal status to qualify for discounts or benefits for tax-exempt orgs, qualify for state programs for 501(c)(3)s, and to demonstrate financial transparency and stewardship.