501(c)(3) - 2 Sides, 1 Truth

By Angie Joya

Walk into one group of pastors and you will hear them say, “You MUST have 501(c)(3) status! It’s the law and is very helpful!” Walk across the halls to another group of pastors and they will say with no less passion and confidence, “Never apply for 501(c)(3)! Never let the government tell you what you can and can’t preach!”

With so many opinions and so much information to sift through, pastors may still be faced with the ultimate question, “Should I get 501(c)(3) status for my church?”

With so many opinions and information readily available, it’s difficult to decipher what is fact and what is opinion. Our goal in this article is to provide you with the truth behind 4 common myths about the 501(c)(3).

But first, let’s get back to basics for a moment: What is 501(c)(3) exactly? 501(c)(3) is a reference to the section of the Internal Revenue Code that grants federal tax exemption.

Federal tax-exempt status allows an organization to be free from paying government taxes on funds and money that were donated. It is this section of the tax code that so many pastors and ministry leaders hear many differences of opinion. Our hope is that after reading this article, you will be prepared to make your own decisions about federal tax-exempt status.

Here are four common myths about 501(c)(3) that I hear all the time! 

4 common myths

Myth #1: “Obtaining 501(c)(3) means that the IRS can tell me what I can and can’t preach.”

When you do an Internet search on whether churches should obtain 501(c)(3) status, it is easy to find website after website discouraging pastors and church leaders from obtaining their 501(c)(3) status.

Some even to claim that obtaining 501(c)(3) status makes the church an organization under the control of the federal government.

This is simply not true. The IRS does not look for us to water down the gospel or keep us from preaching it. It simply raises the level of fiduciary accountability, in order to avoid an improper use of public funds.

In fact, Congress passed section 7611, which now states that unincorporated churches shall be treated as incorporated for tax purposes, meaning that regardless if the church has obtained its 501(c)(3) status, all churches have to comply with all nonprofit requirements.

As a church, you have to comply with all nonprofit requirements, but if you don’t apply for 501(c)(3) status, you will not gain any of the benefits. 

One benefit of having the 501(c)(3) application approved is the addition of your church or ministry’s name on Publication 78, which is a list of all approved charities. Having your name on this list will add protection and legitimacy of the tax deductibility that usually larger donors need to see in place.

Myth #2: “Having 501(c)(3) would subject my church to participate in activities it does not condone.”

On June 26, 2015, in the case of Obergefell v. Hodges, same-sex marriage was established in all 50 states as a result of a landmark civil rights ruling by the Supreme Court of the United States.

The ruling creates a major question in the minds of pastors: Does having 501(c)(3) status mean I have to preform same-sex marriages? Though this question is understandable, pastors do not have to live in fear. 

Neither section 501(c)(3), nor the tax code specifically require churches to participate in activities they do not condone. We believe, however, that now is the time for all churches to be prepared for what is to come.

Pastors do not have to live in this fear, but they can be strategic. 

The Church is called to be the head and not the tail. 

Therefore, we believe your church can prepare and protect itself by implementing the following:

• Add a “Prohibited Activities Clause” to your church’s bylaws. This clause simply states that the church is prohibited from engaging in activities that violate its written doctrines. In addition, the church is also prohibited from condoning, promoting, or allowing any of its assets to be used for activities that violate its written doctrines.
• Establish written doctrines. The written doctrines are separate from your constitution & bylaws. Your doctrines should be detailed in describing how your church’s specific beliefs are walked out in day-to-day life.

In fact, many churches have found that the process of applying for their 501(c)(3) has given them the opportunity to go on record with their public policy, by filing their bylaws with their 501(c)(3) application, showing that they have taken a stance on issues like same-sex marriage.

Myth #3: “Obtaining 501(c)(3) approval is not required.”

Because information is so readily available on the internet, it is easy to come across so much information from groups promoting the idea that applying for 501(c)(3) is not necessary for churches because of section 508(c)(1)(a). These groups have the mistaken and misinformed notion that by simply not applying for 501(c)(3) status, the church entity is not required to meet any of the requirements of section 501, and the IRS cannot revoke its exempt status.

However, this is simply not true and is sometimes referred to as the Free Church Fallacy.

Section 508(c)(1)(a) does state that churches do not have to apply for 501(c)(3) status. However, in a case heard before the United States Tax Court (Jack Lane Taylor v. Commissioner), the court ruled that “Section 508(c)(1) simply relieves churches from applying for a favorable determination letter regarding their exempt status as required by section 508(a).” Nothing in section 508(c)(1) relieves a church from having to meet the requirements of section 501(c)(3).

In short, just because a church does not apply for 501(c)(3) does not mean they don’t have to adhere. 

Want more information on what it means to apply for 501(c)(3) status? I recommend reading What is in Your Church's Public Record?.

Myth #4: “Obtaining 501(c)(3) is massively complicated”

Applying for 501(c)(3) status can be a time-consuming and complicated task. The IRS says that it can take up to 150 hours filling out the application. With StartCHURCH’s help, you don’t have to! We are firm believers that obtaining 501(c)(3) approval for your church is an essential step in the church planting process.

StartCHURCH is here to walk alongside you in this process. Whether you are starting a new church and don’t know where to start, or you’ve been operating for a while and you’re not sure if your documents include the protective language, the StartRIGHT program is here to help.

Help protect your church and the vision God has given you with a team that is eager to do the same. Give us a call today at 877-494-4655!

 

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