3 Reasons Why Your Church Should be 501(c)(3)

By Raul Rivera

Is it necessary for churches to apply for 501(c)(3) tax-exempt status? More specifically, should your church apply for 501(c)(3) tax-exempt status?

This is a question that many pastors and church leaders are asking, and this is a question that you must ask and answer for yourself and your church.

Some pastors and church leaders struggle to answer this question because they are not sure why their church should apply for 501(c)(3) status. They have asked other pastors for their advice, and some have told them that they should obtain 501(c)(3) status for their church while others claim it’s not needed.

So which is it?

I want to use this blog to give you three reasons why your church should apply for 501(c)(3) status, but before I do, I think it’s important to know why some churches choose not to apply for 501(c)(3) status.

Why some churches don’t apply for 501(c)(3) status

Whenever I speak with pastors who challenge the idea of applying for 501(c)(3) status for their church, I often hear them say, “Well, we’re a ‘free church,’ and we want to remain that way.”

I get where they are coming from, but the truth of the matter is that there is no such thing as a “free church” in the way they think.

Let me explain.

The idea of a “free church” originated from section 508(c)(1)(A) of the Internal Revenue Code.

This portion of the tax code only relieves churches of the obligation to apply for 501(c)(3) tax-exempt status.

It does not actually relieve churches from abiding by the rules and regulations that govern tax-exempt organizations.

It is important to make note that there is no provision under the law that allows an organization, church or otherwise, to receive tax-exempt donations without meeting the requirements of section 501(c)(3).

Why churches should apply for 501(c)(3) status

We just discussed that pastors who choose not to apply for 501(c)(3) status for their church often do so based on a misunderstanding or misconception of a “free-church.”

I now want to give you three reasons why pastors should seriously consider applying for 501(c)(3) status for their churches.

Reason #1: Burden of proof lies on donors, not the church

Many pastors do not realize this, but when a church does not have official 501(c)(3) status, the “burden of proof” falls upon the donors.

In other words, if one of your church members were to get audited and your church did not have official 501(c)(3) status, the burden of proving that your church is compliant with section 501(c)(3) is the responsibility of the donor.

In the court case of Jack Lane Taylor v. Commissioner* the court, in its ruling, stated that, “Deductions are a matter of legislative grace and taxpayers must satisfy the specific requirements of the deduction they claim.”

Furthermore, the court stated that, “Taxpayers bear the burden of proving their entitlement to the deductions they claim.”

That can be a huge burden to carry!

Once your church obtains official 501(c)(3) status, it will be able to receive tithes and and offerings and ensure its donors that their donations are tax-deductible.

Reason #2: Availability of exemptions at the state level

How would you like it if your church did not have to pay state sales tax? Or if your church owns property, would you like it if your church were exempt from paying property tax?

While these benefits are not offered in every state, most states offer these or other types of benefits that are only available to nonprofit organizations. In some cases, a state will require that a 501(c)(3) approval letter be included with the application for certain exemptions. 

So if such benefits are available in your state for your church, why not take advantage of them?

If you want to know what state benefits are available in your state for your church, give our office a call at 877-494-4655.

Reason #3: Build trust and accountability in your community

When your church goes through the process of applying for official 501(c)(3) tax-exempt status, it simultaneously sends a message to your church members, and those in your community, that you want your church to do things right and to be held above reproach.

Going through the process of becoming 501(c)(3) approved is not easy.

It’s time consuming and it requires you and your board of directors to answer some tough questions that you may not have previously considered.

However, when you have completed the application process and receive 501(c)(3) approval for your church, you are sending a message to your church and community members that you are committed to do things right.

The next move is yours

While the reasons and benefits of your church applying for and obtaining 501(c)(3) status are plentiful, I firmly believe that applying for 501(c)(3) status is the best First Amendment protection available to your church.

This is because when your church receives its 501(c)(3) approval, your church’s organizational and governing documents (articles of incorporation, bylaws, etc.) all become part of your public record.

Our goal at StartCHURCH is to help you establish a solid legal foundation for your church or ministry to build upon.

We believe in the mission that God has set in place for you and your church, and we want to help you to protect all that God has given you to lead.

To learn more about strengthening your church’s legal foundation and applying for 501(c)(3) status, give us a call at 877-494-4655 or click on the link below.

Recommended blogs for you:

• "How to Start a Ministry"
• "How Much Should Churches Pay Pastors?"
• "Are You Sure Your Ordination is Legal?"

Sources:

Taylor v. Commissioner, No. 14021-98, 2000 Tax Ct. Memo LEXIS 17 (U.S. T.C. Jan. 18, 2000)

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