The Church and the IRS

The federal government seeks to verify the tax-exempt status of each nonprofit organization which does not pay income tax and which provides donors with a deduction from income taxes as provided in §501(c)(3) of the Internal Revenue Code, 1986. This activity is to make sure that only legitimate deductions and exemptions are taken. Certain documents must be maintained to verify the nonprofit and therefore tax-exempt status of the organization.

In general, the IRS seeks to establish six criteria when dealing with exempt nonprofit organizations, including churches:

  1. The organization is incorporated or has some form of legal status.
  2. The organization is organized exclusively for exempt purposes.
  3. The organization is operated exclusively for exempt purposes.
  4. None of the organization's assets inures to the benefit of private individuals.
  5. The organization does not engage in substantial efforts to influence legislation.
  6. The organization does not participate to any extent in a political campaign (including the distribution of literature) on behalf of or in opposition to any candidate for public office.

Because the Internal Revenue Code fails to provide a verbatim definition of a church, the IRS developed a list of 14 "criteria" which, at least in the estimation of the IRS, constitutes a church. These criteria have been used and recognized by the courts in a number of cases involving churches. They are:
  1. Legal existence.
  2. Officially recognized creed and form of worship.
  3. Distinct ecclesiastical government.
  4. Code of doctrine and discipline.
  5. Distinct religious history.
  6. Membership not associated with another church.
  7. Organization of ordained ministers.
  8. Ordained ministers serving after completing a required course of study.
  9. Disctinct literature (other than the Bible).
  10. Established place of worship.
  11. Regular congregation.
  12. Regular religious services.
  13. Sunday schools and other training events for the young.
  14. School for ministerial preparation.

While an exact number of these criteria has not been specified as necessary to establish church status, the IRS has generally stated that if an organization can document that it meets a majority of the 14 points, it will be considered a church.

At this point in time churches do not have to file with the IRS for recognition of exempt status. Internal Revenue Code §508(c)(1)(a) exempts churches and their auxiliaries from the requirement to file. But increasing numbers of churches are facing challenges on different fronts, making it desirable for churches to file. Should your church file? Check Filing Form 1023

(Excerpt from The Church and the IRS, by Dr. David R. Allison)

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NOTE:This web page is designed to provide accurate and authoritative information in regard to the material covered. It is published with the understanding that the author/publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

Copyright 1997 Dr. David R. Allison, Tuscaloosa, Alabama. All rights reserved.

David R. Allison, D.Min.
Church Government and Administration Consulting
Post Office Box 1071
Tuscaloosa, Alabama 35403
Telephone: 205/333-8672 Facsimile: 205/339-1581

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