Why
Every Church Need a 501(c) (3) Tax Exemption
IRS states that there are more churches than any other kind of nonprofit
or for-profit business. Yes, churches are considered businesses and they are
entitled to more benefits than for-profit businesses. Churches should be
operated and manage like all other businesses. IRS 501(C) (3) Tax Exempt status
is a benefit to churches.
General IRS 501(C) (3) Information
Prior to September 9, 2008, the
IRS has two ruling issue to 501(c) (3) applicants, there is a definitive or an
advance ruling. On September 9, 2008, the IRS issued temporary Income Tax
Regulations, which eliminate the advance ruling process for a section
501(c) (3) organization's foundation status. An advance ruling by IRS allow you to operate as a 501(c) ( 3)
organization, but during the fifth year, you will be contact by IRS to see if
you would like to maintain your 501(c) (3) status. If so you will generally
receive a definitive ruling.
Under the new regulations, the
IRS will automatically classify a new section 501(c)(3) organization as a
public charity for its first five years if it can show in its application that
it can reasonably be expected to be publicly supported. After the first five
years, the IRS will monitor the organization's public charity status using the
public support information it reports annually on the Schedule A of its Form 990, Return of Organization Exempt from Income Tax.
Churches
were usually issued a definitive ruling. A definitive ruling means that as long
as you are in compliance you retain your 501(c) (3) status. If you provided
sufficient information to IRS that substantiated that your organization met the
requirements for tax exempt status, the IRS issued a definitive ruling
recognizing your organization as a tax exempt public charity the first time you
apply.
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Under the new regulations, the
IRS will automatically classify a new section 501(c)(3) organization as a
public charity for its first five years if it can show in its application that
it can reasonably be expected to be publicly supported.
After the first five years, the
IRS will monitor the organization's public charity status using the public
support information it reports annually on the Schedule A of its Form 990, Return of Organization Exempt From Income Tax.
All 501(c) (3) organizations
public documents must be made available at the organization’s principal office
during regular business hours. You should keep the IRS definitive ruling
document along with the organization other important documents. You must furnish
copies of the 501(c) (3) application and the most recent annual returns upon
any request.
Congress has
enacted special tax laws applicable to churches, religious organizations and
ministers in recognition of their unique status in American society and of
their rights guaranteed by the First Amendment of the Constitution of the
United States. Churches and religious organizations are generally exempt from
income tax and receive other favorable treatment under the tax law; however,
certain income of a church or religious organization may be subject to tax,
such as income from unrelated business.
Tax-Exemption
Churches
and religious organizations, like many other charitable organizations, qualify
for exemption from federal income tax under IRC section 501(c)(3) and are generally eligible to receive
tax-deductible contributions. To qualify for tax-exempt status, such an
organization must meet the following requirements:
· the organization
must be organized and operated exclusively for religious, educational,
scientific, or other charitable purposes,
· net earnings may
not inure to the benefit of any private individual or shareholder,
· no substantial part
of its activity may be attempting to influence legislation,
· the organization
may not intervene in political campaigns, and
· the organization’s
purposes and activities may not be illegal or violate fundamental public policy.
Recognition of Tax-Exempt Status
Automatic Exemption for Churches
Churches
that meet the requirements of IRS 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.