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Sanford Levings

"Hi, I’m Sanford Levings, President of MinistryCFO and author of this blog. The purpose of our blog is to share with you information and insights that we gather from working with and listening to our clients and partners, located throughout the country." read more

Why Churches Don’t Need to File Form 1023

Form 1023 A.K.A. IRS Tax Exempt Determination Letter

We get this question asked on weekly basis, no kidding. Here are three variations of essentially the same question:

  1. We need to file for that IRS tax-exempt determination letter. Can you do  that for us

  2. We need to file that IRS form that states we’re tax-exempt, right?

  3. Is there anything we need to file in order to claim tax-exempt status?

Here’s the tax code in layman’s terms:

  1. Churches claiming federal tax-exempt status, [ a.k.a 501(c)(3) status ] are not required to file Form 1023 or any other federal tax-exempt application.

  2. A church must file articles of incorporation within the state in which it is operating. The articles of incorporation must state that the church is organized and operated exclusively for religious purposes.

  3. A church must file for a federal E.I.N. (employer identification number), which is analogous to a person filing for a social security number.

  4. Ministry organizations, that are not churches, are required to file Form 1023.

  5. As such, it is 501(c)(3) is how a church is organized (see #2 and #3 above) and operational that determines whether or not it should claim tax-exempt, 501(c)(3) status.

  6. Regarding the term operational: Under IRS Section 501(c)(3), organizations are exempt from the tax law as long as they meet the criteria defining a church. An organization must substantially meet fourteen characteristics to be tax-exempt, which include:

    • Organized and operated exclusively for religious purposes.

    • Net earnings must 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.

    • A recognized creed and form of worship.

    • Regular religious services, places of worship and congregations.

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If you are ever challenged about your federal tax-exempt 501(c)(3) status, then you can provide the following response:

Please refer to Internal Revenue Code 6033(a)(3)(A)(i) and Reg. 1.6033- 2(g)(1)(i), which expressly exempts churches from filing Forms 990 and 1023. (Form 1023 is the I.R.S. Determination Letter to which you are requesting.)

As such, 501(c)(3) recognition is not predicated on a church having to make a federal filing. Rather, 501(c)(3) status is predicated on how a church is organized and operational. Specifically, churches must be organized and operated exclusively for religious purposes. This purpose must be stated in the church’s Articles of Incorporation, which is hereby attached. And lastly churches must operate in accordance to the fourteen IRS 501(c)(3) requirements in order to claim 501(c)(3) status.

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Your church needs a CFO on a part-time basis. Let the MinistryCFO team help you address and respond to situations where your church’s tax-exempt status is challenged or questioned.