Q&A #82 – Should a church file a Form 1023 for recognition of 501(c)(3) status?

Question: I am working with some friends and family members to form a new church. I have been told that churches are not required to submit an application to the IRS in order to have 501(c)(3) status. Is it recommended to submit an application to the IRS anyway?

Answer: It is true that churches, synagogues, temples, mosques, and other places of religious worship are not required to file a Form 1023 with the IRS to be considered tax-exempt under section 501(c)(3) of the Internal Revenue Code, unlike virtually all other types of nonprofit organizations. However, there are good reasons to consider filing a Form 1023 anyway to receive official documentation in the form of an IRS determination letter of 501(c)(3) status.

The rules regarding the requirement to file a Form 1023, and the exception for churches, are set forth in section 508 of the Internal Revenue Code and section 1.508-1 of the Treasury Regulations. Under these rules, nonprofits will generally not be considered tax-exempt under section 501(c)(3) unless they submit a Form 1023 application that is approved by the IRS, but this requirement does not apply to “churches.” The definition of a “church” is a complicated issue, but a good summary of the law that has evolved in this area is available on the IRS website.

Planning Tip – Churches are generally exempt from the requirement to file an annual Form 990, but some churches decide to do so voluntarily in order to promote transparency and accountability and to show its members and the general public the good work done by the church on a regular annual basis. Others decline to file the Form 990 to avoid the time and expense of preparing the form and the increased scrutiny from the government and the general public. Give this decision careful consideration, as the choice of whether or not to file Form 990 will have a major impact on the future governance and culture of your church.

Despite this exception, many churches do file a Form 1023 because having official IRS approval is the only way to provide assurance to members and the public that their tithes and donations are eligible for the charitable deduction. In addition, filing a Form 1023 will make it much easier to qualify for tax exemptions under state law such as property tax and sales tax exemptions, which sometimes require an IRS approval letter as a prerequisite. Lastly, having IRS approval of 501(c)(3) status will help your church to qualify for grants, bulk mailing rates, and other benefits provided only to officially recognized 501(c)(3) organizations.