In the United States, there are over 300,000 religious congregations that ascribe to Christian, Jewish, Muslim, Buddhism, and other faiths, according to the Hartford Institute for Religion Research center. All of the 300,000 places of worship fall under the tax-exempt code for the Internal Revenue Service (IRS), referred to as 501(c)(3). This code also applies to nonprofit organizations with the primary purpose of education, hospitalization, or charity.
With places of worship, the treatment is different under the tax law. Since the First Amendment guarantees freedom of religion in the United States, the IRS treats churches as tax-exempt institutions. While the driving purposes of a ministry and church may be similar or even the same, there are important differences in the way they are treated under tax laws.
How are Ministries and Churches Treated Differently?
A ministry needs to prove that it fulfills a tax-exempt purpose under the IRS code 501(c)(3). The difference in the way a church and a ministry are treated under tax law starts from the very beginning of either group’s organization. A church never needs to file for Recognition of Exemption from the IRS, while a ministry needs to file for tax-exempt status within 27 months of incorporating.
A church is defined as a building for Christian worship, and a ministry is defined as an activity carried out by Christians to spread their faith. However, the IRS has a list of criteria for determining if an organization is a church, and by its nature, a ministry might not fit the definition. The IRS determines an organization as a churchwhen it performs the following:
- Has a distinct legal existence
- Has a recognized creed and form of worship
- Has a definite and distinct clergy hierarchy or ecclesiastical government
- Has a formal code of doctrine and discipline
- Has a distinct religious history
- Has a membership not associated with any other church or denomination
- Has an organization of ordained ministers
- Has ordained ministers that are selected after completing prescribed courses of study
- Has its own literature
- Has an established place of worship
- Conducts regular congregations
- Conducts regular religious services
- Conducts Sunday school for the religious instruction of the young
- Provides schools for the preparation of its members
One might think that the tax-exempt status is more quickly achieved by an organization that already has a building; however, it is more complex than that. Churches, as defined above by the IRS, have a set time and place for meetings and have a regular membership or congregation. A ministry might not have regular meetings, a regular group of members, or a set meeting place. If an organization is a ministry, it does not automatically mean it could qualify as a church. Ministries are often directed outside church walls and include Bible studies, conferences, retreats, community outreach efforts, and mentoring. They may not meet at set times or places.
While both churches and ministries qualify for tax-exempt status under the 501(c)(3) code, there are important differences between ministries and churches under tax law. One could argue that the overarching purpose for a ministry, like a church, falls into the category of 501(c)(3) automatically. Many ministries are charities, and many churches actually refer to their charitable efforts with parishioners and with the world outside of the congregation as ministries. For a ministry, this purpose needs to be demonstrated, and there are forms to qualify for the tax-exempt status.
What Would Keep a Ministry from Being Considered Tax-Exempt?
The IRS will not consider a ministry as a 501(c)(3) entity if it is an action organization.An action organization essentially means the ministry cannot take part in political campaigns for or against candidates or attempt to influence legislation as a driving force behind the organization. If any of the ministry’s earnings go to one individual or shareholder, this will also negate the 501(c)(3) standing.
The paperwork that a ministry needs to file with the IRS to achieve tax-exempt status includes Form 1023 or Form 1023 EZ. This process can take up to six months. After the ministry is recognized as a tax-exempt entity, the organization needs to file Form 990 each year with the IRS, which is a form that churches are not required to file. There are several benefits for a religious organization to file as a church rather than a ministry.
Why is a Church Law Attorney Needed?
Most often, people who are running a church or are employed by one are thinking more about the organization’s cause than how much money is being made. A church or ministry leader can easily make the mistake of not knowing the laws that can impact the organization. This is preventable by hiring a church law attorney who can help strengthen the business side of the congregation. Knowing how to organize a business is crucial for a nonprofit too, even if the cause is religion-based.
A church law attorney, specifically one with corporate experience, can help with all the big decisions of any religious organization, including:
- Drafting bylaws
- Filing articles of incorporation
- Protecting assets
- Selecting board members
- Complying with discrimination and employment laws
- Understanding tax law and exemptions
- Dealing with zoning restrictions
Having a church law attorney to navigate these decisions and weigh their impact is critical to the successful future of the organization. Churches and ministries can also make legal mistakes without realizing it, such as remaining unincorporated or not understanding their constitutional protections. This can lead to liability issues that stem into an organization’s finances. A church law attorney can help these organizations remain compliant and protect their rights.
Church Law Attorneys at Anchor Legal Group, PLLC Help Nonprofit Organizations Remain Tax-Exempt
Churches and ministries are tax-exempt organizations, but they must complete certain criteria to reach this status. Our church law attorneys at Anchor Legal Group, PLLC provide legal help to churches and ministries. Our legal team has formed strong relationships with many religious organizations, many of whom continue to seek out legal counsel as their institutions grow. Located in Virginia Beach, we serve clients throughout Chesapeake, Norfolk, Suffolk, Portsmouth, Newport News, Hampton, and Eastern Shore. We also serve our clients throughout the United States through our network of associated attorneys. Complete our online form or call us at 757-LAW-0000 for an initial consultation today.