Can Churches Share Their Tax-Exempt Status? Part 2

By Raul Rivera

In Part 1, we talked about the concept of putting other ministries under the “umbrella” of your church. Although it is a pleasant concept, the idea of a “church umbrella” does not capture the correct way to establish new branches of your ministry.

What if your church is called to help plant other churches? Or, what if your church is called to oversee “daughter” churches? How does all of this come into play then?

Many pastors and church leaders attempt to use the “church umbrella” concept in these situations, but as we saw in part 1 and as explained at our conferences, the church umbrella concept is based on false assumptions. This second part of the series will address the options available to your church when it considers establishing multiple places of worship.

3 different structures for you to consider

Listed below are three common avenues in which to establish multiple places of worship. I encourage you to review each one, and consider which one may best suit the vision God has given you and your ministry.

Path #1: Satellite locations

When a church seeks to extend its reach into local cities or states, it may choose to establish branch locations in various places. To establish a satellite location, you are not creating a new corporation, you are simply setting up other places of worship as an extension of the main location.

Through satellite campuses, the members at each campus are members of one church, though they meet at different locations. This is ideal because you can impact various parts of the same city, or region, by establishing your church in areas where you will meet the most need. 

Establishing a satellite location is a simple and effective way to plant more churches without changing language in your articles of incorporation or bylaws. There are, however, some potential liabilities that you should consider.

1. The board of directors will be responsible for creating the proper structure to oversee the operations at each campus, including, but not limited to:

• Training and ordaining ministers, 
• Overseeing financial management of each corporation, and 
• Ensuring that policies and procedures of the corporation are enforced at each location.

2. The corporation is held legally liable for everything that happens at each location. This means that if someone falls down at any location and sues the church, then each campus and its assets can be subject to the lawsuit. Additionally, the financial resources of each campus would be at the corporation’s disposal in order to appropriately handle the lawsuit.

3. The corporation is responsible for overseeing the budget and financial management of every campus. This means that the FEIN and banking information for all campuses will be overseen by the board of directors. Each campus may create its own budget and have its own account, but the board of the directors should approve all budgets, reimbursements, etc., for every campus.

With a satellite location, you are setting up other places of worship as an extension of the main location.

(Recommended reading: “Why Bylaws Are Important, And How to Make Yours Better”)

Path #2: A Pastoral alliance or affiliation

Creating a pastoral alliance or affiliation is a great option for organizations that will actively plant churches, which will function independently but have similar missions. 

You may consider creating a pastoral alliance if you want to do the following:

• Unify leaders in your region to provide support and edification to pastors, as well as fellowship opportunities for your respective congregations.
• Create an ordination program for pastors who will plant, or have just planted, their churches but need theological, leadership, and business training for managing all aspects of their church.
• Financially support new church plants.

Generally, the churches overseen by pastors in an affiliation are independent corporations with their own board of directors, bylaws, policies, etc. Though they give recommendations and guidance to one another, they function independently with no governing oversight by the alliance or affiliation.

(Recommended reading: “How to Develop Effective Leaders in Your Church”)

Path #3: Association or convention of churches

Sometimes a church may have a vision to provide administrative oversight and governance to other churches. Generally, this qualifies them to be designated as an “association of churches” by the IRS’s standards.

An association is a central organization that provides formal governance to other ministries to help them grow and remain stable through the headship of a central ministry.

Similarly, a convention of churches may have several associations under its headship. Such associations often oversee churches in a specific region. This is most commonly seen in a national denomination that has northern, southern, eastern and western conventions composed of 5 to 10 regional associations. Those regional associations can then oversee several individual churches.

(Recommended reading: “How to Start a Church the Right Way”)

An association of churches is more than a loose affiliation of churches that gather for support. When you create an association of churches, each individual church incorporates. However, those individual churches, under the headship of the association, will be subject to the rules and governance established by the head organization. 

The association can require subordinate churches to use a certain set of governing documents, such as bylaws, issued by the association that details the relationship between the two churches. 

Key characteristics of an association are:

1. Financial oversight of member churches. This includes requiring monthly, quarterly, or annual financial reports from subordinate churches.
2. Administrative oversight of member churches. Administrative oversight means that the association (or convention) has the authority to establish governing documents for its members. Moreover, the association has the power to establish the leadership of its churches by appointing the board of directors and pastors.
3. Leadership training. Associations often provide theological and leadership training to ministers leading churches in their organizations.
4. The formal ability to disassociate. An association can choose to remove an organization that is not operating in agreement with its statement of faith, doctrine, and administrative policies.

Benefits of a group exemption status

Associations and conventions of churches must apply for 501(c)(3) status. The member churches should also individually apply for official 501(c)(3) recognition to ensure their organizations can enjoy the benefits of this status.

(Recommended reading: “Does a Church Need to be 501(c)(3) Approved?”)

However, associations and conventions of churches also qualify for what is known as a group exemption. A group exemption is a special tax-exempt status granted by the IRS for an organization that formally oversees other organizations of similar purpose.

With a group exemption status, you can “share” your 501(c)(3) tax-exempt status with other churches in your group.

According to Treasury Regulation 601.201, in order for subordinates to qualify for group exempt status, the central organization must establish the following:

• The subordinates are affiliated with the central organization;
• The subordinates are subject to the central organization’s overall supervision and control;
• The subordinates are exempt under the same paragraph of section 501(c), (though not necessarily under the same paragraph as the parent organization); and
• The subordinates are not private foundations. (This is because private foundations are bound by different tax and payroll rules.) 

In addition, each subordinate must authorize the central organization to be included in the group exemption letter. An authorized officer of the subordinate organization can sign off on a letter indicating its affiliation with the central organization. The central organization must always keep a copy of this signed letter on file while the group exemption is in effect.

Which structure is right for your church?

Providing oversight to other churches may prove to be a more daunting task than you anticipated, but it does not have to be. Here, at StartCHURCH, we are equipped with the tools and knowledge to help you choose the structure that is right for your church.

Maybe God has been speaking to you about growing and expanding your church. Perhaps you are wondering about the next step for you and your church.

Well, I invite you to attend one of our Ultimate Church Structure Conferences where you will learn more about expanding and protecting the dream that God has given you. Or, simply call our office at 877-494-4655, and one of our specialists will be happy to serve you and your church!

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