How to Qualify for Tax Exempt Status

Religious organizations do a great deal of good in the world, and the tax code recognizes that by allowing churches and other religious organizations to obtain tax-exempt status. Sometimes referred to as 501(c)(3) religious organizations (in reference to the section of the federal tax code that governs charitable organizations), these religious organizations are at the heart of charity and religious life in the United States. However, tax-exempt status isn’t automatic, and it isn’t unconditional, and there are a few things you’ll need before you can get it.

First, your organization must exclusively serve one of the “exempt purposes” listed under 501(c)(3) of the Internal Revenue Code, which includes “charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.” Your organization must also be “charitable,” which is a broad term that includes everything from aiding the poor, to education, to advancing religious interests, to a wide swath of other possible charitable works. Obviously, for most religious organizations, these requirements shouldn’t be too hard to fulfill.

Second, your organization’s money cannot go to any private person or interest. This means that the proceeds obtained by your religious organization cannot go to any specific person or group of people, such as the organization’s founder or their family, or any shareholders in the organization (if it is incorporated). The tax-exempt status is meant to benefit the public, after all, and it doesn’t benefit the public to have a charity’s money diverted into the pockets of private individuals.

Third, your organization must not engage in any form of political advocacy, whether it be campaigning on a specific political issue, supporting a political candidate or lobbying a politician to support an agenda. Again, the 501(c)(3) tax-exempt designation is intended to help your organization serve the public, not act as a shield for political activity. You can still advocate for politics on your own time or with your own money, just not through your tax-exempt religious organization.

If you meet those criteria, you can then file for tax exempt status with the IRS using Form 1023-series application. If they approve your application, then congratulations, you will have your own tax-exempt religious organization. However, be warned: if you later violate one of these restrictions, either by diverting money to a private interest, or by engaging in banned political advocacy, or by engaging in a non-exempt purpose, you may suffer legal or financial consequences. You may be charged an excise tax as a penalty, or worse, you could have your tax-exempt status revoked outright.

If you need any help starting your church or religious organization, or have questions about applying for tax-exempt status, you’ll need an attorney who thoroughly understands the religious organization law and its tax implications. The non-profit law attorneys at Wingate, Kearney, & Cullen, LLP have offices in Brooklyn and Long Island, New York.  The firm is experienced in incorporating religious organizations and applying for tax-exempt status. For more information or to schedule a consultation, call (718) 852-5900 or fill out our contact form.