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To 501(c)(3) or Not To 501(c)(3)

Are churches 501(c)(3) non-profits? Should they be? Do they have to be? Is there any other way that they can be recognized by the state? What is a "church" anyway? What legal entity, if any, is the best form for a church to take? Does it violate the church as the living body of Christ, to be embodied/incorporated under the state?

I am not yet ready to propose an answer to any of these questions. But I have begun collecting research on what various people have discovered about this issue.

So, to research this issue further, check out the following list of articles and code:

Articles

Code

Please reply with links to any other articles, regulations, or laws that would be useful in considering the issue of what the best legal entity is for churches. And consider, how can a church hold on to its freedom of speech, its right to define its own membership and leadership, structure itself according to every biblical principle and the spirit of the law, and maintain a healthy relationship with the state as discussed in Constitutional Christianity in the context of current law and practice?

Tags: 501c3, 508c1a, associations, church, churches, incorporation, irs, regulation, taxes, unincorporated

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Comment by Stephen Simons on May 17, 2010 at 9:19am: Just came across a related case, Jack Lane Taylor v. Commissioner of Internal Revenue, in which the court ruled that "Nothing in section 508(c)(1) relieves a church from having to meet the requirements of section 501(c)(3) . . . its contributors must prove the church's right to an exemption under section 501(c)(3) in order to be entitled to a deduction for their contributions". Not being an attorney, I'm not sure what, if anything, this means for unincorporated ministries, associations, and congregations of believers, but it seems related to the topic of whether or not churches and religious groups should be 501(c)(3). The interesting part to me is that it seems to suggest that the only thing at stake is a church's tax exempt status. So if everyone who gives to your church understands that it is not a tax exempt organization and so they can't deduct their donations on their taxes, then is it possible that the church does not have to be 501(c)(3) with the attendant restrictions on speech, etc?

Comment by Amanda Vande Zande on June 12, 2010 at 2:51pm: I believe this is how it works. If you do not have a 501c3, then you are still tax exempt due to the fact that there is no affiliation with government. (Separation of church and state). Therefore, you would really have the right to say what ever you like and still be tax exempt. The churches have been led to believe they need this 501c3 in order to receive what they already have, tax exemption, this just allows the government lord over you instead of Jesus being Lord of you or the church. I've been know to be wrong before though. LOL. You can go to the website www.hushmoney.org and learn a ton about whether to incorporate or not. Very informative.

Comment by Dr. Bill Benton on June 17, 2010 at 1:31pm: There is no way under heaven that I would apply to a government agency--on behalf of my church--for a privilege. Did you know that churces were required to be licensed under the Nazi Germany government? To apply for special status to an agency such as the IRS, is tantamount to requesting to be an agency of government.

What's more, the IRS regs do not even require this, should congregation members choose to deduct their contributions.

Churches Are “Automatically Tax-Exempt”
According to IRS Code § 508(c)(1)(A):

Special rules with respect to section 501(c)(3) organizations.

(a) New organizations must notify secretary that they are applying for recognition of section 501(c)(3) status.

(c) Exceptions.

(1) Mandatory exceptions. Subsections (a) and (b) shall not apply to --

(A) churches, their integrated auxiliaries, and conventions or associations of churches.

Thus, we see from the IRS' own publications, and the tax code, that it is completely unnecessary for any church to apply for tax-exempt status. In the IRS' own words a church “is automatically tax-exempt.”

And what about tax-deductibility? Doesn't a church still need to become a 501(c)(3) so that contributions to it can be taken as a tax deduction? The answer is no! According to IRS Publication 526.

Organizations That Qualify To Receive Deductible Contributions

You can deduct your contributions only if you make them to a qualified organization. To become a qualified organization, most organizations other than churches and governments, as described below, must apply to the IRS.

In the IRS' own words a church “is automatically tax-deductible.”

Not only is it completely unnecessary for any church to seek 501c3 status, to do so becomes a grant of jurisdiction to the IRS by any church that obtains that State favor. In the words of Steve Nestor, IRS Sr. Revenue Officer (ret.):

“I am not the only IRS employee who's wondered why churches go to the government and seek permission to be exempted from a tax they didn't owe to begin with, and to seek a tax deductible status that they've always had anyway. Many of us have marveled at how church leaders want to be regulated and controlled by an agency of government that most Americans have prayed would just get out of their lives. Churches are in an amazingly unique position, but they don't seem to know or appreciate the implications of what it would mean to be free of government control.”

~from the Forward of In Caesar's Grip, by Peter Kershaw

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Comment by Dr. Bill Benton on June 17, 2010 at 1:40pm: Now, question #2: Should a church incorporate?
When a citizen, company or church incorporates, it is seeking a franchise...a special privilege from the state, for which that entitiy must follow certain rules and pay certain fees..immediately, and annually. One might also make a good argument that this act converts the church into a primarily commercial enterprise. Not only that, but there is another option, should one want lessened legal liability, and other features normally associated with incorporation. One may form a trust (sometimes known as a "common law trust") without petitioning the government. Trusts have been around for centuries, and are respected in American law. Just do your homework...investigate this.

Comment by Stephen Simons on June 29, 2010 at 9:18pm: Dr. Bill,

Thanks so much for the info, I will definitely be looking more into trusts!

Comment by Joel Ackley on January 24, 2011 at 3:07pm: Thanks for the blog and insight. I have read In Caesar's Grip along with many other articles on this subject and appreciate that there are other believers who recognize this web of deceipt that has penetrated and prevails among the vast majority of churches today. Let us hope that as fast as these churches joined the 501c3 status, they will rid themselves of it just as fast if not faster. Getting the word out and praying that fear not run the lives of our fellow believers will be greatly helpful. Another option is to have a Declaration of Trust. For more info, go to http://www.biblicallawcenter.com.
May the Lord bless and keep you. Be of good courage!

Comment by Dr. Bill Benton on January 25, 2011 at 1:18am: 'Twas a pleasure speaking to you gentlemen. One aspect of this is that I keep hearing non-commercial radio stations (some churches too) soliciting donation of money and automobiles for their operations (again, 501 (c) status. I would actually prefer to donate to a non-501 (c) entity. That status really concerns me, and--incidentally--why should the taxing agency be the ones who make the determination of the suitability of a church or other organization for my donation? If I want to donate $100 to the ABC Church, this is truly MY BUSINESS. This whole area of government activity is a "con-game," if the truth be told, and I have done a fair amount of research into this area of human activity since the early nineties.

Comment by Dr. Bill Benton on January 25, 2011 at 1:21am: Has anyone here read, "The Law that Never Was?" God bless!!

Comment by Stephen Simons on January 25, 2011 at 7:52am: I have started thinking that maybe running a church as a for profit venture in the eyes of the government for the purposes of taxation, ownership of property, etc is perhaps the way to go because there are no limitations on the freedoms of speech for for profit businesses. Thoughts?

Comment by Dr. Bill Benton on January 25, 2011 at 2:28pm: Stephen: I think that would be an ill-advised idea. In the past, churches who have commercial operations, like a winery or a crafts store, have been able to use all other operations as exemptions, but not the commercial side. I think you would really be shooting yourself in the foot.

To 501(c)(3) or Not To 501(c)(3)

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