How to Start a Church Without 501c3
How to start a church without 501c3 is an essential feature of information that people who are planning on instituting a church should have.3 min read
2. Tax Returns
3. The Tricky Exception
5. 14/15 Point Test
Updated November 2, 2020:
How to start a church without 501c3 is an essential feature of information that people who are planning on instituting a church should have. A 501c3 status may or may not be necessary for starting a church, depending on how the people planning on starting the church intend to run it.
The Legal Limits for Churches
The law requires churches to operate mainly for religious reasons. That means they must steer clear of political lobbying and from officially endorsing any particular candidate running for public office. Furthermore, churches that openly speak against anything the government legalizes, even declarations considered immoral by the church system, such as same-sex marriage, abortion, and euthanasia, will forfeit their tax-exempt status.
Churches are mandatorily excused from filing tax returns. Apart from being absolutely unnecessary for churches to file for 501c3 status, doing so needlessly puts them under legal obligations to the IRS. Steve Nestor, a senior revenue officer of the IRS, expressed surprise that churches seek the permission of the government to be excused from paying taxes they didn't owe in the first place.
When churches file for 501c3 status, they're applying for a status they already have. Nestor and his colleagues have wondered why churches apply to be regulated by the IRS, which most Americans wish they didn't have in their lives. Some churches simply may not realize what an amazingly advantaged status they have.
The Tricky Exception
While it's true churches are excused from paying taxes without an official application for 501c3 status, the consequences of not acquiring 501c3 status are easily misinterpreted and can be injurious to the church. The problem stems from insufficient knowledge of the clergy about 501c3 status. Unfortunately, there's a widespread myth among the clergy about a 508 church status, which is believed to be the status of a church outside the jurisdiction of the law. However, that doesn't exist.
Conversations with church leaders reveal many have been misinformed by fellow church leaders or have read something from an unauthentic website about 508 status without verifying sources and authenticity. It's true that section 508c1A relieve churches of the duty of applying for 501c3 tax-exempt status. But it doesn't provide the liberty for any organization, church or not, to make tax-exempt donations without adhering to the requirements of the law under section 501c3.
Applying for 501c3 status isn't compulsory. But failure to do so can result in unfavorable consequences, especially for churches that look forward to receiving tax-exempt donations.
There have been court cases where donors to churches without 501c3 status have suffered unnecessarily. When donors are audited, they must be able to prove the church they donated to is a qualified 501c3 organization. That's the reason many donors may choose to avoid churches without a 501c3 authorization.
Churches that haven't applied for 501c3 status but receive tax-exempt donations aren't in compliance with the law. Churches caught operating without adherence to the law will have their tax-exempt status revoked all the way back to the date they were instituted.
A church that has 501c3 status and is convicted of trying to influence political campaigns, for instance, will have its 501c3 approval revoked. The revocation would go back to the beginning of the tax year when it was discovered to be out of adherence to the law. But without a 501c3 status, the revocation would go back all the way to the date it was instituted.
14/15 Point Test
The word “church” doesn't have an official definition in the tax code. When the Internal Revenue Service looks at a 501c3 application for churches, it applies a set of criteria called the 14/15 Point Test. This test helps the IRS and courts determine whether an entity should be categorized as a church for tax reasons. Some points have greater gravity than others. The following are some of the points:
- Is the church a distinct legal entity? Does it have its own Employer Identification Number (EIN) as a corporation?
- Does the church have a pastor of its own or a board of its own?
- Does the church have its doctrines, code of conduct, and disciplinary principles?
- Does the church have its own place of worship, such as a public venue for regular worship sessions?
- Does the church have more than 20 consistent members? Are many families represented in its congregation?
- Does the church convene regular worship sessions?
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