Tag Archive: IRS

What is a Church According to the IRS?

irs

Anyone can start a church. In most cases, the new church will be considered tax exempt by federal, state, and local government.

The IRS lists the following generic (albeit very Christian sounding) characteristics of a church:

The term church is found, but not specifically defined, in the Internal Revenue Code. With the exception of the special rules for church audits, the use of the term church also includes conventions and associations of churches as well as integrated auxiliaries of a church.

Certain characteristics are generally attributed to churches.  These attributes of a church have been developed by the IRS and by court decisions.  They include:

  • Distinct legal existence
  • Recognized creed and form of worship
  • Definite and distinct ecclesiastical government
  • Formal code of doctrine and discipline
  • Distinct religious history
  • Membership not associated with any other church or denomination
  • Organization of ordained ministers
  • Ordained ministers selected after completing prescribed courses of study
  • Literature of its own
  • Established places of worship
  • Regular congregations
  • Regular religious services
  • Sunday schools for the religious instruction of the young
  • Schools for the preparation of its members

If a group of people generally exhibit these characteristics they are considered a Church by the IRS. State laws are different from federals laws and vary from state to state.

A Church is not required to file for 501c3 status to be tax exempt. 501c3 status does grant certain additional benefits to the church, BUT it is not required for tax exemption.

The IRS handbook for churches states:

Congress has enacted special tax laws applicable to churches, religious organizations, and ministers in recognition of their unique status in American society and of their rights guaranteed by the First Amendment of the Constitution of the United States. Churches and religious organizations are generally exempt from income tax and receive other favorable treatment under the tax law; however, certain income of a church or religious organization may be subject to tax, such as income from an unrelated business.

The IRS church handbook states:

Churches and religious organizations, like many other charitable organizations, qualify for exemption from federal income tax under IRC section 501(c)(3) and are generally eligible to receive tax-deductible contributions. To qualify for tax-exempt status, such an organization must meet the following requirements:

■ 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, and
■ the organization’s purposes and activities may not be illegal or violate fundamental public policy.

Churches that meet the requirements of IRC section 501c3 are automatically considered tax exempt and are not required to apply for and obtain recognition of tax-exempt status from the IRS.

Now, get out there and start a church. You can do it!

If you need ordained, check out the Universal Life Church.

Bruce, surely it is more complicated than that? I assure you, it is not. I’ve thought about starting a new sect, The Church of Bruce Almighty®. Donations would be tax-deductible and my church could buy buildings, property, cars, and other essential ministry tools and not pay tax.

Only in America…

Should Church Donations be Tax Deductible?

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If people give money, services, or property to a church, they can use the amount of their donation to reduce their federal tax liability. Every year, billions of dollars of money, services, and property are given to churches. All churches, by default, are tax exempt. Many people wrongly think that a church must be 501(c)(3)-approved to be tax exempt. All a group needs to say to be tax exempt is we are a church. That’s it. By  9:00 AM next Sunday, I could start a church that would be completely tax-exempt by IRS standards, even if only my family attended.

The IRS deliberately steers away from explicitly defining what a church is. In their view, if it looks and acts like a church, it is a church. Here are the main criteria the IRS uses to decide whether a church is tax exempt:

  • a distinct legal existence and religious history,
  • a recognized creed and form of worship,
  • established places of worship
  • a regular congregation and regular religious services, and
  • an organization of ordained ministers

As you can see, it is very easy for a group to be considered a church by the IRS.

Churches are also, in many states, exempt from paying sales and real estate taxes. Ohio is one such state. Churches can even operate for-profit businesses that are tax-exempt. In the 1970s, churches were encouraged to start day care centers as a way to maximize building use and generate income, uh I mean minister to the poor. Just because a church tacks the word ministry on the end of a business name doesn’t make it one.

The question I ask is this: Should church donations be tax-deductible? Should churches be tax exempt?

Christians will quickly state that their church is a charity and it does good in the community so their church should be tax-exempt and members should get a tax deduction for their donations. Relative to the amount of money they take in, do churches really do a great amount of good in the community? If the average church closed its doors tomorrow, would anyone outside of the membership care? Take a look at a church’s budget. Where does MOST of the money go? Salaries, benefits, insurance, utilities, buildings, and programs that only benefit the congregation. If a “real” charity spent their money in this manner, the IRS would pull their tax exemption and donations to said charity would no longer be tax-deductible. Yet, the IRS and federal and state governments give churches a blind-eye pass.

I have written on churches and their finances many times over the years. If you are getting ready to object, here’s my challenge. Send me your church’s budget. Let me take a close look at it. I have eyes for seeing through the budget secrecy and bullshit many churches practice. Let’s take a close look at the numbers. I have made this challenge many times over the years, and not one church, pastor, or Christian has taken me up on it. They whimper, whine, and complain, but they never produce their financial documents. Why? They know the emperor has no clothes. They know if they shared their financials that the truth would be revealed.

If a church wants to be considered a tax-exempt charity, then they should be required to apply for charity status. They should then be required to spend the bulk of their money on charitable services that benefit the community. No church should be tax exempt just because they say we are a church.

Most churches are social clubs and the price of membership is what people give in donations.  The club rightly spends the bulk of its money on things that directly benefit the membership. As a club, a for-profit business, a church should be required to pay taxes and fill out all the tax forms that other businesses do. Isn’t it about time churches start paying their own way, just like every other business does?  Why should First Baptist Church or St Peter’s Catholic Church be tax-exempt and receive free fire and police service and free infrastructure improvements? Why shouldn’t Betty’s Coffee Shop or Bob’s Bar and Grill get the same tax treatment as a church?

I support the elimination of all church  tax exemption (sales, real estate, income, social security), church donation tax deduction, and the clergy housing tax allowance/deduction. A practical side effect of eliminating these exemptions is that churches would then be free to endorse political candidates. No more Christian whining about their “free” speech being stifled. Churches would be FREE to do what they want AND pay taxes just like everyone else.

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