To get you started, here is a link to the most recent Internal Revenue Service Tax Guide for Churches and Religious Organizations Publication 1828 (Rev. 7-2002), Catalog No. 21096G (http://www.irs.gov/pub/irs-pdf/p1828.pdf), Applying for 501(c)(3) Tax-Exempt Status (http://www.irs.ustreas.gov/pub/irs-pdf/p4220.pdf), and Compliance Guide for 501(c)(3) Tax-Exempt Organizations (http://www.irs.ustreas.gov/pub/irs-pdf/p4221.pdf).

Please study these documents thoroughly before making your decision to continue on the path of seeking to become a legal nonprofit entity.  We will, however, try to answer some of the most frequently asked questions about becoming a legal church here. 

Some of the information used in this section is taken from the Internal Revenue Service Tax Guide for Churches and Religious Organizations Publication 1828.  We strongly urge you to refer to the above mentioned publication or contact the IRS directly, as well as seek legal assistance if you decide to move forward. 

For purposes of continuity we will use similar language and descriptions used by the IRS.  For example, “the term church is found, but not specifically defined, in the Internal Revenue Code (IRC). The term is not used by all faiths; however . . .we use it in its generic sense as a place of worship including, for example, mosques and synagogues.”  In our case we use the term “Temple” but for the purposes of discussing legal status and conformity with the IRS in this information pack, we will use the term church as well. 

Please note that with the exception of the special rules for church audits, the use of the term church also includes conventions and associations of churches as well as integrated auxiliaries of a church.  (See detailed explanation for “integrated auxiliaries of a church” below.)

The same is true for the use of the term Minister.  It is understood the term minister is not used by all faiths to designate their clergy but for the purpose of the Internal Revenue Codes and because it is generally understood by the public, the term “minister denotes members of clergy of all religions and denominations and includes priests, rabbis, imams, and similar members of the clergy,” as well as Priestess and any clergy referring to the female gender.

The Internal Revenue Service uses the term integrated auxiliary of a church to refer to “a class of organizations that are related to a church or convention or association of churches but are not such organizations themselves.”  When discerning whether or not an organization qualifies as an integrated auxiliary of a church, the IRS looks at the following three requirements:

~~        Be described both as an IRS Section 501(c)(3) charitable organization and as a public charity under IRS Sections 509(a)(1), (2), or (3),

~~        Be affiliated with a church or convention or association of churches, and

~~        Receive financial support primarily from internal church sources as opposed to public or governmental sources.

Most groups that satisfy the first two requirements above are considered integrated auxiliaries whether or not they meet the internal support requirements. Examples of these groups are:  Mens and women’s organizations, seminaries, mission societies, and youth groups.

Please note there is a distinct difference between “churches, including their integrated auxiliaries” and “religious organizations.”  The principal purpose of a Religious Organization is the study or advancement of religion.  These religious organizations that are not churches might typically include nondenominational ministries, interdenominational and ecumenical organizations to name a few.

For the purposes of this document we are referring to “churches.”

 What are the benefits of becoming a Tax Exempt organization?

Though at this point we are specifically looking at the benefits of becoming a Tax Exempt Organization, it should be noted that the responsibilities that come with these benefits are very great and therefore it must be reiterated that this is not a step to be taken lightly.

Charitable organizations including churches and religious organizations, qualify for exemption from Federal income tax under IRC Section 501(c)(3) and as such are:

1.         Generally eligible to receive tax-deductible contributions and donations.

2.         These organizations should not be required to pay taxes on income derived as a result of religious activities.

3.         Any land owned by the church, and used for nonprofit purposes, is not taxable.

4.         Legitimacy and accountability of funds and assets.

5.         Lower postage rates using nonprofit bulk mailing rates.

6.         Free radio and TV ads.

7.         Limited liability.  Since most nonprofit corporations provide for limited liability, the directors and officers of the corporation are usually protected from legal actions against the organization.  (Exceptions to this include a Director or Officer that violates statutory duties of these offices; violates the law or commits criminal acts; loans to the organization that have been personally guaranteed by an individual; and failure to report and pay any taxes due, where the Treasurer can be held personally responsible.)

8.         Organizations desiring to pursue writing grant applications should note that, most foundations and grant-making organizations require that a copy of the IRS letter accompany the grant request.

9.         Some local vendors may also have a policy that they make donations or give discounts only to 501(c) 3 organizations formally recognized by the IRS.

Concurrently with your federal tax exempt status, almost all states automatically grant an exemption for nonprofit organizations from having to pay state income tax.  Most states also provide an exemption for nonprofit groups from having to pay sales tax on goods and merchandise purchased by the nonprofit.  This allows the nonprofit organizations to purchase items such as food and office supplies free from sales tax.

(Note: If your nonprofit organization sells items for fundraising, you must generally obtain a retail sales tax license from their state and then collect appropriate sales tax on items sold and periodically remit this collected tax to the state or taxing authority.   Additionally, a nonprofit is not exempt from payroll related taxes if the organization has employees.

All of these benefits do come with a price.  There is a good amount of paperwork involved.  In addition to preparing the organizing documents, which are primarily the Articles of Incorporation and the corporate Bylaws, there is ongoing paperwork and responsibilities to running a nonprofit corporation. It entails keeping formal minutes to meetings and setting up and maintaining financial records.  There are also annual and informational reports required by the Secretary of State and other governmental agencies.

All of these things take time and energy which can be challenging for nonprofit groups which are usually run by volunteers at the outset who are already pressed for time with their direct daily activities.  Time must be spent on keeping and maintaining financial records including minutes to meetings; conducting meetings; and fundraising activities. 

These are all things to consider before undertaking the task of becoming a legal nonprofit church.  Your organization should discuss the benefits and responsibilities involved before you go further.

 Since we are talking about people’s beliefs and faith, how can the IRS rule on what is a church or not?

According to the IRS, they “make no attempt to evaluate the content of whatever doctrine a particular organization claims is religious, provided the particular beliefs of the organization are truly and sincerely held by those professing them and the practices and rites associated with the organization's belief or creed are not illegal or contrary to clearly defined public policy.”  The income tax regulations under Code 501 (c)(3) do not contain any definitions of the term "religious.”

In a world that is becoming more and more diversified with an ever widening  awareness of the diversity within our global community, we are continuously learning more and more about the many and varied religions and faiths of the world.  This same widening national diversity has left the government and the courts cautious in attempting to define, for tax purposes, what is or is not a "religious" activity or organization.

Does a Church automatically get a tax exemption?

“Churches that meet the requirements of IRC Section 501(c)(3) are automatically considered exempt and are not required to apply for and obtain recognition of tax-exempt status from the IRS.  Although there is no requirement to do so, many churches seek recognition of exempt status from the IRS because such recognition assures church leaders, members and contributors that the church is recognized as exempt and qualifies for related tax benefits.  For example, contributors to a church that has been recognized as tax-exempt would know that their contributions are tax-deductible.”

What if our church joins a church (or Temple) association?

Your organization may qualify for tax exempt status by acquiring “Church Exemption Through a Central/Parent Organization.”  Your group or organization will need to contact the parent association to verify whether or not it has a group ruling.  If the parent holds a group ruling, then the IRS may already recognize your church as tax-exempt when you are accepted into the association.

How does a group exemption work?

“Under the group exemption process, the parent organization becomes the holder of a

group ruling that identifies other affiliated churches or other affiliated organizations. A church is recognized as tax-exempt if it is included in a list provided by the parent organization. The parent is then required to submit an annual group exemption update to the IRS in which it provides additions, deletions and changes within the group. If the church or other affiliated organization is included on such a list, it does not need to take further action in order to obtain recognition of tax-exempt status.

An organization that is not covered under a group ruling should contact its parent organization and see whether it is eligible to be included in the parent’s application for the group ruling.  For general information on the group exemption process, see Revenue Procedure 80-27, 1980-1 C.B. 677.” 

Even though your group may be covered under a group ruling through Temple of the Goddess or through another association, your group will also need to complete any state paperwork as well.  Please note that the rules may vary from state to state so you will need to be responsible for assuring that your organization has met state requirements, in addition to its group exemption.  Churches and religious organizations may be legally organized in a variety of ways under state law including:  unincorporated associations, nonprofit corporations, corporations, sole trusts, and charitable trusts.

What designates an organization’s eligibility to become a legal non profit church?

According to the IRS, certain characteristics are generally attributed to churches. These attributes of a church have been developed by the IRS and by court decisions and they include:

1.         A distinct legal existence.

2.         A recognized creed and form of worship.

3.         A definite and distinct ecclesiastical government.

4.         A formal code of doctrine and discipline.

5.         A distinct religious history.

6.         A membership not associated with any other church or denomination.

7.         An organization of ordained ministers.

8.         Ordained ministers selected after completing prescribed courses of study.

9.         Literature of its own.

10.       Established places of worship.

11.       Regular congregations.

12.       Regular religious services.

13.       Sunday schools for the religious instruction of the young.

14.       Schools for the preparation of its ministers.

According to IRS Publication 1828, the IRS generally uses a combination of these characteristics, together with other facts and circumstances, to determine whether or not an organization will be considered a “church” for Federal tax purposes.