Part 1: How Churches Qualify for 501(c)(3) — Understanding Tax-Exempt Status & What Can Jeopardize It

⛪ How Churches Qualify for 501(c)(3) — Understanding Tax-Exempt Status & What Can Jeopardize It (2025)

Churches in the U.S. enjoy broad tax privileges under IRC §501(c)(3), but those privileges are not automatic.
Even one misstep — like paying insiders unfairly or endorsing a candidate — can put exemption at risk.
This first installment of the Church & Ministry Tax Series (2025) explains how to obtain and maintain federal tax-exempt status, when to file Form 1023, and which activities could trigger IRS scrutiny.

1️⃣ What “Church” Means Under the Code

The Internal Revenue Code does not define “church.” The term is used broadly to include synagogues, mosques, and other houses of worship, as well as their conventions and integrated auxiliaries.
Religious organizations that are not churches — such as ministries or inter-denominational groups — generally must apply for recognition to receive the same benefits.

2️⃣ Requirements to Qualify for 501(c)(3)

To obtain or maintain federal tax exemption, a church or ministry must satisfy all of these criteria:

• Be organized and operated exclusively for religious, educational, charitable, or similar purposes;
• Ensure that no net earnings benefit any private individual or insider (inurement prohibition);
• Engage in no substantial lobbying or attempts to influence legislation;
• Not participate in any political campaign on behalf of a candidate; and
• Operate in accord with public policy and not for illegal purposes.

3️⃣ Applying for Tax-Exempt Status

• EIN Requirement: Every church needs an Employer Identification Number (Form SS-4) to open a bank account or file forms such as W-2 or 990-T.
• Form 1023 vs 1023-EZ: Religious organizations apply under Form 1023; smaller ministries may qualify for the EZ version.
• Filing Window: Applications must be submitted within 27 months of formation to retain retroactive status.
• Group Rulings: Affiliated churches may already be covered under a parent organization’s group exemption.

4️⃣ How Churches Can Lose Exemption

Even recognized churches can jeopardize 501(c)(3) status if they:

• Provide unreasonable benefits to insiders (e.g., over-compensation or below-market asset sales);
• Engage in substantial lobbying or partisan political activity;
• Operate for private benefit rather than public charitable purposes; or
• Violate public policy or commit illegal acts.

5️⃣ Political and Legislative Limits

Churches may educate the public on issues of public concern but must avoid direct political campaign activity.
Even a non-partisan voter guide can become a violation if it shows bias or appears close to an election.
IRS rules apply strictly to sermons, newsletters, and web content that reference candidates or legislation by name.

6️⃣ EA Practice Tips for Faith Organizations

• Encourage churches to apply for formal recognition (Form 1023) even if not required — it helps donor trust.
• Review compensation packages annually for reasonable value to prevent excess benefit transactions.
• Educate leaders about political neutrality in sermons and official publications.
• Use the IRS Tax Exempt Organization Search (TEOS) to confirm public status and avoid revoked entities.

7️⃣ Reference Links

• IRS — Tax Guide for Churches & Religious Organizations (Pub 1828)
• IRS — Tax Exempt Organization Search (TEOS)

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