The Internal Revenue Code provides an automatic federal tax exemption for churches.

Some churches choose to file for formal recognition of tax-exempt status and some do not. The following questions may help a church to decide whether to file for tax-exempt status:

• How large is the church expected to become? If the
expected income is less than “x dollars,” it may not make
sense to file.
• Does the church expect to be involved with other larger
churches? Their governing guidelines may require you to
have a formal IRS status.
• Will the church be doing overseas ministry? If so, it may
make sense to have formal IRS status.

You should discuss with your legal counsel whether the benefits of filing the Form 1023 are worth the costs.

Because of the First Amendment to the Constitution guaranteeing freedom of religion, the IRS has long adopted a largely hands-off approach to regulating churches.

For example, as long as an organization qualifies as a church, it need not apply to the IRS to receive its tax exemption—the exemption is automatic. Moreover, churches need not file the dreaded IRS Form 990 or 990-EZ–the annual information forms that other charities must file each year.

However, many churches apply to the IRS anyway. The advantages of doing so are that (1) the organization will obtain official recognition of its tax-exempt status which assures donors that their contributions are tax-deductible, and (2) it will be listed in IRS records as a qualified charitable organization and it can obtain a determination letter from the IRS stating that contributions to it are tax deductible.

Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

For more information or if you need additional assistance, please use the contact information below.

Clergy Financial Resources
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