I’m Ready for a 501(c)(3). But am I a Church Startup or a Religious Startup?
…..but are unsure whether you are a church startup or a religious startup organization?
The terms “church” and “religious” are both used in IRC 501c3 but neither word is specifically defined. The term “church” is also used generically to define all houses of worship, including mosques and synagogues, regardless of religion. In order to be recognized by the IRS as a church, organizations must complete Schedule A of the 1023 application. The IRS uses the Schedule A to determine if the applicant organization is a bona fide church, based on its church criteria. The IRS’s church criteria is not a religious test, but rather, a test for the purposes of tax law. For organizations that only wish to be recognized as a religious organization only the basic 1023 application is needed.
The benefit of being recognized by the IRS as a church is that you will not be required to file the annual 990 which all other non profit organizations must submit each year. Being recognized as a 501c3 organization will also allow contributions to be tax deductable for the donors. Another benefit long standing and church startups have over other exempt organizations would be that they are not required to withhold income tax from the compensation that it pays to its duly ordained, commissioned or licensed religious leader for performing services in the exercise of their ministry. The gross income of the religious leader also does not include the fair rental value of a home provided, or a housing allowance paid, as part of the minister’s compensation for duties preformed that are ordinarily the duties of a minister.
In order for the IRS to recognize an organization as a church, they must be able to demonstrate that they have a religious doctrine or distinct belief of any kind. They must also have a place of worship specifically dedicated for use as a church. All organizations wishing to be recognized as a church by the IRS will also have to have regularly scheduled worship services, and an established congregation. There are no specific requirements as to what constitutes an established congregation but it should be made up of at least a minimum 25 members and not all member should be a part of the same family. In addition to successfully providing this information, organizations may also be asked by the IRS to produce photographs. These photographs should be an outside picture of the facility, any outside signage that shows its availability and invites the public to attend and a picture of the congregation during worship. Other information the IRS may request to help determine if an organization is an actual church rather than a religions organization is a list of the congregation’s members. This list will need to include the names, addresses and telephone numbers of all the individuals who are members of the church. It may also be beneficial to provide any additional printed materials that the church circulates such as newsletters, bulletins, or programs used during service.
For any organization applying for 501 c 3 nonprofit corporation or tax exempt status the process can be intimidating and overwhelming, this process can be even more frightening for organizations applying as churches. This is in part due to the additional questions and documentation that is necessary to complete Schedule A which is necessary for the IRS to classify an organization as church. Remember that with the right preparation and guidance, there is no one more qualified and better prepared to answer these questions about your organization than you. When preparing and submitting your application you should carefully and accurately answer all the questions and gather all the necessary supporting documents. It the proper information on hand this process should not be excessively difficult for organizations that are truly churches. For those organizations that have difficulties completing this application, they may need to reconsider if they truly are a church in the eyes of the IRS.