Mary Deckert
Mary Deckert has over 40 years’ experience in multiple communications and strategic functions including leadership, marketing, crisis management, creative and problem-solving roles in government and business (both private and public sectors); for-profit and ... read more
How to Get 501c3 Status – The Ultimate Guide for Churches
How do I get 501c3 status for my church? If you’re a church planter or church leader asking yourself that question, this guide is the place for you!
We’ll start with one of the biggest questions- how do you know if you need to get 501c3 status? You’ll also discover how much it will cost to get a 501c3 status for your church. And- you know CMU!- we’ll make sure you have all the resources you need to make an informed decision.
We want to do the research for you so you can quickly and easily make decisions that help your church achieve its God-given mission and purpose.
Does my church really need to get its own 501c3 status?
This may be one of the first and most critical questions any church faces. It may seem like “no big deal,” when you’re in the middle of ministry, but the answer has many ramifications. It’s not an exaggeration to say it affects virtually all church operations over the long haul.
We can all agree that tax exemption under the Internal Revenue Code section 501c3 provides a number of benefits, including:
- Exemption from Federal income tax
- Tax-deductible contributions
- Possible exemption from state income, sales, and employment taxes
- Reduced postal rates
- Exemption from Federal unemployment tax
- Tax-exempt financing
But those benefits are all afforded to churches just by their very nature. So, let’s start by saying there is no legal reason for a church to get a formal 501c3 recognition because the IRS automatically considers a church to be exempt from taxes. That is to say, churches that meet the requirements of IRC Section 501c3 are automatically considered tax-exempt by the IRS and are not required to apply for and obtain recognition of tax-exempt status. So as long as you meet the IRS requirements to be called a “church” you’ll be treated as tax-exempt by the federal government.
But that’s just the federal government.
Many churches seek individual recognition of tax-exempt status from the IRS (even though it’s not required) because this recognition assures church leaders, members, and contributors that the church is tax-exempt and qualifies for related tax benefits.
In other words, if you want to reassure your donors that they can write off their gifts to your church, you’ll want to make that official by getting a 501c3 status for your church.
Churches are exempt under the tax code as taxable entities by the sheer fact they are churches. However, third parties, including your donors, will want to know you have complied with the IRS tax-exempt code. Without filing for 501c3 status, each church has to prove they meet the requirements for each donor. More on that shortly.
IRS “Church” Definition
To be tax-exempt under section 501c3 of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501c3, and none of its earnings may inure to any private shareholder or individual.
How do you know if you meet the requirements? While there is no official definition of “church” in the tax code, the IRS uses a set of criteria when it examines a 501c3 application for church status, essential guidelines to help the IRS and courts determine which organizations can be classified as a church for tax purposes. Some of those criteria include:
- A distinct legal existence—Does your church have its incorporation and Federal Employer Identification Number (EIN)?
- A definite and distinct ecclesiastical government—Does your church have its own pastor, minister, or ecclesiastical board?
- A formal code of doctrine and discipline—Does your church have a set of doctrines and beliefs that your congregants are expected to follow?
- Established place of worship—Do your worship services take place in a stable location, preferably a public facility instead of one’s home? (For all-digital churches, this could be an issue – more on that later.)
- Regular congregation—Are your church services regularly attended by the same group of individuals? Are there multiple families?
- Regular religious services—Does your church have regularly scheduled worship services?
Other attributes the IRS considers include:
- Recognized creed and form of worship
- Distinct religious history
- Membership not associated with any other church or denomination
- Organization of ordained ministers
- Ordained ministers selected after completing prescribed courses of study
- Literature of its own
- Sunday schools for the religious instruction of the young
- Schools for the preparation of its ministers
Your place of worship does not need to meet all 14 in order to be considered a church. The IRS looks at your organization’s attributes, together with other facts and circumstances, when they decide if they will legally consider you to be a church for federal tax purposes. As you can tell from the lists above, the tax code isn’t exactly up-to-date. It doesn’t reflect many modern churches.
What is the difference between a nonprofit and a 501c3?
These terms are often used interchangeably, but they mean different things.
Nonprofit means the entity, usually a corporation, is organized for a nonprofit purpose. It doesn’t have owners or shareholders who profit off of the work of the corporation. A nonprofit is a designation of a corporation. Nonprofits can be taxed.
If the nonprofit isn’t seeking donations, they don’t need 501c3 status (since no donors will need a tax write-off). Nonprofits without 501c3 can still receive benefits from their state, such as qualifying for grants or paying no sales taxes.
On the other hand, a 501c3 is exempt from paying federal taxes – the designation means the IRS recognizes it as being tax-exempt by virtue of its charitable programs.
What about Umbrella 501c3 status?
When a denomination or parent organization applies for a special group exemption, it’s called an umbrella 501c3 exemption. Individual churches don’t have to apply to the IRS. They’re covered under the group status when the parent organization gives an annual accounting to the IRS. You still need to incorporate and adopt your own bylaws, but you get a copy of the parent organization’s 501c3 Exemption Letter. You’ll also get something on the organization’s letterhead that says, “they’re one of us.”
What’s the benefit of having an umbrella 501c3 status?
Particularly for church plants, going this route is incredibly faster than trying to get your own designation. You can also always get your own individual exemption later, if you decide you want it.
What are the detriments of having an umbrella 501c3 status?
As mentioned above, it may create confusion when you ask for donations. Donors may not understand why the name on the determination letter doesn’t match your church. Or, they may search for tax-exempt status confirmation online and are unable to locate your church specifically.
There may be other considerations as well. For example, the parent organization may require regular (monthly or annual) status reports, a possible administrative burden. You may also need to share some resources with the parent organization, an ongoing budget cost.
How to Get 501c3 Status for your Church- Possible Routes
In summary, there are three ways to get a 501c3 exemption for your church:
- Rely on the automatic blanket exemption recognized by the IRS
- Apply for your own individual determination letter using IRS Form 1023
- Use an umbrella 501c3 exemption
Advantages of Getting Your Own 501c3 Status
Why should a church go through the red tape of an individual designation if it isn’t necessary? There are a few basic advantages to a church having its own 501c3 designation:
1) Donor Assurance
You’re not dealing with the IRS, you’re dealing with the public. Unfortunately, he public doesn’t understand the nuances of the tax code. Having 501c3 status assures your congregation and donors that the church is recognized – officially – by the IRS as legitimate and tax-exempt, thus guaranteeing their donations and tithes will be tax-deductible.
“Just walking into a prospective donor’s office, if you say ‘I’m a church so I’m automatically a 501c3,’ they’re just going to roll their eyes at you and say ‘yeah, yeah, whatever,’” said Attorney Trinity Jordan of Launch My NonProfit, a legal firm specializing in helping churches navigate the IRS process. “That’s the truth – having that seal, that stamp, helps tremendously.”
Why Should we get our 501c3 status?
Why should your church should get its 501c3 designation? So you have something to give to the public. Whether it’s an individual donor, an organization, or your local governments – you want to be able to verify your tax-exempt status.
Bottom line, every taxpayer has the burden to prove their donations went to legitimate tax-exempt organizations. Anything you can do to make that easier will increase goodwill, and ultimately, donations to your church.
501c3 status increases the transparency of the organization, as the church becomes part of the searchable IRS database of exempt entities.
For churches that provide missions work or children’s programs, this transparency can be a great way to let donors know that their contributions are going to a worthy and legitimate cause.
Often, people want to verify an organization claiming to have a 501c3 tax exemption is actually exempt. The IRS Nonprofit Charities Database has a tool called The Exempt Organizations Select Check Tool, something well known to the public and prospective donors. It’s often the first stop to check on the legal status of an organization they are considering donating to. This tool allows people to enter the name of an organization to see if the organization is exempt or not. If you are utilizing a group or umbrella 501c3 designation, your church would not come up in such a search.
2) Access
A group umbrella 501c3 designation can work for donor assurance, although not always as noted above. However, sometimes, organizations or individuals will require you to have a separate designation with YOUR CHURCH NAME anyway, not the group’s name. Some that are more common among churches:
- Rental Issues: If you are covered under a group umbrella; a rental venue, like a local school district, may say, “This says the group is exempt, it doesn’t say YOU are exempt” – that can lead to a huge argument as you try to prove you are legally covered, even when lawyers present your case. If you’re a church plants without your own building, this could be an issue. Churches that utilize public venues for large outreach events can also be waylaid by it.
- Open Door Access – If you plan to interact regularly with local officials – school boards, city councils, county boards – they care about the 501c3 designation.
We might not care about it, the federal government doesn’t care about it, but the people you interact with locally care deeply about it. Having your own 501c3 status will provide you access to critical areas later on, and open doors you couldn’t open otherwise.
3) Additional Financial Benefits
501c3 organizations qualify for a variety of discounts and benefits. Many companies offer discounts for established nonprofits like churches but require 501c3 status to ensure legitimacy. Examples include:
Google offers $10,000 free advertising per month to qualifying 501c3 nonprofit organizations, churches included. That alone should be enough for a church to get its own designation. Get more information about this free advertising for churches in CMU’s Ultimate Guide to the Google Ad Grant.
Some states provide additional tax exemptions for established 501c3 organizations like exemption from state sales tax or state employment tax, freeing funds to spend on services, ministries, and programs, rather than on taxes.
The US Postal Service offers discounted rates for mailing and postage for established 501c3 organizations.
Most tech companies (like Microsoft and TechSoup) offer discounts to nonprofits as do office supply stores and others. Most require a 501c3 designation as proof of your tax-exempt status.
If you get your 501c3 status, remember to ask for discounts wherever you spend money, even if discounts are not “officially” advertised. You’ll be pleasantly surprised at how many there are and how much you can save!
Disadvantages of Getting Your Own 501c3 Status
Like the advantages listed above, there are basic disadvantages to consider if you’re thinking about applying for the 501c3 designation – cost, red tape, and public scrutiny/transparency.
Cost – in time and money
The biggest disadvantage to becoming a 501c3 nonprofit is the expense. It takes time and money (up to a year and between $1000-$4000) to go through the IRS process. You’ll have to pay fees to apply for incorporation and tax exemption at both the state and federal levels. The use of an attorney, accountant, or other consultants may also be necessary, or at least recommended to help you wade through the red tape. And the wait is sometimes 9-12 months for the IRS to respond.
But those disadvantages can be minimized when you partner with organizations adept with IRS interaction that have the heart to help the church. See the “How CMU Can Help” section below.
Red Tape
Each state has a distinct process of filing for incorporation (which has to be done before you can file for 501c3 status), and its own process for granting nonprofits exemption from state taxes. So, there may be additional hoops to go through at the state level.
The 501c3 federal tax exemption is for FEDERAL taxes. However, most states will use what the IRS does in its exemption process (because it is the most intensive) to grant an exemption for its state.
Nonprofits are required to file annually with the IRS, but churches, at the time of filing for a 501c3 designation, can request to be exempted from filing an annual 990. Churches are the only organizations who don’t have to file annually! So, there are no ongoing costs due to red tape federally.
However, as exempt corporations, nonprofits (including churches) are subject to laws and regulations, including their own articles of incorporation and bylaws which may have ongoing reporting requirements.
Scrutiny by the public/transparency
A nonprofit is dedicated to the public interest; therefore, its finances are open to public inspection. The public may obtain copies of a nonprofit organization’s State and Federal filings to learn about salaries and other expenditures. As a church, this one is probably the smallest concern, especially if you’re already reporting to your congregation.
How to Get 501c3 Status for your Church
You must be a nonprofit organization to apply for 501c3 status, so filing your articles of incorporation with your state is the first step. Then, a nonprofit corporation must apply to the Internal Revenue Service for recognition of tax exemption by filing IRS Form 1023.
Relatively speaking, forming the corporation is fairly straightforward (assuming that one completely understands the process). In brief, it involves the following;
- Incorporating with your state
- Getting a Federal Employer Identification Number (EIN)
- Establishing a Conflict of interest clause for board members
- Developing Bylaws
- Developing Articles of Incorporation
That’s if you’re not an established church- for example, if you’re a church plant. If you are already an established church, you need to provide all those items to the IRS and go through the process to prove your existence. Typically it’s gathering things churches already have in various locations. In addition to those things noted above, churches must provide:
- Address of the church
- Names of board members/elders
- Explanation of who you are, where you’re located, and what your purpose is
- Finances for last 5 years (or projected budget for next 3 years if new church plant)
The most difficult thing is taking the information, digesting it, and translating it into bite-size pieces of what the IRS is most interested in. That’s where partnering with an organization experienced and adept at interacting with the IRS on behalf of churches is critical, one that knows the legal specifics and can navigate churches through the legal process.
“It’s not difficult at all, it’s simply gathering the information you already have – whether you’re an older church that’s already incorporated and have an EIN or if you’re new. We ask for what we know the IRS wants and we then take that information, digest it and translate it to what we know the IRS is most interested in,” Jordan explained.
Costs & How Long it Takes to Get 501c3 Status for your Church
The federal application fee (filing fee for IRS Form 1023) is generally $600. There are some state filing fees as well, usually under $200. But professional fees to help you wade through the IRS red tape can run $2,000 – $4,000 in attorney and CPA fees.
According to the IRS, applying for 501c3 status with Form 1023 can take between 3 and 6 months for processing, and it could take up to a year to get a determination letter confirming approval.
Firms that specialize in helping churches apply for and receive 501c3 status say the time is more like 6-9 months currently. But churches need not worry about gaps for themselves or donors because it will be retroactive to the day you incorporate if you’re a new church, and retroactive to the date you filed if you’re an existing church. Remember, every church is already considered a 501c3 nonprofit by the IRS. There is no need to worry about your donors’ ability to write off gifts on their taxes no matter how long the IRS takes to approve your designation.
“At the end of the day, this is all about taxes and the government. They’re not coming after you for taxes,” Jordan said. “They’re looking to make sure you match the requirements for the designation; so it’s all very regulatory. But they’re also looking to see, are you trying to be fraudulent in trying to meet those requirements. Is there something nefarious going on here? We’ve done this so many times, we know what the questions are going to be, we know where they will have hang-ups so we cut them off before they happen.”
Services and Resources for Getting 501c3 Status
There’s a multitude of resources available for getting your 501c3 status– a Google search of “help getting 501c3 status” generates 52,500 results! But what’s necessary and what’s worthwhile is a whole other ballgame.
Navigating the IRS red tape on your own is certainly doable, but often takes much longer and can lead to mistakes that end up costing more in the long run. So, getting help from an experienced law firm does make sense. However, it only makes sense if the law firm specializes not only in the tax code but in churches as well.
The legal profession is a very specialized field – a firm that practices family law may not be the best choice for nonprofit legal issues. Find a firm that specializes in churches – it will save you time and money long term.
Secondly, make certain the firm or entity you partner with has legal expertise on staff, not simply people who help you fill out and file the forms. There are many legal nuances that arise that require professional expertise.
For example, a church that meets mainly online needs someone who can legally explain how that meets the IRS definition of “an established place of worship.” The tax code is old and doesn’t, technically, recognize the changes we’ve experienced in what “church” is today, even before COVID hit and changed everything. If your church is all online or a hybrid of online and in-person, technically you don’t meet the “definition” of what the IRS considers a religious entity. Helping a church think through how it defines itself in terms of the tax code is critical to succeeding with the 501c3 process.
Finally, it is important to work with an organization or firm that has a good reputation with the IRS itself and a strong history of success.
Why? Because when questions arise, as they frequently do, having someone the IRS knows, trusts, and understands is priceless in navigating those questions. “We want them to know if my name’s on the application, they can trust us and we’re vouching for the applicant organization,” Jordan explained.
“I usually get called in on the back end from churches who’ve worked with firms on getting their 501c3 status who got into a huge ‘pickle,’ and when we drill down to figure out what happened, it’s because they weren’t legally filed correctly. I’ve seen huge harm arise from that,” Jordan said. “So my advice to any church looking for help is to make sure you’re working with real experts, not just people that have a business online or who say they have a heart for churches. Or even attorneys in your congregation who don’t specialize in this area of the law.”
How Can CMU Help You Get 501c3 Status?
CMU believes so strongly in the power of the 501c3 designation that they’re offering to cover the cost for any church willing to commit to one year of membership in its Grow Program. CMU has entered into a partnership with Launch My NonProfit, a firm run by a former U.S. District Attorney partnered with a lawyer who used to work at the IRS, to handle the application process for CMU Grow churches (they also have extensive experience in church plants with a staff of over 400 attorneys across the United States). Why? Because everything CMU does to bring churches to the next level in their marketing process is so much easier and more effective when a church has the 501c3 designation – things like the $10,000/month Google Ad Program.
Helping a church get its 501c3 status is the first step of the CMU Grow Program Launch Track, but it’s only the first step. Here’s what else you’ll get:
- Getting your 501c3 Status (Legal, IRS, and State Fees included) – this is the “Launch Track” part of the program.
- $10,000/month Google Ad Grant Program Management
- Facebook Ads (Prayer Ads + Invite Ads)
- Paid Google Ad Management
- CMU Enrollment (You and your team)
- Private FB Group
- Church Website (Omega)
- Daily Social Media Guides
- Weekly Group Coaching Calls / Office Hours / Bootcamps
- Unlimited Access To Every Marketing Campaign CMU has Ever Created AND All Future Campaigns
How to Proceed
Currently, the Grow Program is sold out, but you can join the waitlist here to get in as soon as an opening occurs. In the meantime, you can join CMU and benefit from the huge library of resources. Apply for a CMU Scholarship here.
So Why Should Your Church Get its 501c3 Status?
There is some misinformation circulating about the tax code and its effect on churches. Some churches believe they don’t need the 501c3 status because they are a Section 508 church (Section 508 is the provision of the IRS code to which churches are described as being exempt from IRS taxes whether or not they apply for official status). When individuals argue they are a 508 church, they are simply saying they don’t need to pay federal income taxes. The rest of the benefits afforded to 501c3 organizations with determination from the IRS are not automatic to churches. If you want those, you must file for a 501c3 determination.
The problem is that the burden is still on each and every church to prove it is a 501c3 entity. An actual court case involving this issue says “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 501c3.”
As we stated previously, third parties (Google, Apple, etc.) want proof that you have met the requirements of section 501c3 and will require a determination letter before they donate or give you discounts. They can deny you donations or grants based on the fact that you don’t have that determination letter.
As a wise man once said, it is better to have a tool and not need it, than need a tool and not have it.
Getting your church’s 501c3 status is not about giving into government restrictions. It is a God-given tool that removes unnecessary pressure from your church and your donors.
Resource Links:
IRS Resources
- 501c3 Tax Guide for Churches & Religious Organizations
- 501c3 Requirements
- Churches Defined by IRS
- Organizational Test for 501c3
- Form 1023
- Applying for Tax-Exempt Status
- Nonprofit Charities Database tool: The Exempt Organizations Select Check Tool,
- Public Disclosure and Availability of Exempt Organizations Returns and Applications
CMU Resources:
- Ultimate Guide to the Google Ad Grant.
- Grow Program
- Grow Program Waitlist
- Launch My NonProfit legal team partner
- Apply for CMU Scholarship
Articles
Church Planting Tactics:
Passion for Planting Free Resources: Church Bylaws Template
Charitable Allies: Does My Church Need A 501c3?
Outreach Magazine Articles:
