Tax Exempt Status for Churches and Nonprofits

For nonprofit tax exemption information, check out this website: www.managementhelp.org

What is IRC Section 501(c)(3)

Internal Revenue Code Section 501(c)(3)is the portion of the tax code that gives certain entities the right to receive tax deductible contributions.

What are the qualifications for tax exempt status?

An organization must meet the following requirements to qualify:

• 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
• The organization’s purposes and activities may not be illegal or violate fundamental public policy

Although there is no requirement to do so, many churches seek recognition of tax-exempt status from the IRS.

They do so by filing IRS Form 1023. This is a complicated form. I would recommend seeking a tax professional's advice if you decide to go that route.

Note: Although most churches are exempt from filing and paying federal income taxes, they may not be exempt from state taxes. Contact your state's tax agency to see what taxes your church is exempt from paying.

Important: Incorporate at the state level! See this article by Richard Hammar on that subject: Should Our Church be Incorporated?

Additional Resources

Zondervan 2012 Church and Nonprofit Tax and Financial Guide continues to be one of the few resources offering tax and financial advice to churches and nonprofit organizations.

Issues of financial accountability, receiving and maintaining tax-exempt status, accounting for charitable gifts, and other crucial topics receive careful and full discussion.

The 2011 edition contains a thorough description of tax laws affecting churches and other nonprofit organizations, ensuring compliance with all regulations.

The book includes expert advice on handling charitable gifts, sample policies and procedures, easy techniques for simplifying financial policies and procedures, insights on medical expense reimbursements, key steps in sound compensation planning, and examples of required IRS filings.

Loss of your church's exemption from federal income taxation would have several consequences, see this article for more information: The Value of Tax-Exempt Status

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