September 30, 2010

Should Churches Apply for Tax-Exempt Status?

Question:

Should a church apply for Internal Revenue Code 501(c)(3) status? What are the benefits or disadvantages of applying for such status when it is already treated as exempt from income tax?

Answer:

IRS Publication 1828 helps to answer these questions.

One quote:

"Churches that meet the requirements of IRC section 501(c)(3) are automatically considered tax exempt and are not required to apply for and obtain recognition of tax-exempt status from the IRS. Although there is no requirement to do so, many churches seek recognition of tax-exempt status from the IRS because such recognition assures church leaders, members, and contributors that the church is recognized as exempt and qualifies for related tax benefits. For example, contributors to a church that has been recognized as tax exempt would know that their contributions generally are tax-deductible."

A few BIG disadvantages:

The application Form 1023 is 30 pages long and requires a fee. Also, the IRS estimates that it will take in excess of 189 hours for "recordkeeping, learning about the law, preparing the form, and copying, assembling, and sending the form to the IRS."

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