Forming Church Congregations
Should a church group incorporate and obtain tax exempt status under Internal Revenue Code section 501(c)(3)?
This is a frequent point of debate among churches. There are varying opinions about the theological and economic effects—both present and future. A group that incorporates and obtains 501(c)(3) status usually has an easier time assuring those who support it that their offerings will be “tax deductible”—though offerings to churches without “501(c)(3) status” are also “tax deductible”. Incorporation provides certain protections to the personal assets of church leaders, but also creates numerous obligations and potential liabilities for the church and its leaders. Incorporation is distinct from 510(c)(3) tax exemption—it is possible to have one, the other, both or neither.
The IRS publications explain that Churches do not need to fill out form 1023 to become tax exempt--that they are automatically tax exempt. But making tax exemption easier by obtaining a "501(c)(3) status" is also a promise to obey all current and future regulations. These regulations are often somewhat unclear and selectively enforced. Most churches are never affected by them. Others are forced to change their message--or even disband. Should a church congregation place itself under state regulation when it can place itself directly under God? Remember the whole scripture:
And Jesus answered and said to them, "Render to Caesar the things that are Caesar's, and to God the things that are God's." And they marveled at Him (Mark 12:17)
Incorporation is done at the state, not federal level. The members of a church have the right to create it, and it is subject to the Scripture and to God. Whereas states create corporations, and they have the right to regulate them--and sometimes regulate them out of existence!
The IRS section 501(c)(3) and corporations certainly have application for a host of businesses and charities. But they do not make sense for churches, as Jesus said:
...I will build my church, and the gates of Hades will not overcome it (Matt 16:18).
Christ is also the head of the church, which is his body. He is the beginning, supreme over all who rise from the dead. So he is first in everything(Col 1:18)
See the Church Bible articles at right for more information on the biblical basis for church organization.
Legal Status of these Web Pages
The Internal Revenue Service was sued in 2012 by the Wisconsin-based Freedom from Religion Foundation. The suit was settled on July 17, 2014, with the IRS agreeing to process complaints against religious groups ignoring their tax exempt statutes. The lawsuit was in response to the "Pulpit Freedom Sunday" movement launched by Alliance Defending Freedom in 2008, where ministers were encouraged to preach on politically related topics one Sunday per year to demonstrate that freedom. Articles are available here: Life Site, Christian Post and The New American.
Unfortunately, this writer could not find any articles that explained that the IRS has the authority to monitor religious entities that have voluntarily put themselves under section 501(c)(3) certifying about themselves that, "no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office". One of the Internet articles about this case had a reference to the "Johnson Amendment" in 1954, but did not explain that it was the 1954 rewriting of the tax code when section 501(c)(3) came into being (for which Lyndon Johnson was responsible), and that it took decades for churches to voluntarily come under that section of the law for the purpose of making it "easier" to document their tax exempt status.
We do not know what will happen in the future. Will the IRS begin a campaign against the most flagrant, least politically popular, churches—threatening to withdraw their tax exempt status? Will they go after every church that participates in "Pulpit Freedom Sunday"? Will the conservative churches be successful in getting a law passed to allow some limited freedom for churches exempt under section 501(c)(3)? Will there be any major movement for churches to rid themselves of their 501(c)(3) obligations and become free churches? Will the IRS or congress attempt to make all churches fall under section 501(c)(3)—hoping the Supreme Court will ignore the constitutional problems? We do not know the answer to these questions, but we do know that Christians must trust God to take care of them in these troubled times.
But those who wait on the LORD Shall renew their strength; They shall mount up with wings like eagles, They shall run and not be weary, They shall walk and not faint (Isaiah 40;31).
The Internal Revenue Service has apparently not attempted to warn or prosecute any churches for political activity barred under section 501(c)(3) since a 2009 federal court ruling requiring them to clarify which high-ranking official could authorize such investigations and audits. There is no court challenge to the constitutionality of the requirements of that section, as all of these groups had voluntarily placed themselves under section 501(c)(3) when they filled out IRS for 1023. Some church groups are openly defying the law, sending copies of their politically-oriented messages and literature to the IRS. Many local TV stations and papers carried articles about this in early November 2012. This is a good one!
While the 501(c)(3)-exempt church groups are happy for this current stand-off, neither congress nor the IRS is talking about changing the law. The IRS could remove the tax exempt status of some or all these by clarifying their court case and proceeding. They already have years of evidence against these groups. Or, the IRS could take a different approach and complain to congress that the law needs to be more definite—and many more restrictions could be added. All of the existing churches have already agreed to follow any new tax laws as their Articles of Incorporation (or other foundational documents) contain a line asserting that they will adhere to "section 501 (c)(3) of the Internal Revenue Code, or the corresponding section of any future federal tax code."
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