Does a Church Have to Have a 501c3?

Question: Does a Church need to apply for 501c3?

Answer: While it is true that Section 508(c)(1) of the Code relieves Churches from applying for favorable determination letters regarding their exempt status, there is nothing in Section 508(c)(1) which relieves a Church from having to meet the requirements of Section 501(c)(3). So, in short, a church is NOT required to file under 501(c)(3), but there are several good reasons it should:

Three Benefits of 501(c)(3) Status.

1. Protect your donors. Having 501(c)(3) status provides your Church with written proof from the IRS that your Church is a registered charity. As a result, tithes, offerings and donations will be deductible. In the absence of formal 501(c)(3) status, the IRS is free to challenge the deductibility of all tithes, offerings and contributions and this burden will fall upon your members and donors. In Jack Lane Taylor v. Commissioner, the Tax Court upheld the Service’s disallowance of a charitable contribution deduction because the church could not establish its right to tax-exempt status under 501(c)(3).

2. Sales Tax. Being a federal tax-exempt organization or Church is not the same thing as being exempt from paying state sales tax. Many states do not automatically guarantee sales tax exemption without a 501(c)(3) letter from the IRS.

3. Postal Rates. Bulk mailing rates and most grants will not be extended to your Church or ministry without 501(c)(3) status — a written 501(c)(3) exemption determination letter from the IRS. So, if your Church plans to use the U.S. mail to communicate to its members, a substantial savings opportunity could be lost by failing to file.

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