Churches provide tremendous value to their surrounding communities, and beyond, in the outreach activities they undertake. It’s a truism that human beings derive benefit both materially and spiritually from charitable exchange—both in the giving and in the receiving. In its outreach, it is imperative that a church create guidelines to direct the sort of charitable giving that may occur. This will be based mainly on who may receive the benefits of such outreach.
In order to preserve a church’s tax-exempt status, a church’s activities must be in keeping with the religious purpose for which it was formed. This includes the ways in which it spends the money it collects. The basic rule is that a church cannot institute an outreach program that creates what the government considers “unacceptable private benefit” to individuals or to organizations that are closely connected with the church itself.
The IRS basically considers every program to be put to a particular test: that any benefit from a program, including an outreach program, goes only for public benefit. The programs cannot be designed, in other words, to benefit only the private interests of those in control of the the church. Rather, they must be organized so that people of a charitable class will receive the benefit. A charitable class is broadly defined as people who may properly receive assistance from the charitable organization. A charitable class must be large and indefinite as opposed to, say, a donation earmarked for the use of one identified person in the church. The definition of a charitable class is not limited to the financially poor, but also encompasses those who are in need of the religious services of the church.
What’s more, private benefit is not a solely financial consideration. The main consideration is whether an individual—whether or not they are directly associated with the church—will benefit from the outreach program in a manner not in keeping with the exempt purpose of the church. In essence, it must be aimed to help the public.
When a church or nonprofit organization in Arizona intends to establish programs in keeping with maintaining itself as exempt for tax purposes, Provident Law’s church and nonprofit attorneys are here to help. We recognize how essential these organizations are to society as well as how important tax exempt status is to their ongoing existence, and we stand ready to counsel and serve them by providing broad transactional and general counsel services. Contact us to learn more.