Tax Exempt Church - Church Tax law

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Tax Exempt Church

Is there such a thing as a tax exempt church? If you've determined that it's your calling to start a church, understand that there's so much more to the process than becoming an ordained minister and opening the doors to a congregation. While it's important to emphasize the spiritual health and direction of your ministry, the business and legal aspects are also important. But does that necessarily include filing a federal application with the Internal Revenue Service for recognition of the new church's tax exempt status? Rather than waste time searching endlessly for information that is often inaccurately communicated elsewhere, get all the information you need from one single reliable church planting program called Building On Faith.

Now, here's the answer to your important question. Yes and No. In starting a church, whether you like it or not, or even if you disagree with the concept of taxing churches, the fact of the matter is that there is a body of tax law that is specific to churches. Thus, church tax law must be considered in connection with any new church planting. While it's important to understand what a church is in biblical terms, the tax law looks at church's somewhat differently. And here is where the concept of a tax exempt church resides.

The Internal Revenue Service has established certain tax law criteria in order to determine if a church applicant should be recognized as a church and therefore, tax exempt. For example, church tax law states that the church should be an established entity with a regular congregation, an organization of ordained ministers, and a place or places of worship, to name a few criteria. When a substantive balance of the essential criteria is present, and a church has specifically asked the IRS to determine its tax exempt status, that is when some refer to a new ministry as a tax exempt church.

So, in respecting some church leaders' decisions to go this route, we say yes, there could be something called a tax exempt ministry. However, there are few things more abhorrent to some church leaders than the concept of a "state" church, as it were. The truth of the matter is that no legitimate church is required to ask the IRS to determine its tax exempt status. A church exists by divine providence and is not subject to the rules and regulations of secular authorities. Therefore, even when a church elects to file the IRS application for section 501c3 recognition of its tax exempt status, it should be careful not to refer to itself as a tax exempt church, because it is first and foremost not about tax exemption.

Well, if a church is not required to submit a 501c3 application for recognition of its tax exempt status, and if churches are automatically tax exempt by virtue of their existence, then why do some churches file the IRS Form 1023 for recognition of their tax exempt status? This and many other related questions are more specifically answered in the amazing new church planting program, Building On Faith, available on this website. But to help you understand a bit about it now, some church leaders see a value in tax exemption recognition. For one, it tells members that under tax law, their contributions to the congregations are definitely tax deductible. This doesn't mean they are not tax deductible if a church elects not to file the Form 1023. In fact, in most cases, churches that do not file for tax exemption recognition, are nevertheless automatically tax exempt and their contributors may deduct their church donations on personal tax returns.

The difference is that in the first case, a member definitely knows. And in the second case, it doesn't know if church leaders may have something up their sleeve that could end up costing the church its automatic tax exempt status. And a sad fact is that some "churches" have turned out to be schemes for the avoidance of an individual's or a family's personal income taxes. You see, the IRS and U.S. government hold that there is no Constitutional right to be free from the imposition of income taxes. Many people disagree, but as far as we know, those are the laws on the books. And since churches are automatically tax exempt, some people believe all they need to do is call themselves, or their families, a "church" and stop paying taxes. It has happened. That's why some churches call themselves a tax exempt church. They believe it helps to put their contributors at ease about the deductibility of their church contributions.

Now, don’t try to sort through all this on your own. Use Building On Faith to help you determine if requesting tax exempt recognition is what you want to do. The process of completing Form 1023 is like a jigsaw puzzle, and even if you work to gather information from several sources, you could be missing a piece or two to complete the picture, resulting in rejection. If this is important to you, you can't afford to be without an authoritative resource.