Tax Exempt Status for Churches and Nonprofits

Are churches automatically exempt from federal income tax?

Most of the time...yes. As long as it is clear that your organization is definitely a church. Churches qualify for exemption from federal income tax under IRC Section 501(c)(3) and are generally eligible to receive tax-deductible contributions.

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)(30 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.

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Additional Resources

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

Recommended Reading and Products:

Zondervan 2009 Church and Nonprofit Tax & Financial Guide: For 2008 Returns By Dan Busby, CPA / Zondervan * Taxes can be complicated, particularly for nonprofit groups! Busby's time-tested manual takes you step-by-step through tricky issues unique to these organizations---including the latest information on financial accountability, receiving and keeping tax-exempt status, charitable gifts, risk-management checklists, compensation planning, how to simplify policies and procedures, and helpful examples of required IRS filings. 224 pages, softcover.

The Church Treasurer's Manual: A Practical Guide for Managing Church Finances - Book & CD-ROM By Bruce Nuffer / lifestream Have you been appointed church treasurer? This handy manual will help you do your job efficiently and effectively! Packed with time-saving tips and practical suggestions, it offers an easy-to-understand overview of basic accounting principles; explanation of tax regulations; record keeping forms for taxes, individual contributions, and weekly offerings; advice for handling payroll and other compensations; and more. 160 pages, softcover from Beacon Hill.

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