Starting a Tax Exempt Church

This article discusses the steps one would need to take in order to create a tax exempt Church. The process for creating a Church involves some paperwork which must be taken – first – at the state level and – second – at the federal level.

Initially, to create a Church (or Synagogue or Mosque), the first step you would need to take is create a non profit entity at the state level. In other words, you will need to incorporate the Church by filing its organizing document, i.e., the articles of incorporation, with the state in which the Church will be physically located. Usually the agency that handles this task is the “Department of State”, but some states designate another state agency for the handling of their corporation filings.

The most likely, and appropriate, legal form for a Church organization is a “non profit” or “not for profit” corporation. You should contact your state agency handling corporation filings to determine whether that agency has a standard form for creating a non profit organization. If so, you should make sure that your non profit filing is in accordance with that state-mandated form. Once you have prepared the articles of incorporation, you must send it in to the appropriate state agency along with the state’s filing fee. It usually takes the state about two weeks to process the filing of your Church’s articles of incorporation. If you are not comfortable incorporating your Church on your own, then you should consider securing the assistance of an attorney or accountant to prepare your Church’s organizing document.

Once you have incorporated your Church at the state level, the next – and very crucial – step is for the organization to apply for tax exempt status with the IRS as a 501c3 organization. Before we go any further, however, we should note that Churches which meet the organizational requirements of the IRS are automatically deemed tax exempt and need not apply for tax exempt status. Although there is no requirement for a Church to apply for tax exemption with the IRS, Church founders and officials may find it beneficial to obtain formal recognition by the IRS as a tax exempt entity, thus ensuring that the Church can reap all of the benefits and advantages of a federally-recognized tax exempt entity.

Interestingly, the term “Church” is not actually defined under the Internal Revenue Code. However, the IRS has established a set of criteria to determine whether or not an organization qualifies as a Church for federal tax purposes. Accordingly, the following is a list of factors which the IRS looks for in order to ascertain whether your organization will qualify as a Church:

• does it have a distinct legal existence?

• does it have a recognized creed and form of worship?

• does it have a definite and distinct ecclesiastical government?

• does it have a formal code of doctrine and discipline?

• does it have a distinct religious history?

• does it have an established membership?

• does it have an organization of ordained ministers trained in religious instruction?

• does it have an established place of worship?

• does it have a religious literature of its own?

• does it have regular congregations and religious services?

While the above criteria, taken as a whole, might seem difficult to satisfy, the IRS does not necessarily require each and every of the foregoing factors to be literally present for an organization to successfully qualify as a Church.

To apply for tax exempt status, the Church must complete and file Form 1023 with the IRS. You can access the form by contacting the IRS or visiting their website at http://www.irs.gov. Once the form 1023 is filed with the IRS, usually within about 3 – 5 months thereafter, the organization will receive a Determination Letter in which the organization is recognized as a tax exempt 501c3 organization. It is also possible that the IRS could deny tax exempt status for failing to meet the requirements of a Church organization as determined by the Internal Revenue Code.