There is some confusion about whether church plants have to apply for 501c3 exemption. This is a question I answer a lot. The short answer is: No, churches need not apply. But keep reading.
What’s the Problem?
You go to techsoup.org, or you go to the local store seeking a donation for a community service project, and they say, “Yes, we’ll give you discounted/free stuff IF you give us a copy of your IRS 501c3 Determination Letter.”
IRS Publication 1828 clearly states, “Churches that meet the requirements of IRC section 501(c)(3) are automatically considered tax exempt and are not required to applyfor and obtain recognition of tax-exempt status from the IRS.” (read more below)
Even the US Post Office, a fellow branch of the Federal Government, doesn’t seem to know the IRS ruling that all churches are automatically 501c3 exempt (* with a caveat; see below). So it ends up as a ‘he-said-she-said’ argument with the potential donor: “We don’t need one.” “Yes, you do.” Super helpful.
What to Do – Apply for 501c3
I recommend that churches apply for their 501c3 exemption letter to avoid situations like the ones I just described. It can help you support your community service efforts by making it easier to ask for charitable donations from local merchants. Having the exemption is especially helpful in the few states that provide a sales tax exemption for nonprofits with a 501c3 Determination Letter. Imagine the hundreds of dollars you could put back into ministry each year if you didn’t have to pay sales tax on stuff the church buys!
The obstacle is that the IRS Form 1023 that you need to fill out usually ends up being 35-50 pages long, full of super fun essay answers and financial statements. Oh, and it costs $600 just to apply. And the IRS is about 7-9 months behind (as of August 2023) in processing new applications. I know you’re thinking, “Wow! Where do I sign up?!?”
If your church plant is cash-strapped or you just can’t see making back your $600 in the first few years, maybe you want to wait. But then again, if you file while the church is new, you get to use proposed budget figures for their financial worksheet. If you wait, you’ll have to compile actual figures from past years. For that and other reasons, it’s easier to do it now.
You have to be organized as a church and behaving like a church to fall under the IRS’s automatic exemption. Here’s what their Publication 1828 says about their rules:
Churches and religious organizations, like many other charitable organizations, qualify for exemption from federal income tax under IRC section 501(c)(3) and are generally eligible to receive tax-deductible contributions. To qualify for tax-exempt status, such an organization must meet the following requirements (covered in greater detail throughout [the] publication):
- the organization must be organized and operated exclusively for religious, educational, scientific, or other charitable purposes,
- net earnings may not inure to the benefit of any private individual or shareholder,
- no substantial part of its activity may be attempting to influence legislation,
- the organization may not intervene in political campaigns, and
- the organization’s purposes and activities may not be illegal or violate fundamental public policy.
More from the IRS
After posting the original article, I dug this up from the IRS website, too:
The term ‘church’ includes any organization claiming to be a church and any convention or association of churches… Certain characteristics are generally attributed to churches. They include having a(n):
• Distinct legal existence and religious history
• Recognized creed, form of worship, and literature of its own
• Definite and distinct ecclesiastical governance including a formal code of doctrine and discipline
• Organization of ordained ministers, selected after completing prescribed courses of study
• Established place of worship with regular congregations, religious services, and/or religious instruction for members.”
Churches typically do not include nondenominational ministries, interdenominational and ecumenical organizations,and other entities whose principal purpose is the study or advancement of religion.”