Did you know that nearly 1 million nonprofit organizations in the United States, including thousands of churches, benefit from 501(c)(3) tax-exempt status? Churches 501(c)(3) status is a significant milestone and an important step toward strengthening their financial foundation and enhancing their community impact. 

This designation not only provides vital tax relief but also opens doors to increased funding opportunities, credibility, and public trust. Whether you’re starting a new church or considering formalizing an existing one, understanding the process and implications of becoming a 501(c)(3) organization is essential. 

This guide will walk you through the step-by-step process of obtaining 501(c)(3) status, helping your church thrive while ensuring compliance with IRS regulations.

What Does 501(c)(3) Mean for Churches? 

A 501(c)(3) status is a special designation given by the IRS to organizations that are considered charitable, religious, educational, or similar. For a church, this status is particularly important because it means the church is recognized as a tax-exempt organization. 

This means that the church doesn’t have to pay federal income taxes on donations it receives, and donors can deduct their contributions on their tax returns, which can encourage more giving.

To qualify for a 501(c)(3) federal tax-exempt status, the church must meet the following requirements:

  • Organized as a Nonprofit: The church must be structured as a nonprofit organization. This typically involves creating a formal entity, like a corporation, and establishing a set of governing documents, such as articles of incorporation and bylaws, that state the church’s religious purpose.
  • No Private Benefit: The church’s earnings cannot benefit private individuals or shareholders. This means that all income must be used to support the church’s religious activities and mission.
  • Compliance with IRS Rules: The church must comply with various IRS rules, including restrictions on political activity. For example, a 501(c)(3) church cannot endorse or oppose political candidates. Limited lobbying activities are allowed, but they must not be a substantial part of the church’s activities.
  • Filing Form 1023: While many churches automatically considered 501(c)(3) without filing, some choose to file IRS Form 1023 to obtain official recognition. This process involves providing detailed information about the church’s operations, finances, and governance.

Should Your Church Be a 501(c)(3)?

Registering a church as a 501(c)(3) organization comes with a range of benefits and potential drawbacks. Understanding these pros and cons can help a church make an informed decision about whether to pursue this designation.

Pros of Registering as a 501(c)(3):

  • Tax-Exempt Status: The most significant advantage is the federal tax-exempt status. This means the church is not required to pay federal income taxes on donations and other income related to its religious activities. Additionally, many states also offer exemptions from sales and property taxes for 501(c)(3) organizations.
  • Donor Incentives: Donations made to a 501(c)(3) church are tax-deductible for the donors. This can encourage more generous giving, as donors can reduce their taxable income through their contributions.
  • Grant Eligibility: Many foundations and government programs only provide grants to organizations with 501(c)(3) status. By registering, a church opens the door to additional funding sources that can support its programs and outreach efforts.
  • Public Trust and Credibility: Being recognized as a 501(c)(3) can enhance a church’s credibility. This status assures donors and the public that the church operates with transparency and accountability, adhering to IRS guidelines.
  • Perpetual Existence: A 501(c)(3) organization, especially if incorporated, has a perpetual existence. This means the church can continue to exist and operate regardless of changes in leadership or membership.
  • Nonprofit Discounts: 501(c)(3) organizations often qualify for discounts on a wide range of services and products. These can include reduced rates on software, office supplies, advertising, and even certain utilities. For a church, these discounts can help stretch its budget further, allowing more resources to be allocated to its mission and programs.

Cons of Registering as a 501(c)(3):

  • Restrictions on Political Activities: A significant limitation is the restriction on political activities. Churches with 501(c)(3) status are prohibited from endorsing or opposing political candidates. While they can engage in some lobbying, it must not be a substantial part of their activities. This can be a drawback for churches that want to take an active role in political matters.
  • Regulatory Compliance: Maintaining 501(c)(3) status requires ongoing compliance with IRS regulations. This includes record-keeping, filing annual returns (if required), and adhering to rules about financial transparency. For some churches, especially smaller ones, the administrative burden can be challenging.
  • No Private Ownership: One of the requirements of 501(c)(3) status is that no part of the church’s income or assets can benefit private individuals or shareholders. This means that even though a church leader might have a strong influence over the church, they do not own the church or its assets. All property and income must be used to further the church’s religious mission, which might limit personal control over the church’s resources.
  • Public Disclosure Requirements: Although churches are not required to file the Form 990 annual return that other nonprofits must submit if they choose to file Form 1023 for 501(c)(3) status, parts of this application become public record. This includes information about the church’s finances and leadership, which some may prefer to keep private.

How to Obtain 501(c)(3) Status for Your Church

Step 1: Organize Your Church as a Nonprofit Entity

Before applying for 501(c)(3) status, your church needs to be formally organized as a nonprofit entity under state law. This typically involves:

  • Incorporation: File articles of incorporation with your state’s corporate filing office (often the Secretary of State). This document should include a clear statement of your church’s religious purpose, which aligns with IRS requirements for 501(c)(3) organizations.
  • Drafting Bylaws: Create bylaws that outline the church’s governance structure, including the roles of officers and board members, how decisions are made, and other operational details.
  • Appoint a Board of Directors: Establish a board of directors or trustees who will oversee the church’s activities.

Step 2: Obtain an Employer Identification Number (EIN)

An EIN is required to apply for tax-exempt status. You can obtain an EIN from the IRS by:

  • Online Application: Complete the application online at the IRS EIN Assistant.
  • By Mail or Fax: Alternatively, you can submit Form SS-4 by mail or fax to the IRS.

Step 3: Submit Form 1023 or 1023-EZ

Form 1023 is the application used to request 501(c)(3) status. There are two versions:

  • Form 1023: This is the standard, more detailed application. It’s recommended for larger churches or those with more complex structures.
  • Form 1023-EZ: This simplified form is available for smaller churches with gross receipts of $50,000 or less and total assets of $250,000 or less. Check your eligibility using the IRS Eligibility Worksheet.

A user fee must be paid when submitting Form 1023 or 1023-EZ. Fees vary depending on the form used and the church’s size. You can file Form 1023 or 1023-EZ online through Pay.gov or by mail. 

Step 4: Await IRS Determination

After submission, the IRS will review your application. This process can take several months, depending on the complexity of the application. If approved, you’ll receive a determination letter confirming your church’s tax-exempt status under 501(c)(3).

To check the tax-exempt status of your church, use the Tax Exempt Organization Search. 

Once approved, your church must adhere to ongoing compliance requirements, including record-keeping and avoiding prohibited political activities. You may also need to file annual returns, such as Form 990, depending on your church’s size.

For detailed instructions and additional resources, visit the IRS’s Charitable Organizations page.

Conclusion 

Achieving 501(c)(3) status is a significant step that can open many doors for your church, allowing you to better serve your congregation and community. While the process may seem a bit daunting, remember that it’s all about building a stronger foundation for your church’s mission. Know that every effort you put into this process sets your church up for long-term success and growth. 

Ready to take the next step in securing your church’s financial future? Visit the Church Giving blog for more expert tips, resources, and insights to help your church thrive. 

With over five years of expertise in church communication, Lydia is experienced in social media, blog writing, email marketing, website management, and other digital marketing initiatives. She is passionate about using the written word to educate and empower others.

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