An organization with a ‘religious’ purpose is one of the seven exempt purposes in section 501c3 of the Internal Revenue Code (IRC) in the United States. In the 501c3 section, the terms ‘charitable,’ ‘educational,’ and ‘scientific’ is defined in the Treasury Regulations. However, the term ‘religious’ is not defined in the Treasury Regulations.
If you want to start a 501c3 religious organization then you will need to meet certain requirements. Before that, you should have a clear understanding of what ‘religious’ means under section 501c3. Churches and religious organizations can be exempt from paying taxes by obtaining the 501c3 status. You also must know the difference between a church and a religious organization.
In this blog, we are going to cover all the important aspects of the subject matter so that you can have an idea before you pursue obtaining the 501c3 status.
Know about religious organizations
The Internal Revenue Service (IRS) uses a term called the religious organization to encompass churches and non-church public charities with religious purposes. A non-church religious organization is a public charity.
501c3 religious organizations include entities whose principal purpose is the study or advancement of religion. The entities are mentioned below:
Churches,
Conventions and associations of churches,
Integrated auxiliaries of churches,
Non-denominational ministries,
Interdenominational and ecumenical organizations,
Religious organizations that are not churches might include:
Interdenominational and ecumenical organizations Or,
Non-denominational ministries.
They could also be religious schools, societies, or faith-based relief organizations that do not meet the definition of the church on their own.
Know the difference between a church and a religious organization
The Internal Revenue Service (IRS) includes ‘religious’ among the tax-exempt purposes recognized by section 501c3 of the Internal Revenue Code (IRC). Churches and religious organizations both serve religious purposes and that is why these entities can obtain 501c3 tax-exempt status.
However, the term ‘churches’ and ‘religious organizations’ are used differently by the Internal Revenue Service (IRS). For religious groups that are seeking 501c3 tax-exempt status understanding the differences is important because different tax rules and reporting requirements apply to each.
What is a church for IRS purposes?
For federal tax purposes, a church is a recognized place of worship which includes mosques, temples, and synagogues regardless of its faith or religious belief. The Internal Revenue Service (IRS) automatically recognizes churches as 501c3 charitable organizations if they meet the requirements of the IRS. The churches don’t have to seek formal recognition from the IRS or submit annual information returns, it is just an option for churches. The IRS uses a combination of characteristics to identify churches which include having distinct forms of worship, literature, creeds, religious history, and ecclesiastical government. The term ‘church’ also covers the association of churches, the convention of churches, and integrated auxiliaries of the church. Churches don’t have to formalize their tax-exempt status.
Now it is time to know about the requirements.
Know the tax-exempt criteria for a religious organization
Religious organizations are not churches but can qualify for the 501c3 tax-exempt status. We have already said that religious organizations include interdenominational and ecumenical organizations, nondenominational ministries, and organizations whose main purpose is to study or advance religion. By submitting an Application for Recognition of Exemption (Form 1023 or 1023-EZ) to the IRS, religious organizations must seek formal recognition of their tax-exempt status. Like charitable organizations and churches religious organizations must meet the following requirements to qualify for 501(c) (3) federal tax-exempt status:
The organization should organize and operate exclusively for pursuing one or more charitable purposes that are recognized by the Internal Revenue Service (IRS).
The net earnings of the organization should not serve to enrich private individuals or shareholders.
Lobbying cannot make up a substantial part of the activities of the organization.
The organization cannot involve in political campaigns
The purpose and actions of the organization cannot be illegal or violate fundamental public policy.
Know the unrelated business income tax
Churches and religious organizations are allowed to earn income that is not related to their tax-exempt status. The churches and religious organizations must read carefully to avoid Unrelated Business Income Tax (UBIT). The UBIT will apply to the income from any such activities if they meet the following conditions:
The activity that constitutes a trade or business.
The organization regularly carries on this business or trade.
The business or trade is not substantially related to the exempt purpose of the organization.
Conclusion
So now you know about 501c3 religious organizations. Simply fulfill the requirements that are mentioned above to obtain a 501c3 status for your church and religious organization to be exempt from paying taxes. Make sure to have all the required purposes and engage in activities that support tax exemption.
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