Part 2: Can Churches Lose Their 501(c)(3)? — Hidden Mistakes That Risk Tax-Exempt Status

Can Churches Lose Their 501(c)(3)? — Hidden Mistakes That Risk Tax-Exempt Status (2025)

Churches can lose their 501(c)(3) status for surprisingly small mistakes. Excess benefits to insiders, substantial lobbying, and even biased posts on the church website can trigger IRS penalties. This 2025 guide explains which activities put churches at risk — and how pastors, boards, and treasurers can stay compliant with clear, practical guardrails.

1️⃣ Inurement — Benefits to Insiders

Church funds or property must not personally benefit insiders (pastors, officers, board members). Paying unreasonable compensation or transferring property below fair market value can be an excess benefit transaction (subject to IRC §4958 intermediate sanctions).

Reasonable compensation for actual services is permissible — but documentation is everything. Keep independent salary surveys, outside appraisals, and detailed minutes for each approval.

2️⃣ Private Benefit — Serving Private Interests

Even if no insider is involved, a 501(c)(3) cannot primarily serve private businesses or individuals. Activities must advance the public good (ministry purpose), not enrich a narrow group of vendors or partners.

3️⃣ Lobbying Limits

Churches may address moral or social issues, but a substantial part of their activities cannot be spent trying to influence specific legislation. Churches must use the substantial part test (time + expenditures). Other religious nonprofits (not churches) may file Form 5768 to elect the §501(h) expenditure test with dollar caps — but churches cannot make this election.

4️⃣ Political Campaign Ban

Under IRC §501(c)(3), churches are absolutely barred from endorsing or opposing candidates for public office. This includes sermons, bulletins, social media, livestreams, and the church website. Violations risk excise taxes and even revocation of exempt status.

🙋 Common Questions (FAQ)

Q1. Can a church host a candidate forum?
Yes — if all candidates for the office are invited, given equal time, asked neutral questions by an independent moderator, and no campaign fundraising occurs. Publish neutral ground rules in advance and in minutes.

Q2. May we link to candidate sites on our church website?
Only on a neutral, even-handed page that lists all candidates with the same “Official Campaign Site” label and identical formatting. No commentary, ratings, or implied approvals.

Q3. Can we run a voter registration table in the lobby?
Yes — if it’s nonpartisan and open to the public. Signage should avoid party slogans, color cues, or issue messaging that could appear to favor one candidate.

참고 및 외부링크

• IRS Publication 1828: Tax Guide for Churches & Religious Organizations
• IRS 501(c)(3) Exemption Requirements
• IRS Tax Exempt Organization Search (TEOS)

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