Do I Really Need 501(c)(3) Status?

By America Kimlinger

I’m asked this question at least once every time I’m at a conference, followed by: “As a church, we’re automatically tax-exempt under Section 508, so I don’t need 501(c)(3) status.” Have you had a similar conversation with another pastor, or maybe heard this question yourself? If you've been part of a discussion about tax-exempt status in a church or ministry setting, chances are you have.

Some pastors assume that because churches are automatically granted tax-exempt status under Section 508, there’s no need to apply for 501(c)(3) recognition. But is that true? This misconception is common, so let's clear up the confusion on this issue so you can make an informed decision for your church and, most importantly, its donors.

Section 501(c)(3) vs Section 508(c)(1)(A)

You might have heard it: churches don’t need to apply for tax-exempt status under Section 501(c)(3) because they are automatically exempt under Section 508(c)(1)(A). While this sounds good, it’s crucial to understand the nuances of these two provisions and how they affect your church’s tax-exempt status.

Section 501(c)(3)

Section 501(c)(3) is the IRS code that provides tax-exempt status to religious, charitable, scientific, and educational organizations, among others. When a church applies for and receives 501(c)(3) status, it’s granted several advantages, but with those advantages come certain responsibilities. Here are some key requirements of 501(c)(3):

• The organization cannot carry on a trade or business for profit (Section 502)
• The organization cannot be used for unreasonable private gain (Sections 501 and 503)
• The organization cannot spread propaganda or influence legislation (Section 501)
• The organization cannot promote a candidate during an election (Section 501)
• The organization must file an annual tax return (Section  6033)
• The organization must apply for official recognition from the IRS (Section 508)

Section 508(c)(1)(A)

Section 508(c)(1)(A) creates a special exception for churches, making them automatically tax-exempt without needing to apply for official 501(c)(3) recognition. This means that churches are not required to file IRS Form 1023 (the application for 501(c)(3) status) or wait for official approval.
This is great news, but what exactly is the exception for?

• Paying taxes? No.
• Restrictions on promoting a candidate? No.
• Restrictions on for-profit activities? No.
• Government control? No.

The exception is not related to any of these things and certainly not to the requirements of Section 501(c)(3).

The exception in 508(c)(1)(A) applies only to the "notification requirement" in Section 508(a). In simple terms, this means your church may still be considered "described in section 501(c)(3)"—even if it doesn't apply for official status.

To put it plainly, Section 508 gives churches the same rights and responsibilities of a 501(c)(3) organization, regardless of whether or not they officially apply for recognition.

The Burden of Proof: Why It Matters for Your Donors

If your church relies solely on Section 508(c)(1)(A) without filing for official 501(c)(3) status, it places the burden of proof on each and every one of your donors. This even includes you personally if you give to the church and write off your donation.

This is a risky scenario for both you and your donors. In the case of Jack Lane Taylor v. Commissioner, the court ruled that a church relying on Section 508(c)(1)(A) does not automatically assume the church is tax-exempt. Instead, the burden is placed on the donor to prove that the church meets the 501(c)(3) criteria.

This means if your donors face an audit, they may have to establish that your church meets all 501(c)(3) requirements to claim their donations as tax-deductible. In addition, the Branch Ministries v. Rossotti case similarly ruled that churches relying on 508(c)(1)(A) must meet the qualifications of Section 501(c)(3) to be entitled to tax-exempt status. Without official recognition, there is no presumption of tax-exempt status, and donors cannot assume their contributions are deductible.

To clarify, Section 508 does not define a church, nor does it offer a church special, government-free tax-exempt status. In fact, the concept of a "508 church" does not exist. Not only does Section 508 not exempt a church from its obligations, but a church relying on it may even be presumed to be non-exempt!

Why 501(c)(3) Is the Right Choice

The reality is that obtaining 501(c)(3) recognition does not hinder the message of the Gospel or grant the government control over your church. Instead, it provides churches with the security and peace of mind from an IRS-issued favorable determination letter. With your church’s tax-exempt status officially recognized and your donors’ contributions protected, you can lead with the confidence of having secure, official 501(c)(3) approval.

Don’t let the process overwhelm you—you're not alone in this important step to protect the ministry God has called you to lead. At StartCHURCH, we’ve helped thousands of churches successfully navigate the path to 501(c)(3) status. If you haven’t filed for recognition yet or are unsure about the next steps, our team is here to guide you. Call us today at 770-638-3444 and take the next step toward securing a bright and stable future for your church!

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