Must Churches File Form 1023 for 501(c)(3) Tax Exemption? | Attorney Aaron Hall
Minneapolis Business Attorney Aaron Hall, Minnesota

Must Churches File Form 1023 for 501(c)(3) Tax Exemption?

Churches may wonder whether they must file IRS Form 1023 to be considered a tax exempt religious organization under 501(c)(3).

The IRS Instructions to Form 1023 provide the following:

Form 1023 not necessary. The following types of organizations may be considered tax exempt under section 501(c)(3) even if they do not file Form 1023.

  • Churches, including synagogues, temples, and mosques.
  • Integrated auxiliaries of churches and conventions or associations of churches.

. . .

Even though the above organizations are not required to file Form 1023 to be tax exempt, these organizations may choose to file Form 1023 in order to receive a determination letter that recognizes their section 501(c)(3) status and specifies whether contributions to them are tax deductible.

In other words, churches are not technically required to file Form 1023 to be considered a tax exempt organization. However, by filing Form 1023, churches can obtain a Determination Letter from the IRS that is considered proof that the church is a 501(c)(3) tax exempt organization. Without a Determination Letter, the church and its donors risk that the IRS could later determine that the church did not qualify as a tax exempt organization.

It may be useful to consider the test used by the IRS to determine whether a religious organization qualifies as a church. The IRS has issued the following test regarding whether a religious organization qualifies as a church, and thus, a tax exempt organization.

Does the religious organization have

1. a distinct legal existence;

2. a recognized creed and form of worship;

3. a definite and distinct ecclesiastical government;

4. a formal code of doctrine and discipline;

5. a distinct religious history;

6. a membership not associated with any other church or denomination;

7. an organization of ordained ministers;

8. ordained ministers selected after completing prescribed studies;

9. a literature of its own;

10. established places of worship;

11. regular congregations;

12. regular religious services;

13. Sunday schools for religious instruction of the young; and

14. schools for the preparation of its ministers.

Source: 5 Administration, Internal Revenue Manual 7(10)69, Exempt Organizations Examination Guidelines Handbook 321.3(3), at 22,455-4 (CCH) (Apr. 5, 1982).

For a more comprehensive explanation of these 14 elements to the IRS’s test for churches, see this publication by the IRS.

Another important question is what type of beliefs are sufficient to form the basis of a church. This issue is addressed here: 501(c)(3) Church Eligibility: Religion vs. Philosophical View | Nonprofit Attorney.

Dealing with the IRS can be a stressful and unpleasant experience. Hiring an experienced Minnesota IRS Attorney can help alleviate some of the difficulties inherent in dealing with the IRS.

5 comments
501(c)(3) Church Eligibility: Religion vs. Philosophical View | Nonprofit Attorney says September 17, 2010

[…] I wrote about the test for determining whether a religious organization qualifies as a church, and thus, a tax exempt organization, even though the organization does not obtain 501(c)(3) status […]

Jose L. De La O says February 24, 2011

How often does the church have to file form 1023? The tax exempt letter states NO under Form 990 required: However, what if the gross revenues change and are more than $25,000?

Thanks.

Harun Rashid says February 24, 2011

Jose:

There are a number of rules regarding whether and what churches must file. It’s more than I can explain here. The best way to get an answer would be to work with a CPA experienced in preparing form 1023 (a CPA is cheaper than an attorney), because a CPA or attorney would need to analyze your situation before being able to advise you on what your organization should file.

Aaron

Robert Gralla says January 26, 2012

Does a church have to file form 1023 in order for it to have a pension plan for it’s pastor and employees ?

Thank you,
Robert Gralla

Harun Rashid says January 29, 2012

Robert:

Pension plans are available to nonprofit organizations and businesses alike. Filing form 1023 is not required. I suspect there is more to your question, but for a matter like this, you should work with the pension plan professionals who know your state’s laws.

Aaron

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