Should Your Church File Form 1023?

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

Under the heading, Mandatory Exceptions, the U.S. Tax Code states that churches, their integrated auxiliaries, and associations of churches are exempt from the requirement to file for determination and recognition of exempt status. Also exempt are organizations taking in $5,000 or less in gross receipts annually.

This means that "churches, interchurch organizations of local units of a church, conventions or associations of churches, or integrated auxiliaries of a church, such as a men's or women's organization, religious school, mission society, or youth group" are already by law exempt from taxation. The same notation is made in the instructions to the September, 1990, version of Form 1023.

PLEASE NOTE: Churches do not have to file Form 1023 requesting tax-exempt determination under 501(c)(3)! By law churches are exempt from filing the form -- they are by statute already "501(c)(3)" organizations.

But other religious nonprofits, such as evangelistic associations, free-standing schools, and religious charities must file Form 1023 to gain official determination of exempt status. There is no exemption for religious organizations organized and operating separately from churches.

Due to changing attitudes toward churches and religious organization, combined with the likelihood that applications for official determination may become more difficult to file, it may be advisable for most churches of more than 100 members which have been in existence at least three years to file for official determination.

Churches may find it advantageous or even necessary to file Form 1023 to request IRS determination of exempt status. Churches in the following circumstances should carefully consider filing for IRS determination of exempt status:

• Non-denominational or independent churches and churches affiliated with denominational associations such as the Southern Baptist Convention or the Assemblies of God.

• Any church or association of churches planning to license and/or ordain a significant number of ministers of the Gospel, especially when these ministers may be likely to apply for exemption from Self-Employment taxes.

• Any church or association of churches planning to charter a significant number of new churches in the United States under the protection or "covering" of your church. In this instance a Group Determination Letter may be required.

• Any church or association of churches planning to commission and send out missionaries, evangelists, and other ministers not limited to the scope of a local fellowship.

• Any church or association of churches planning to solicit and/or receive large donations from persons and businesses outside your church family.

• Any church or association of churches planning to begin and/or operate a five-day academic school for the general academic education of children.

• Any church or association of churches planning to begin and/or operate a medical clinic or other outreach ministry not traditionally associated with the ministry of a local church.

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NOTE: This web page is designed to provide accurate and autoritative 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 professonal 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 35403. 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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