The Internal Revenue Service considers churches and ministries as two different types of organizations, though they both have to abide by the same regulations to retain tax exempt status. How they gain that status, however, is quite different.
Qualifying for Tax-Exempt Status
To qualify for tax-exempt status under Internal Revenue Code section 501(c)(3), review your group's operations to ensure that it meets the section’s standard criteria for charitable organizations. It must be organized and operated exclusively for religious, educational or other charitable purposes, and any net earnings may not be distributed to the benefit of any private individual or shareholder. In addition, the organization cannot direct a substantial part of its activity to influence legislation or intervene in political campaigns.
Churches Need Not Apply
The IRS presumes churches already meet the qualifications for tax-exempt status, so they don’t need to apply for a 501(c)(3) designation. In the glossary section of the IRS Tax Guide for Churches and Religious Organizations, the federal agency notes it “makes no attempt to evaluate the content of whatever doctrine a particular organization claims is religious, provided the particular beliefs are sincerely held.” The IRS also presumes an "integrated auxiliary of a church" or an organization related to a church or convention or association of churches meets tax-exempt qualifications. Churches, however, can apply for 501(c)(3) to assure contributors that their donations are tax deductible.
Non-Profit Ministries Must Apply
Charitable ministries that do not typically conduct worship services and operate apart from a church’s organization must file with the IRS to receive a federal tax exemption. Food banks, homeless shelters, soup kitchens and other ministries that perform charitable works would be eligible for tax exemptions provided they meet the IRS criteria for charitable organizations.
Organize on the State Level
Churches and ministries must organize at the state level as non-profit, corporations, limited liability companies or trusts, or form as an unincorporated association before applying for 501(c)(3) status. Regulations vary by state, but a charitable group applying to be a state non-profit needs to include in its organizing document specific provisions that state its exempt purpose and how its assets will be distributed for exempt purposes if the group dissolves.
Application for Federal Tax Exemption
Before applying for 501(c)(3) designation, both churches and ministries must have a federal Employer Identification, available online or by filing Form SS-4. Applying for for 501(c)3) can be done online or by downloading and mailing Form 1023, Application for Recognition of Exemption under Section 501(c)(3). A ministry must submit its application within 27 months from the end of the month in which it formed. A church’s application is not affected by the timeline. The applying group must pay the Exempt User Fees of several hundred dollars with the application. The fee is non-refundable.
Identify Organizational Structure
For Form 1023, Part II, a non-profit must identify its organizational structure as a corporation, limited liability company, unincorporated association or trust. Attach any operating or trust agreements or bylaws that governs the group and shows how officers or trustees are selected. In Part III, state the location of the group's charitable "purpose clause" by page, article and paragraph in your articles of incorporation or operating agreement.
Attach a Narrative of the Group's Activities
For Part IV, attach or upload a separate sheet with the form that gives a narrative of the group's past, present and planned activities. The group can also include brochures, newsletters or other materials that support the narrative of its charitable activities and purpose.
Identify Names and Pay of Officers and Top Employees
In the form’s Part V, enter the names of officers, directors or trustees of the group along with any compensation that each receives, if any. Also include the names and compensation of the five highest paid employees and the five highest paid independent contractors if the employees or contractors will receive more than $50,000. Attach a list showing qualifications, average hours worked and duties. Also identify employees or contractors who have family or business relations with each other.
Provide Details of Fundraising and Revenue
The IRS also requires specific information about fundraising, types of contributions, affiliations and types of activities involved with raising funds. Also give details about any distribution of goods, services or funds to individuals or groups that are part of the organization's charitable work. Include a statement of revenues and expenses for the current tax year, and up to three prior tax years if the group has been in existence for that long.
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