- Jan 25, 2009
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Concerning why I was writing this,
I was talking with someone recently on the issue of churches being tax-exempt and yet often getting involved in political issues - and we ended up talking on how many are fearful of their churches losing their status if getting vocal on political issues. My friend noted how many are focused on the 501c...but no one is aware of the 508 which enables churches to speak out politically and yet not pay taxes.
If anyone is aware of more on that, I'd greatly appreciate it. For more on the issue, Churches are unique in that they enjoy a special status under the tax code. Normally, to be considered exempt from income taxes, an organization must apply for an exemption from the IRS and demonstrate that it meets the requirements to be considered one of the exempt categories of section 501(c) of the tax code. Every organization that does not fall within one of the exempt categories of section 501(c) of the tax code is considered taxable.
But churches are different. Under section 508(c)(1)(A) of the tax code, churches are exempt from applying to the IRS for tax exempt status. Thus, churches are automatically exempt from income taxes under the federal tax code without first applying to the IRS for recognition of exempt status. This is where the misunderstanding comes in. Some think that this unique status of churches under the tax code means that churches are not regulated by the tax code at all. However, the bottom line is that whether or not a church applies to the IRS for recognition of tax exempt status or chooses not to do so, they are still subject to the tax code.
Cases have dealt with this issue. In Taylor v. Commissioner of Internal Revenue, the United States Tax Court agreed that, under section 508(c)(1) of the tax code churches do not have to apply for tax exempt status and are considered automatically exempt. But the court also stated, Nothing in section 508(c)(1) relieves a church from having to meet the requirements of section 501(c)(3).
Essentially, what the Taylor court was saying is that churches are still subject to the restrictions in section 501(c)(3) of the tax code even if they never apply to the IRS for recognition of tax exempt status.
In a similar case called Universal Life Church v. Commissioner of Internal Revenue, the Tax Court stated:
Most churches believe that they will lose their Tax Exempt status if they speak about politics, or social issues that spill over into politics or endorse a candidate from the pulpit. And in studying the issue, it seems that this simply does not hold water. The part of the IRS Code that most churches have fallen prey to is Section 501-c-3 which requires charities to fill out IRS Form #1023 and #1024 in order to be considered for a Tax Exemption. Most churches without delving into the issue would simply file these two forms with the IRS to get their Tax Exemption. Problem is that once you apply and are approved for a 501-c-3 Tax Exemption, then the IRS can tell you what you may or may not say from the pulpit.
But in IRS Publication 557 it is noted:
Again, all of this is covered in Section 508-C-1-A which excludes churches, their integrated auxiliaries, and conventions or associations of churches. To me it means that if your church would normally qualify under Section 501-c-3, then the church, interchurch organizations, conventions or associations of churches, or integrated auxiliaries of a church, such as a mens or womens organization, religious school, mission society, or youth group automatically qualify for the Tax Exemption. Under this section of the IRS code, it is my feeling that the IRS cannot limit your speech from the pulpit, or tell you what organizations your church may belong to or participate in, as they may in section 501-c-3. The church has AUTOMATICALLY been granted the Tax Exemption they sought simply by being a church under section 508-C-1-A of the IRS Code.
For reference:
That said, I do wonder how much churches often fight over being tax-exempt. For much of the finances often do not seem to be used for things that truly matter.
The Inspiring Body of Christ Church in Dallas, TX, operates the worlds largest privately-owned aquarium. The tank, which cost $4.7 million to build, is stocked with over $100,000 worth of exotic fish. Also in Dallas, First Baptist Church announced a $130 million renovation plan in 2009 for their downtown campus. Of course, theyre not alone since American churches generally spend a huge percentage of their budgets on buildings....and in the eyes of many believers, what they invest in is a bad use of money and shouldn't be done if it's tax-free. I'm not against church buildings since churches can often minister more effectively with a nice campus. However, lavish building programs can also be counterproductive sometimes..as it takes away funding from other things that make a difference (i.e benevolence, street ministry, missions, etc.). It's always a sad day when the mission of the church is subverted due to the misuse of funds, as many pastors have said that their churches were cutting back on missions because they bit off more than they could chew in a building program.
A lot of junk has happened in churches where the focus is on the building at all costs. One pastor actually got called out due to how he purchased the building the church had through drug money (blood money). One of my dear brothers in the Lord who has done ministry for a long time has noted the reality of how many churches fail to do their mission properly because the extra money that came without taxes is blown on things that don't make a real difference in the long term (more shared here ). Moreover, churches by nature are tax exempt. By registering as a 5013c, the orgainization is subordinating itself to the secular, sometimes atheist or judaic govt and it's rules...and that is a problem whenever churches don't say things for fear of losing its status. More can be found at Hush Money and here/here..and here.
As another pastor noted, " in New Jersey, the state cancelled the tax-exempt status of a Methodist-run boardwalk pavilion used for religious services because the religious organization would not host a same-sex "wedding" there. San Francisco dropped its $3.5 million in social service contracts with the Salvation Army because it refused to recognize same-sex "domestic partnerships" in its employee benefits policies. Similarly, Portland, Maine, required Catholic Charities to extend spousal employee benefits to same-sex "domestic partners" as a condition of receiving city housing and community development."
When you're on a tax-exempt status, there are privelages that come with it...and yet there are curses..and for many, because they're so focused on the benefits, they're willing to take the negatives of having to choose avoiding certain actions which their faith may require them to do if the government/state asks them to do opposite. Whereas others are freaking out on that aspect, there are many groups who say there'd no issues if returning to how the early church was when it wasn't so immeshed with the State. Many places within Christendom who are pushing this are found within what's known as Organic Christianity....with people like Frank VIola among many others leading the way (i.e. Alan Knox, Alan Hirsch and others). Many within that movement have been for the mindset that one doesn't need to focus on having buildings that are tax-exempt in order to do real ministry...and others feel that being taxed would allow for other ways of contributing to the nation. Contributing with taxes makes a world of difference financial wise to the nation. One group of researchers recently estimated that the U.S. could raise $71 billion a year by taxing churches.
I don't believe that churches should be tax-exempt...but I can accept a church operating as a non-profit entity. That may equate to the same thing for a lot of churches, but it does give one big bonus: as a non-profit organization, its tax records become public record. This would be a check against people trying to turn a church into their own private piggy-bank/tax-shelter. ..and that has often happened. Any church that can follow existing non-profit rules will still be exempt from taxes , and huge religious cooperations would have to finally pay their fair share. Those that break those rules should be punished according to the law.
__________________
I was talking with someone recently on the issue of churches being tax-exempt and yet often getting involved in political issues - and we ended up talking on how many are fearful of their churches losing their status if getting vocal on political issues. My friend noted how many are focused on the 501c...but no one is aware of the 508 which enables churches to speak out politically and yet not pay taxes.
If anyone is aware of more on that, I'd greatly appreciate it. For more on the issue, Churches are unique in that they enjoy a special status under the tax code. Normally, to be considered exempt from income taxes, an organization must apply for an exemption from the IRS and demonstrate that it meets the requirements to be considered one of the exempt categories of section 501(c) of the tax code. Every organization that does not fall within one of the exempt categories of section 501(c) of the tax code is considered taxable.
But churches are different. Under section 508(c)(1)(A) of the tax code, churches are exempt from applying to the IRS for tax exempt status. Thus, churches are automatically exempt from income taxes under the federal tax code without first applying to the IRS for recognition of exempt status. This is where the misunderstanding comes in. Some think that this unique status of churches under the tax code means that churches are not regulated by the tax code at all. However, the bottom line is that whether or not a church applies to the IRS for recognition of tax exempt status or chooses not to do so, they are still subject to the tax code.
Cases have dealt with this issue. In Taylor v. Commissioner of Internal Revenue, the United States Tax Court agreed that, under section 508(c)(1) of the tax code churches do not have to apply for tax exempt status and are considered automatically exempt. But the court also stated, Nothing in section 508(c)(1) relieves a church from having to meet the requirements of section 501(c)(3).
Essentially, what the Taylor court was saying is that churches are still subject to the restrictions in section 501(c)(3) of the tax code even if they never apply to the IRS for recognition of tax exempt status.
In a similar case called Universal Life Church v. Commissioner of Internal Revenue, the Tax Court stated:
Section 508(c) exempts various organizations, including churches from the notification requirements of section 508(a). Thus while most organizations claiming tax exempt status under section 501(c)(3) must inform the Commissioner of their application for exempt status
churches need not make such a notification.
Despite this, the Tax Court went on to hold that this unique status does not prevent the Commissioner of the IRS from auditing a church.
Most churches believe that they will lose their Tax Exempt status if they speak about politics, or social issues that spill over into politics or endorse a candidate from the pulpit. And in studying the issue, it seems that this simply does not hold water. The part of the IRS Code that most churches have fallen prey to is Section 501-c-3 which requires charities to fill out IRS Form #1023 and #1024 in order to be considered for a Tax Exemption. Most churches without delving into the issue would simply file these two forms with the IRS to get their Tax Exemption. Problem is that once you apply and are approved for a 501-c-3 Tax Exemption, then the IRS can tell you what you may or may not say from the pulpit.
But in IRS Publication 557 it is noted:
Some organizations are not required to file Form 1023. These include: Churches, interchurch organizations of local units of a church, conventions or associations of churches, or integrated auxiliaries of a church, such as a menâs or womenâs organization, religious school, mission society, or youth group. These organizations are exempt automatically if they meet the requirements of section 501(c)(3).
For reference:
That said, I do wonder how much churches often fight over being tax-exempt. For much of the finances often do not seem to be used for things that truly matter.
The Inspiring Body of Christ Church in Dallas, TX, operates the worlds largest privately-owned aquarium. The tank, which cost $4.7 million to build, is stocked with over $100,000 worth of exotic fish. Also in Dallas, First Baptist Church announced a $130 million renovation plan in 2009 for their downtown campus. Of course, theyre not alone since American churches generally spend a huge percentage of their budgets on buildings....and in the eyes of many believers, what they invest in is a bad use of money and shouldn't be done if it's tax-free. I'm not against church buildings since churches can often minister more effectively with a nice campus. However, lavish building programs can also be counterproductive sometimes..as it takes away funding from other things that make a difference (i.e benevolence, street ministry, missions, etc.). It's always a sad day when the mission of the church is subverted due to the misuse of funds, as many pastors have said that their churches were cutting back on missions because they bit off more than they could chew in a building program.
A lot of junk has happened in churches where the focus is on the building at all costs. One pastor actually got called out due to how he purchased the building the church had through drug money (blood money). One of my dear brothers in the Lord who has done ministry for a long time has noted the reality of how many churches fail to do their mission properly because the extra money that came without taxes is blown on things that don't make a real difference in the long term (more shared here ). Moreover, churches by nature are tax exempt. By registering as a 5013c, the orgainization is subordinating itself to the secular, sometimes atheist or judaic govt and it's rules...and that is a problem whenever churches don't say things for fear of losing its status. More can be found at Hush Money and here/here..and here.
As another pastor noted, " in New Jersey, the state cancelled the tax-exempt status of a Methodist-run boardwalk pavilion used for religious services because the religious organization would not host a same-sex "wedding" there. San Francisco dropped its $3.5 million in social service contracts with the Salvation Army because it refused to recognize same-sex "domestic partnerships" in its employee benefits policies. Similarly, Portland, Maine, required Catholic Charities to extend spousal employee benefits to same-sex "domestic partners" as a condition of receiving city housing and community development."
When you're on a tax-exempt status, there are privelages that come with it...and yet there are curses..and for many, because they're so focused on the benefits, they're willing to take the negatives of having to choose avoiding certain actions which their faith may require them to do if the government/state asks them to do opposite. Whereas others are freaking out on that aspect, there are many groups who say there'd no issues if returning to how the early church was when it wasn't so immeshed with the State. Many places within Christendom who are pushing this are found within what's known as Organic Christianity....with people like Frank VIola among many others leading the way (i.e. Alan Knox, Alan Hirsch and others). Many within that movement have been for the mindset that one doesn't need to focus on having buildings that are tax-exempt in order to do real ministry...and others feel that being taxed would allow for other ways of contributing to the nation. Contributing with taxes makes a world of difference financial wise to the nation. One group of researchers recently estimated that the U.S. could raise $71 billion a year by taxing churches.
I don't believe that churches should be tax-exempt...but I can accept a church operating as a non-profit entity. That may equate to the same thing for a lot of churches, but it does give one big bonus: as a non-profit organization, its tax records become public record. This would be a check against people trying to turn a church into their own private piggy-bank/tax-shelter. ..and that has often happened. Any church that can follow existing non-profit rules will still be exempt from taxes , and huge religious cooperations would have to finally pay their fair share. Those that break those rules should be punished according to the law.
__________________
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