Updated: May 11, 2018
So, a church is automatically exempt from taxes, and donations to churches are tax-deductible even though the church may not be recognized by the IRS as a 501(c)3 tax exempt organization. So why would a church want to take the step to become a 501(c)3 tax exempt organization? There are several reasons...
1. Funding opportunities - Many grant making authorities such as governmental agencies and foundations may limit those who apply to organizations with this designation. Not having the designation could limit a church's reach in applying for grants from these organizations.
2. Assurance to donors - Having 501(c)3 status assures donors that their donations will be considered tax-deductible by the IRS.
3. Transparency - Going through the steps of becoming a 501(c)3 tax exempt organization lets the public, parishioners and community partners know that the church has submitted organizational and operational documents to a third party and has passed the test of compliance that obtaining the status entails.
4. Reduced postal rates - A church may be assured of reduced postal rates by obtaining 501(c)3 status.
Note: Individual churches that are part of a larger church unit may want to check to see if they are already covered with exemption status by its governing body whether it be a denomination or church association. The church would only need to ensure that its name is included in the list of churches covered by that association's group exemption.
Overall, churches need to think carefully about the benefits of gaining 501(c)3 exemption status and weigh those benefits with the costs.
Written by Lakeesha V. Browne, CPA
Lakeesha V. Browne, CPA is the owner and operator of the L.V. Browne, CPA firm which specializes in accounting for non-profit organizations. She can be reached at firstname.lastname@example.org . Please visit her website at www.lvbrownecpa.com.