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KM's Tax-Exempt Status

There are over 27 classifications of IRS nonprofit organizations. When people hear the word nonprofit, they typically assume that the organization is a 501c3.

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A Church can decide to file either as a 508c1a "Free Church" with no governmental influence or as a 501c3 church to get the "official" tax exempt letter from IRS. However, both types of church are tax exempt & can give tax deductible donation receipts.

 

KM is a 508 (c) (1) (a) Faith Based Organization (FBO) which is a religious, non-profit, tax exempt organization. 

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The 508c1A designation for churches is part of the Internal Revenue Code Section 26 and the organization that files under this designation is often referred to as a Faith-Based Organization or FBO. 

 

The 508(c)(1)(a) FBO is separate and distinct from a 501(c)(3) charity and unincorporated FBO’s. Churches are automatically tax exempt under 508(c)(1)(A) [Free Churches] verses the government approved churches 501(c)(3) [State Churches]

 

The 508(c)(1)(a) has none of the 501(c)(3) restrictions. 

26 USC § 508

Current through Pub. L.112-143, except 112-141. (See Public Laws for the current  Congress.) 

 

 

(a) New organizations must notify Secretary that they are applying for recognition of section 501(c)(3) status

Except as provided in subsection (c), an organization organized after October 9, 1969, shall not be treated as an organization described in section 501(c)(3)—

    (1) unless it has given notice to the Secretary in such manner as the Secretary may by regulations prescribe, that it is applying for recognition of such status, or

    (2) for any period before the giving of such notice, if such notice is given after the time prescribed by the Secretary by regulations for giving notice under this subsection.

 

(b) Presumption that organizations are private foundations

Except as provided in subsection (c), any organization (including an organization inexistence on October 9, 1969) which is described in section501 (c)(3) and which does not notify the Secretary, at such time and in such manner as the Secretary may by regulations prescribe, that it is not a private foundation shall be presumed to be a private foundation.

 

(c) Exceptions

    (1) Mandatory exceptions Subsections (a) and (b) shall not apply to—

        (A) churches, their integrated auxiliaries, and conventions or associations of churches, or

        (B) any organization which is not a private foundation (as defined in section509 (a))and the gross receipts of which in each taxable year are

         normally not more than $5,000.

 

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Do not confuse the 508c1A code with the 508c1B code above.

The advantages of being 508(c)(1)(A)   FBO include rights guaranteed under Federal Law 26 U.S.C. § 6033(a)(3(a) include but are not limited to the following:

  1.  A 508c1a free-church is not an IRS controlled entity

  2. Are Tax Exempt, and can give tax deductible receipts for donations.  

  3. Retain Freedom of Speech, including, but not limited to, politics, referendums, initiatives, and candidates.

  4. Have Exception from Federal reporting (does not file a tax return),

  5. Have Exception from “rendering under oath such statements, make such other returns, and comply with such rules and regulations as "Secretary (IRS) may from time to time prescribe”.

  6. Are Not subject to public scrutiny due to the nonreporting requirements required by the 501c3 status.

  7. Are Not required to file for non-profit status with the IRS.

  8. Simplified filing process. 

  9. The Founding Members cannot be removed from the Board of Directors.

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Church...

Certain characteristics are generally attributed to churches. These attributes of a church have been developed by the IRS and by court decisions.

They include:

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  1. Distinct legal existence

  2. Recognized creed and form of worship

  3. Definite and distinct ecclesiastical government

  4. Formal code of doctrine and discipline

  5. Distinct religious history

  6. Membership not associated with any other church or denomination

  7. 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 members

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