The government knows that church organizations provide valuable social and religious benefits to the community. To encourage these religious organizations and help them exist, the Internal Revenue Service (IRS) exempts 501(c)(3) churches from taxation by the federal government.
However, that tax-exemption benefit and special protected nonprofit status begs the question: What’s considered a church? Or more importantly in this context, what does the American government consider a 501(c)(3)-qualified church? Are there certain forms of worship or ministries that aren’t churches?
Below, we’ll explore everything you need to know about 501(c)(3) churches, including what qualifies, the pros and cons of 501(c)(3) status, qualifications, and rules for maintaining tax exemption as a religious nonprofit organization.
What Is a 501(c)(3) Church?
A 501(c)(3) church is any religious organization with a tax-exemption status from the IRS. These tend to be places of worship, like chapels and synagogues, that hold regular religious services. Unlike some other nonprofit organizations, churches don’t have to apply for tax exemption—if a church meets the Internal Revenue Code (IRC) requirements, it automatically receives this filing status.¹
“Churches (including integrated auxiliaries and conventions or associations of churches) that meet the requirements of section 501(c)(3) of the Internal Revenue Code are automatically considered tax exempt and are not required to apply for and obtain recognition of exempt status from the IRS.”
This privilege allows donors to claim charitable deductions for any donations made to a church, even if that organization hasn’t sought (or received) official IRS recognition as a tax-exempt nonprofit.
Requirements to Obtain 501(c)(3) Status for Your Church
The IRS automatically considers churches tax-exempt if the church meets the requirements of the 501(c)(3) IRC section. That means there’s no official application process for church tax exemption, but you still need to follow the IRS’s process if you want to become a 501(c)(3) church.
In addition, you’ll need to follow the IRS’s eligibility rules to qualify and stay a tax-exempt organization.²
Here are those requirements in more detail:²
Organization for exempt purposes: The exempt purpose includes “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.” No private shareholder benefit: The church can’t use its earnings for private interests or distribute net earnings to the benefit of any individual or private shareholder. Legislation must be minimal: The 501(c)(3) organization can lobby for legislation but can’t show support for specific political candidates.
Does Your Church Need to Be a 501(c)(3)?
While your church nonprofit will automatically qualify for tax exemption, you might want to obtain 501(c)(3) status for other tax purposes or legitimacy with your congregation or donors. There are advantages and disadvantages of 501(c)(3) status.
However, 501(c)(3) status isn’t the right structure for everyone. For example, you might want to have more political influence with your charitable organization or take home more profits for yourself or shareholders. While not necessarily bad things, these don’t align with 501(c)(3) requirements or behavior.
Below, we’ll compare the pros and cons collectively so you can determine if 501(c)(3) status is right for your church.
Pros and Cons of Becoming a 501(c)(3) Church
Pros
Tax-exemption status: Your nonprofit organization will be exempt from federal income tax and property taxes. Deductible donor donations: Your donors can receive tax deductions for their contributions to your church.Financial transparency: Your tax returns are public, increasing transparency and trust in your charitable organization. It also gives you an opportunity to demonstrate your charitable missions and philanthropic efforts without being boastful or self-centered.Grant application: You can apply and receive some government (and nongovernment) grants limited to 501(c)(3) charitable organizations.
Cons
Limited political influence: You won’t be able to back political candidates, support political campaigns, or spend significant time or resources lobbying for the legislature. No private shareholder benefit: You might want more economic gain for yourself or those close to the cause, but a 501(c)(3) status will limit that potential.Financial disclosure: You don’t always want to show every expense, but disclosing all your financial information might improve your transparency.
How to Obtain 501(c)(3) Status for Your Church
Here’s the short, step-by-step process for applying for 501(c)(3) tax-exemption status:
Obtain an Employer Identification Number (EIN): Request an EIN from the IRS by submitting Form SS-4. You’ll need an EIN even if you don’t have employees (yet).File Form 1023: Submit IRS Form 1023 with your filing fee to the IRS.Wait for IRS approval: Wait for the IRS to review your application and send a determination letter letting you know about your request.
Consider hiring a lawyer for legal counsel to help submit the documentation for your religious organization. They’ll know all the nuances to ensure you expedite the process and receive your 501(c)(3) determination letter as quickly as possible.
Rules for Maintaining 501(c)(3) Church Status
Although your church may automatically qualify for 501(c)(3) tax exemption, you must work to uphold the associated standards to maintain your exempt status.³
Participating in certain activities could cause you to lose your tax-exemption status, which means your donors’ future contributions will no longer be tax deductible. That could impact your potential donors’ interest and ability to support your work greatly.
Here are a few rules you’ll need to follow to maintain your 501(c)(3) church status:
File your tax return on time: File an annual tax return (IRS Form 990). Failure to do so could cause you to lose your tax-exemption status. Refrain from excessive lobbying: Keep in mind that 501(c)(3) organizations can lobby for legislation but cannot “attempt to influence legislation as a substantial part of its activities” or “participate in any campaign activity for or against political candidates.” Manage finances responsibly: Don’t sacrifice your 501(c)(3) nonprofit corporation status by wrongfully managing finances or benefiting private shareholders or individuals.Maintain the organization’s purpose: Remember your church’s religious purposes. Shifting to religious research or education won’t make you lose your 501(c)(3) status, but you’ll no longer technically be a “church.” Thus, you’ll have to submit a formal 501(c)(3) application (and be approved) to qualify for tax exemption. Avoid illegal activities: Don’t compromise your church’s nonprofit status, which is what will happen if your organization’s activities are guilty of illegal actions.Create bylaws: Keep in mind that while nonprofit bylaws aren’t a requirement for churches to earn 501(c)(3) status, these will help you govern your qualified organization, establish rules for church leaders, and ensure you follow the right processes to protect your nonprofit corporation.
Tax-exemption status isn’t the only factor your church needs to consider to be successful. To operate and serve your community, you need donations.
Classy’s giving platform streamlines the donation process for you and your donors. We provide comprehensive tools for helping you collect, store, and manage contributions. Our software also empowers you to engage with your audience in person and online, creating a friendly atmosphere wherever your audience interacts with you.
Here are a few tools we provide to help your 501(c)(3) church organization:
Classy Pay: Empower donors to contribute with credit cards, ACH payments, digital wallets, PayPal, Venmo, cryptocurrency, and more.Classy Live: Power in-person, virtual, and hybrid events with livestreaming software designed for fundraising and engagement.Donation pages: Create beautiful, personalized landing pages for general or specific donation campaigns.Peer-to-peer fundraising: Give followers the tools they need to fundraise on behalf of your church.Donation management: Organize donations, send out confirmation messages, and deliver thank you letters.Recurring giving: Invite donors to establish recurring giving plans to amplify their impact.
Interested? Talk to a Classy expert to learn more about how your church can use Classy.
Article Sources
“Churches, Integrated Auxiliaries, and Conventions or Associations of Churches,” Charities and Nonprofits, IRS, last modified May 4, 2022, https://www.irs.gov/charities-non-profits/churches-integrated-auxiliaries-and-conventions-or-associations-of-churches.“Exemption Requirements – 501(c)(3) Organizations,” Churches and Religious Organizations, IRS, last modified February 6, 2023, https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-501c3-organizations.“Exempt Purposes – Internal Revenue Code Section 501(c)(3),” Charitable Organizations, IRS, last modified June 17, 2022, https://www.irs.gov/charities-non-profits/charitable-organizations/exempt-purposes-internal-revenue-code-section-501c3.