As a church leader, your ministry’s focus is likely on reaching the unchurched in your community—not studying legal tax classifications. But tax exemption is an important status that can greatly benefit your church, so it’s worth understanding whether or not you should apply.
If you want to obtain 501(c)(3) status for your church, you’ve come to the right place! In this guide, we’ll break down everything you need to know about tax exemption, starting with the definition of 501(c)(3) status.
What is 501(c)(3) status?
According to the IRS, 501(c)(3) status refers to tax-exemption under section 501(c)(3) of the Internal Revenue Code, which allows eligible organizations to receive tax-deductible contributions. To be eligible, organizations must:
- Be organized and operated exclusively for one of the exempt purposes established in the code.
- Not benefit private interests in their operations.
- Not attempt to influence legislation or participate in any campaign activity for or against political candidates.
If you’re thinking the above checklist describes your church, you’re probably right! Churches are inherently religious organizations, don’t benefit private interests, and rarely participate in political activity—so they automatically qualify to be 501(c)(3)s. Plus, churches that belong to a denomination may already be covered by the denomination’s tax-exempt status, meaning most churches fit into this category. However, if you’re not already covered by your denomination’s umbrella, then this article is for you.
Do churches need to apply?
Churches are automatically considered 501(c)(3) tax-exempt charities—so why bother applying? Foundation Group’s guide to 501(c)(3) status for churches explains the benefits of filing for official determination:
- Proof of satisfying necessary requirements: By operating under an assumed 501(c)(3) status, your church will have the burden of proof that you satisfy the requirements. In contrast, applying for 501(c)(3) status and obtaining a determination letter proves that your church qualifies.
- Tax-deductible donations: Donations to your church can be proven tax-deductible if you have a determination letter. To increase the chances of donors being able to deduct their gifts, Double the Donation’s donation solicitation guide notes that they should also receive a donation receipt from your organization including the details of their contribution.
- Property tax exemption for land and facilities: Official 501(c)(3) determination can help your church obtain property tax exemption for its land and facilities.
In other words, your church may have all the rights of other charities with 501(c)(3) status, but official determination adds credibility to its tax exemption. This means your church’s donors can prove your church is a qualifying charity, whereas the IRS won’t be aware of your church if you operate under an assumed status.
How to apply for 501(c)(3) status
If you’ve determined that your church is eligible to apply for 501(c)(3) status and are ready to reap the benefits of official determination, use the following steps to get started.
- Create your governing documents.
Create rules for how the church will operate through the following documents:
- Bylaws, which should lay out expectations for your church’s leadership and mission.
- Church constitution, which might include your church’s purpose, doctrine, and procedures.
- Statement of faith, which outlines your church’s beliefs.
These governing policies will be used again in the rest of the 501(c)(3) application process, so be sure to keep everything consistent! You can also seek input from your congregation when creating these documents.
- Incorporate your church.
The process of church incorporation involves filing the Articles of Incorporation with the state your church is based in. You’ll need to provide basic details about your church, as well as the guidelines established in your governing documents. This may include:
- Statement of indemnification
- List of prohibited activities
- Dissolution clause
While this step is optional, it provides many benefits to churches seeking 501(c)(3) status. Primarily, incorporation establishes your church as a legal entity, which protects founding members from personal liability for the church’s actions. Also, as your church expands, incorporation makes it easier to buy property or enter a contract so that you can access the resources needed to accommodate your growing congregation.
- File Form 1023.
Form 1023, also referred to as the Application for Recognition of Exemption, is the form you’ll need to complete to apply for 501(c)(3) status.
You may apply for 501(c)(3) status as part of the church planting process or after your church has already operated for years. If your situation is the latter, be sure to revisit your governing documents and organizational guidelines before filing. Form 1023 requires that you include this information, so it’s important that these documents and guidelines still represent your church’s values.
In addition, you’ll also need to include:
- The date of your church’s creation
- Your church’s organizational structure
- A description of your past, present, and future activities
- Details about staff compensation
- Financial data for recent years
If your organization is a church and meets the necessary requirements, you should have no trouble receiving a determination letter from the IRS. However, not all religious organizations are considered churches, so make sure that your organization can accurately be classified as a church. For example, a women’s ministry that hosts annual conferences might legally be considered a religious charity.
Although Form 1023 can be submitted online, it could take six months or longer for the IRS to officially approve your application. Some organizations are eligible for Form 1023-EZ, a streamlined version of the application that may take less time to process. Be sure to plan accordingly when applying to account for this timeframe.
The best way to ensure your church is protected, compliant, and tax-exempt is to officially apply for 501(c)(3) status. If you need help with the process, reach out to an expert who specializes in nonprofit compliance. They’ll be able to help you follow any state-specific requirements and submit an application that’s sure to be approved.
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We are thinking of buying a church property but we are not 501C3. Do we need the 501C3 to buy a property to build our church? How’s the ownership if we are not 501C3 certified?
That’s really an attorney question, but I don’t believe you don’t need a 501C3 to purchase property. The primary advantage of a 501C3 designation is (1) Receive charity donations that can be written off on the donor’s taxes; (2) Avoid paying taxes, including levied property taxes, sales taxes, etc. IF you are under the umbrella of a denomination, you can typically use their 501C3 designation as yours. If you’re a non-denom, then you’ll probably want to invest in getting one.
Our church has recently announced that the church is being incorporated. This has brought some very dissatified comments from some members. My questions are: 1. This church has been in operation for some 25 years, what would be the need to incorporate now.? We currrently have six (6) separate locations all coming under the same Lead Paster and Administration.
2. Will this afffect the 501(c) 3 status of the church?
3. Does incorporating the church make the church and its pastors and the messages they preach come under mandatory scrutiny by the government?
4. If the church is incorporated, what does this mean for its members? Are they subject to a paycheck?, Are the members considered employees of the church? Is a portion of our tithes going to pay the churches taxes? (This may be a “cross-over” question, sort to speak to the tax exemption status.
Thank you for your time in answering my questions.
Good questions. First, let me remind you I’m a pastor, not an attorney, so although I stand by my responses and they’ve been well researched, don’t construe any of this as legal advice! 🙂
Honestly, it’s natural for such a significant administrative change to raise concerns, especially when people don’t have all the details. Let me address your questions one by one:
1. Why Incorporate After 25 Years?
Incorporating a church, especially one with six separate locations, provides significant legal and administrative advantages. As an unincorporated entity, the church operates more like a collection of individuals, which could expose the leaders and members to personal liability in legal matters. Incorporation provides a layer of protection by creating a distinct legal entity, shielding individuals—such as pastors, board members, and members—from personal liability. This step is particularly important for multi-campus churches, where operations are more complex, and the risks are higher.
2. Will This Affect the 501(c)(3) Status?
No, incorporating the church will not affect its 501(c)(3) tax-exempt status. Churches are automatically considered tax-exempt under U.S. law, whether incorporated or not, as long as they meet the IRS criteria for a religious organization. Incorporation is a legal status under state law, while 501(c)(3) status pertains to federal tax law. The two operate independently, so incorporating the church will have no effect on its tax exemption.
3. Does Incorporation Mean Government Scrutiny or Control?
Incorporating your church will not give the government any more authority over the church than it already has. The First Amendment of the U.S. Constitution guarantees religious freedom, including the right to preach and teach without government interference. Incorporation simply provides legal protections and structure; it doesn’t change the government’s role. The church remains free to proclaim its beliefs, just as it has always done.
4. What Does Incorporation Mean for Members?
Incorporation does not change the role of members in the church. Members are not considered employees, so they will not receive paychecks or be treated as staff. Likewise, your tithes will not go toward paying taxes because the church’s tax-exempt status remains intact. Incorporation doesn’t alter the financial or spiritual relationship between the church and its members—it simply protects the church as a legal entity.
I hope this clears up your concerns, but feel free to follow up with any additional questions!