Can Religious Organizations Become Tax-Exempt?

In Section 501(c)(3) of the Internal Revenue Code, one of the exempt purposes that is specified is “religious.” Because of constitutional issues, Treasury Regulation doesn’t have a precise definition of “religious” like other functions such as charitable, educational, or scientific.
According to the IRS, the First Amendment typically prohibits the Internal Revenue Service from judging what can or cannot be a religion. As far as tax-exempt groups are concerned, the IRS lists the following as 501(c)(3) religious organizations:

  • Churches
  • Nondenominational ministries
  • Integrated auxiliaries of churches
  • Conventions and associations of churches
  • Interdenominational and ecumenical organizations
  • Other entities with the principal purpose of studying or advancing religion

The IRS also grants 501(c)(3) exemption status for religious organizations that primarily participates in the following activities:

  • Distributing a newspaper devoted to religious news, articles, or editorials
  • Organizing religious retreats for diverse Christian denominations where members use recreational facilities for limited amount of time and free of charge

Because 501(c)(3) regulations state that organizations must operate exclusively for one or more exempt purposes, it is possible for religious groups to not qualify for exemption status if they significantly endorse a nonexempt purpose. For instance, the following activities can cause a religious organization to be ineligible for tax exempt status:

  • Producing literature for profit that has little to no connection with the religious beliefs of the organization
  • Conducting a religious retreat facility that caters to recreational and social activities rather than religious

It’s also common for organizations to have activities to serve more than just one purpose. For religious groups, they can also qualify for 501(c)(3) status as an organization operating primarily for educational or charitable purposes.

Churches are typically different from other types of religious organizations – the federal government automatically recognizes them as tax-exempt without reviewing a Form 1023. But there are various conditions that the IRS considers when determining a church for federal tax purposes. These are, but not limited to

  • An established place of worship
  • A formal code of doctrine and discipline
  • A recognized belief and form of worship
  • A regular congregation of religious services
  • A distinct legal existence of the organization
  • An organization comprised of ordained ministers
  • A precise and accurate clerical government and religious history
  • A membership system exclusive of any other churches or denomination

Like many other tax-exempt organizations, the IRS still requires churches to follow standard 501(c)(3) regulations such as no private inurement and no significant lobbying. The main difference between churches and other tax-exempt groups is that churches are not required to file an annual 990 form. For churches that choose to submit a nonprofit tax return, your gross receipts will determine which 990 form to file.

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