Reporting Requirements of Tax-Exempt Religious Entities

One of the most significant benefits of running a nonprofit religious organization is the tax-exempt status you can qualify for. However, that doesn’t mean you don’t need to worry about the IRS or tax authorities at all. It’s important for everyone, including tax-exempt entities, to be aware of their reporting requirements, lest they incur potential legal or financial liabilities.

Religious organizations can apply for tax-exempt status under section 501(c)(3) of the Internal Revenue Code, provided they meet certain requirements. These requirements include needing to be officially organized as a corporation, association or trust,. Their earnings and funds raised can’t personally benefit a sole member, and they must refrain from certain prohibited activities, such as political campaigning.

Additionally, however, they need to meet certain filing and reporting requirements with respect to their income, expenses, debts and liabilities. Their financial records must be made publicly available for examination by auditors, and they must specifically keep track of any expenses not related to their principle tax-exempt purpose. Depending on the circumstances, they may be held legally or financially liable for taxes on these non-exempt expenses.

It’s important to remain in compliance with these requirements, because a religious organization’s tax-exempt status hinges on that compliance. If a 501(c)(3) organization is found to have violated one or more of these rules, they can find themselves liable for taxes from the entire period where they are found to have been in violation. It can also potentially mean your tax-exempt status will be permanently revoked, a financial blow that many nonprofits may not be able to survive.

If you need any help starting your nonprofit organization, or have questions about applying for tax-exempt status, you’ll need an attorney who thoroughly understands not-for-profit law and their 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 and nonprofit 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.