Do Churches need the Federal 501c3 Process? No, but…

     A little known fact is that, per the free-exercise clause of the First Amendment of the United States Constitution and the very valid rationale that the power to tax is the power to destroy, churches are NOT required to formally apply for 501c3 Federal Tax Exemption to be in actuality tax exempt and to receive tax deductible gifts from donors.  Members of the congregation, if they itemize their taxes, can deduct their yearly donations from their gross income, so long as the church meets the I.R.S. definition.  No laborious and massive form 1023 process to partake of (a legal colonoscopy), no hefty filing fees required and no extensive I.R.S. involvement through the life of the organization is absolutely necessary.  The majority of churches, though, do subject themselves to this process either out of ignorance or because they were told it was absolutely necessary to be exempt. 

     Are there any actual benefits to traveling down this path, however?  Yes, there can be, especially in an interesting, “tail wagging the dog” way.  The popular perception is that federal confirmation is absolutely necessary, so it can be helpful with the general public to solidify the legitimacy of your organization.  Completing form 1023 and being recognized by the I.R.S. can lead to increased donor confidence and reassurance from being officially listed as a tax exempt organization on the I.R.S. roles, that are searchable online.  You will receive an official letter from the I.R.S. recognizing your exemption that you can show to prospective donors.  Such listing can also lead to a greater likelihood of receiving estate gifts from members of your congregation. 

     If you are curious if it makes sense for your church to go down this rabbit hole, we would be happy to give you the pros and cons based upon your particular church’s mission and vision.