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.

7 Comments

  1. 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.

  2. 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

  3. 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

  4. 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

  5. If a church doesn’t fill out a 1023 Form, do they still have to report their finances to the IRS, but just say we’re a church & we don’t have to pay taxes? Or would they just fly under the radar until they possibly get audited? The application fee for 501(c)3 status is $400-$800, so if there’s a way around it, I’d prefer that!

  6. Jose, a church is exempt from filing Form 990, as long as they meet the requirements of automatic exemption under 501(c)(3). The requirements for automatic exemption are found in the free IRS Publication 1828, Tax Guide for Churches and Religious Organizations, which you can download here: http://www.irs.gov/pub/irs-pdf/p1828.pdf.

    Veronica, your church does not need to fill out Form 1023 unless it decides to, provided that your church meets the requirements for automatic exemption listed in the same publication above.

    Aaron, please note that the Department of the Treasury recognizes 3 types of tax practitioners that may practice before the Internal Revenue Service: Enrolled Agents, CPAs, and attorneys. Enrolled Agents are often a better value than either CPAs or attorneys, and specialize in tax law. CPAs and Attorneys often specialize in other fields, and do tax work as a side.

    Thanks, and God bless.

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