There is a lot of confusion about the terms "church, " "religious organization," and "faith-based organization."
To try to get clear on what these terms mean, I turned to the IRS and sat through a webinar which helped explain a lot.
Now, I have to admit that IRS webinars are about as dry as sawdust, but I do recommend them to get clarity on the byzantine tax code when it comes to nonprofit organizations.
Here's some of what I learned.
A bona fide church is automatically considered a 501(c)(3) charity by the IRS and as such is tax exempt. The key here is to qualify as a church. So what characteristics do churches have?
"Church" refers to a place of worship. That is not precisely spelled out in the tax code, but generally refers to temples, mosques, and synagogues; conventions and associations of churches, and integrated auxiliaries of a church.
The IRS uses these criteria when determining if your organization can be classified as a church:
- A distinct legal existence
- A recognized creed and form of worship
- A definite and distinct ecclesiastical government
- A formal code of doctrine and discipline
- A distinct religious history
- A membership not associated with any other church or denomination
- Ordained ministers ministering to its congregations
- Ordained ministers selected after completing prescribed studies
- A literature of its own
- Established places of worship
- Regular congregations
- Regular religious services
- Sunday schools for religious instruction of the young
- Schools for the preparation of its ministers
Source: IRS Powerpoint Presentation
A church, if it meets most of these criteria, is automatically considered a 501(c)(3) charity. However, churches that are automatically considered charities must also adhere to requirements that are common to the 501(c)(3) status, such as no inurement of benefits (no benefit to an insider such as a staff member or director), little to no lobbying, no political advocacy, and activities that are legal (see How Not to Lose Your Tax-Exempt Status).
In other words, churches, to be considered 501(c)(3) charities, must act like other charities. If they do so, they may qualify for tax-exemption. Churches do not have to register with the IRS by submitting Form 1023, but many do so anyway. Churches do not have to file yearly 990s.
Religious organizations are not places of worship. They are typically nondenominational ministries, or interdenominational and ecumenical organizations; or entities whose principal purpose is the study or advancement of religion.
To be tax exempt, a religious organization must register as a 501(c)(3) charity. That means filing Form 1023 (organizations with income below $5000 annually are not required to file although they may wish to). Once registered, the organization must file an annual 990.
The term "faith-based" is not a legal term. It is used loosely to refer to a broad range of religiously involved organizations that could be a church, a religious charity, or simply an unincorporated group based on religious values. Usually, faith-based organizations (that are not churches), still need to apply for 501(c)(3) status to accept donations that are tax-exempt for their donors and to apply for foundation grants. For a full discussion of faith-based organizations, see What Is a Faith-Based Nonprofit?
There are many nuances to these terms, especially for churches. The best resource for more information is IRS Publication 1828, Tax Guide for Churches and Religious Organizations.
- Consequences of Church Tax Exemptions (No Political Campaigning)
- Can Nonprofits Engage in Political Activity?
- How Much Unrelated Earned Income Can a Nonprofit Receive?
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