501(c)(3) vs 508(c)(1)(a)

automatic I.R.S. exemption for churches

From IRS publication p1828.pdf (available for free from the IRS website), inside front cover: “Congress has enacted special tax laws applicable to churches, religious organizations, and ministers in recognition of their unique status in American society and of their rights guaranteed by the First Amendment of the Constitution of the United States.”

From IRS publication p1828.pdf, page 3:
“Automatic Exemption for Churches
“Churches that meet the requirements of IRC section 501(c)(3) are automatically considered tax 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 tax-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 generally are tax-deductible.”

From IRS publication p1828.pdf, page 3:
“Religious Organizations
“Unlike churches, religious organizations that wish to be tax exempt generally must apply to the IRS for tax-exempt status unless their gross receipts do not normally exceed $5,000 annually.”

From IRS publication p1828.pdf, page 4: “Cost for applying for exemption. The IRS is required to collect a non-refundable fee from any organization seeking a determination of tax-exempt status under IRC section 501(c)(3). Although churches are not required by law to file an application for exemption, if they choose to do so voluntarily, they are required to pay the fee for determination.”

From IRS publication p1828.pdf, page 4: “Note that not every organization that is eligible to receive tax-deductible contributions is listed in Publication 78. For example, churches that have not applied for recognition of tax-exempt status are not included in the publication.”

So, the IRS leaves it to the option of each church as to whether they want to fill out a whole bunch of paperwork and pay very expensive fees or not.

The only advantage I can see to filling out the paperwork is having the Determination Letter and being listed in Publication 78, which would probably be useful or important only if you are attempting to get multi-million dollar grants.

And despite the claim by the IRS that a church is a “generic” term, I personally think it is unconstitutional for them to use the term church and force non-Christians to use that term.

the I.R.S. guidelines

The I.R.S. has a 14 point list of Church Qualification Guidelines. These used to be requirements, but federal courts told the I.R.S. that they couldn’t make these requirements, so now the I.R.S. calls them “guidelines” and enforces them anyway.

Distinct legal existence.
Recognized creed and form of worship.
Definite and distinct ecclesiastical government.
Formal code of doctrine and discipline.
Distinct religious history.
Membership no associated with any other church or denomination.
Organization of ordained ministers.
Ordained ministers selected after completing prescribed courses of studies.
Literature of its own.
Established places of worship.
Regular congregations.
Regular religious services.
Sunday schools for religious instructions of the young.
Schools for preparation of its ministers.

I will later return to a point by point discussion of the I.R.S. guidelines, but for now am just making you aware of your challenges.

You will also want to know about the Meyers Matrix, which I will discuss in a separate article (not yet written).

non-profit stuff

The federal government requires that the constitution or articles of incorporation specifically require that assets are only used for legitimate charitable and religious purposes and that upon breaking up all of the group’s assets will only go to other qualifying charitable organizations.

You must decide if your group is under 501(c)(3) or 508. Under section 508, churches are exempt from paying federal income tax and from filing a lot of paperwork normally required of non-profit organizations. Under 501(c)(3) the donations made by members or others are tax-deductible (within certain limits), but the church has greater restrictions on how it uses it assets and is forbidden from certain kinds of political speech or writing.

Some churches forego the ability to have donations be tax deductibel in trade for greater freedom of operation and freedom of speech.

Some groups follow the 501(c)(3) restrictions because it makes it easier to get donations and grants. Also, some states do not have special tax exempt categories for 508 churches, so in some states you have to go with the 501(c)(3) restrictions to avoid having to pay taxes on all of the church’s income.

You can name specific organizations for assets to be distributed to upon dissolution, but also must indicate how assets will be distributed if that organization doesn’t exist or refuses the assets.

In some states you may also have to add wording that indicates that you will follow similar state rules and laws.

A simple version for 501(c)(3):

name of group is organized and operated exclusively for religious purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code.
Notwithstanding any other provision of these articles, name of group shall not carry on any other activities not permitted to be carried on by a religious organization exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code.

No substantial part of the activities of name of group shall consists of carrying on propaganda, or otherwise attempting to influence legislation, and name of group shall not participate or intervene in any political campaign (including the publishing or distribution of statements on behalf of any candidates to public office.
Upon dissolution of name of group, assets shall be distributed for one or more exempt purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code, or shall be distributed to the federal government, or shall be distributed exclusively for such organization or organizations which are organized and operated exclusively for such purposes.