To be exempt from federal income tax, nonprofits must file for recognition of tax-exempt status with the IRS. However, churches are automatically recognized as exempt by the IRS and are not required to file for recognition of tax-exempt status.
In addition, a church that has a tax-exempt parent organization with a group ruling from the IRS that includes that specific church is also considered to be tax-exempt.
Even though it is not required, many churches choose to file for recognition of tax-exempt status since an IRS determination letter provides a number of benefits:
- Allows churches to provide proof to donors that their donations are tax-deductible.
- Allows churches in Arizona, pursuant to A.R.S. 42-11109 (C), to avoid having to annually file an affidavit of property tax exemption
- Some organizations that provide grants to churches may require an IRS letter recognizing 501(c)(3) status.
- Churches who wish to use bulk mailing rates through the United States Postal Service must provide an IRS letter of exemption when they apply.
While the IRS provides guidance on applying for 501(c)(3) status, many churches find it advantageous to consult with an attorney to assist with the process.
Provident’s nonprofit attorneys can help churches and religious organizations with risk management. We stand ready to counsel and serve churches, charities, and foundations, as well as private schools, colleges, universities, and other types of nonprofit organizations—providing broad transactional and general counsel services in Arizona and surrounding areas. Contact us to learn more.