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 this 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 .
Recognition of Tax-Exempt Status
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 recog- nized 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 contri- butions generally are tax-deductible .
Church Exemption Through a Central/Parent Organization
A church with a parent organization may wish to contact the parent to see if it has a group ruling . If the parent holds a group ruling, then the IRS may already recognize the church as tax exempt . 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 . If the church or other affiliated organi- zation is included on such a list, it does not need to take further action to obtain recognition of tax-exempt status .
An organization that is not covered under a group ruling should contact its parent organization to see if it is eligible to be included in the parent’s application for the group ruling . For general information on the group exemption process, see Publication 4573, Group Exemptions, and Revenue Procedure 80-27, 1980-1 C .B . 677 .
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 .
Applying for Tax-Exempt Status
Employer Identification Number (EIN)
Every tax-exempt organization, including a church, should have an employer identification number (EIN), whether or not the organization has any employees . There are many instances in which an EIN is necessary . For example, a church needs an EIN when it opens a bank account, in order to be listed as a subordinate in a group ruling, or if it files returns with the IRS (e .g ., Forms W-2, 1099, 990-T)
An organization may obtain an EIN by filing Form S-4, Application for Employer Identification Number, in accordance with the instructions . If the organization is submitting IRS Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code
Application Form
Organizations, including churches and religious organizations, applying for recognition as tax exempt under IRC section 501(c)(3) must use Form 1023 .
IRS Approval of Exemption Application
If the application for tax-exempt status is approved, the IRS will notify the organization of its status, any requirement to file an annual information return, and its eligibility to receive deductible contributions . The IRS does not assign a special number or other identification as evidence of an organization’s tax-exempt status .
Public Listing of
A religious organization must submit its application within 27 months from the end of the month in which the organization is formed in order to be considered tax exempt and qualified to receive deductible contribu- tions as of the date the organization was formed . On the other hand, a church may obtain recognition of exemption from the date of its formation as a church, even though that date may be prior to 27 months from the end of the month in which its application is submitted .
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. The fee must be submitted with Form 1023; otherwise, the application will be returned to the submitter . Fees change periodically . The most recent user fee can be found at the Exempt Organizations (EO) Web site under the IRS Tax Exempt and Government Entities division via www .irs .gov/eo (key word "user fee") or by calling EO Customer Account Services toll-free at (877) 829-5500 .
Tax-Exempt Organizations
The IRS lists organizations that are qualified to receive tax-deductible contributions in IRS Publication 78, Cumulative List of Organizations Described in Section 170(c) of the Internal Revenue Code of 1986 . This publication is sold to the public through the Superintendent of Documents, U .S . Government Printing Office, Washington, DC . Publication 78 can also be downloaded from the IRS Web site at www .irs .gov . 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 . Only the parent organization in a group ruling is included by name in Publication 78
CPA in Miami since 1983
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