The Limitations of a Religious Nonprofit

If you are starting your own religious nonprofit organization, you may believe much of your legal and financial trouble is over once you’ve received your tax-exempt nonprofit status. However, things aren’t that simple, because your nonprofit status is conditional on meeting certain basic requirements. And if you’re not careful and run afoul of the limitations on religious nonprofit corporations, your nonprofit status, and all its advantages, could be put in danger.

A religious nonprofit corporation is a type of corporation classified under Section 501(c)(3) of the Internal Revenue Code. Other kinds of 501(c)(3) corporations include those organized for academic, scientific, educational, and literary purposes, as well as those created for public testing, fostering amateur sports, and preventing cruelty to children or animals. These corporations are exempt from personal and corporate income taxes, and anyone who donates to a 501(c)(3) nonprofit corporation can receive a tax deduction for doing so.

However, in order to maintain their tax-exempt nonprofit status, there are certain things a religious nonprofit cannot do. First and foremost, the income from a religious nonprofit must not inure to any private party, meaning it cannot be operated for the benefit of any individual or shareholder. Second, they cannot operate in any capacity towards a non-exempt purpose. Finally, they are heavily restricted in terms of their ability to engage in political activity or lobbying.

If a religious nonprofit fails to conform to any of these requirements, they could face a number of possible consequences. For example, they may need to pay taxes on any income earned through non-exempt activities or pay back taxes on any year where it was found they were not in compliance with the law. In extreme cases, a religious nonprofit could have its tax-exempt status revoked entirely.

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.