Qualifying for Church Status Under Tax Law

By November 26, 2019 Church
Qualifying for Church Status Under Tax Law

The First Amendment to the US Constitution guarantees religious freedom to churches.  From colonial times and since the creation of the very first tax code, churches have always been exempt from federal income taxes. This is part of the guarantee of religious freedom. After all, what the government can tax, it can control and even ultimately destroy. That’s why the federal Tax Code contains an automatic exemption for churches as public charities.  Churches also enjoy numerous other favorable benefits such as special rules in place to limit audits, and even state and local tax exemptions.

As a result, there is a tendency among new organizations to covet church tax status, and from time to time an organization will attempt to claim church freedom status even though they don’t meet the traditional definition of a church. While Christian churches and the places of worship of other major religions are fairly easy to qualify as exempt for religious charity purposes, the IRS must occasionally contend with a newcomer to the field—and as such, the agency has established a number of qualifying criteria for determining what in fact qualifies as a church for tax purposes—which it looks at on a case-by-case basis, not necessarily requiring that every criteria is met for the organization to qualify.

For one thing, the church should have its own legal existence, with a religious history that sets it apart from other churches and a membership not associated with other churches or denominations. It ought to be directed by a recognizable creed and form of worship. It’s best that it be governed by an ecclesiastical body either internally at the Church or a separate ecclesiastical body. It should have adopted a formal code of discipline and doctrine. It should be in the practice of ordaining ministers, and these ministers need to have completed a prescribed course of study to qualify—such that there should be schools established to prepare them to minister. It needs its own literature, its own established places of worship, and regular services held on premises for regular congregations. These are not all mandatory criteria but are things the IRS looks at to set churches apart from the pretenders.

When a church or nonprofit organization in Arizona intends to establish itself as a church 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.