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501(c)(3) Facts

Most churches in America are classified as “501(c)(3) tax-exempt religious organizations.” This is a fairly recent trend, since this has been law for over 50 years. Churches were only added to section 501(c)(3) of the tax code in 1954. Sen. Lyndon B. Johnson was the force behind the unification of State and Religion through legislation. But he was no ally of the Church. As part of the political agenda, Johnson had it in mind to silence the Church and eliminate the significant influence it always had on shaping “public policy.”

Faith-Based Religious Organizations are a branch of the federal government and must carry out any and all orders when receiving federal funding. [Executive Order 13499]

Although Johnson postured this as a “favor” to the religious community, the favor also came with boundaries attached. One need not look far to see the devastating effects 501(c)(3) acceptance has done to the Church, and the consequent restrictions placed upon any religious organization under this status. 501(c)(3) churches are prohibited from addressing, in any tangible manner, the vital issues of the day.

For a 501(c)(3) church to openly express, or organize in opposition to, anything that the State defines as “legal,” even if it is immoral (e.g. abortion, homosexuality, etc.), that church will jeopardize its tax-exempt status. The 501c3 has had a “chilling effect” upon the free speech rights of the church. Johnson, a shrewd and cunning politician, seemed to well-appreciate how easily many clergymen would sell out.

Did the church ever need to seek permission from the government to be exempt from taxes? Were churches prior to 1954 taxable? No, churches have never been taxable. To be taxable a church would first need to be under the jurisdiction, and therefore under the taxing authority of the State. The First Amendment clearly places religion outside the jurisdiction of civil governance:

“Congress shall make no law respecting an establishment of religion, nor prohibiting the free exercise thereof.”

Religion cannot be free if you are obligated to pay the government, through taxation, to exercise it. Since churches aren't taxable in the first place, why do so many of them seek permission from the I.R.S. for tax-exemption status? This manifests out of:

Ignorance (“We didn't/don't know any better”)

Group thinking (“Others are doing it”)

'Professional' advice (“Many attorneys and CPAs recommend it. We need to follow their advice”)

Does the law require, or even encourage, a church to organize under the 501(c)(3)? To answer that question, let's turn to what the I.R.S. itself has to say.

Churches Need Not Apply

In order to attain tax-exempt status by the Internal Revenue Service, an organization must fill out and submit I.R.S. Forms 1023-1024. However, note what the I.R.S. state regarding churches and their ministries, in Publication 557:

Some organizations are not required to file Form 1023. These include: Churches, interchurch organizations of local units of a church, conventions or associations of churches, or integrated auxiliaries of a church, such as a men’s or women’s organization, religious school, mission society, or youth group. These organizations are exempt automatically if they meet the requirements of section 501(c)(3).

Churches Are “Automatically Tax-Exempt”

According to the I.R.S. Code § 508(c)(1)(A):

Special rules with respect to section 501(c)(3) organizations.

(a) New organizations must notify secretary that they are applying for recognition of section 501(c)(3) status.

(c) Exceptions.

(1) Mandatory exceptions. Subsections (a) and (b) shall not apply to —

(A) churches, their integrated auxiliaries, and conventions or associations of churches.

This is referred to as the “mandatory exception” rule. Thus, we see from the I.R.S.’s own publications, and the tax code, that it is completely unnecessary for any religious consortium to apply for tax-exempt status. In their own words, a church is “automatically tax-exempt.”

And what about tax-deductibility? Doesn’t a church still need to come under 501(c)(3) so that contributions can be received as a tax deduction? Not necessarily.

According to I.R.S. Publication 526:

Organizations That Qualify To Receive Deductible Contributions

You can deduct your contributions only if you make them to a qualified organization. To become a qualified organization, most organizations other than churches and governments, as described below, must apply to the IRS.

In their own words, a church is “automatically tax-deductible.”

Churches Have a Mandatory Exception To Filing Tax Returns

Not only is it completely unnecessary for any church to seek 501(c)(3) status, doing so becomes a grant of jurisdiction to the I.R.S. by any organized religious institution that obtains governmental favor.

In the words of Steve Nestor, ex-I.R.S. Revenue Officer:

“I am not the only I.R.S. employee who’s wondered why churches go to the government and seek permission to be exempted from a tax they didn’t owe to begin with, and to seek a tax deductible status that they’ve always had anyway. Many of us have marveled at how church leaders want to be regulated and controlled by an agency of government that most Americans have prayed would just get out of their lives. Churches are in an amazingly unique position, but they don’t seem to know or appreciate the implications of what it would mean to be free of government control.” The word “church” is not meant to refer to any physical building or location, but refers to the worldwide body of believers in Christ. The word “church” (ecclesia in Greek – ones called out) does not refer to any organization, no matter its name or legal status. Keep that in mind when reading.

According to law, the State presides over its corporations:

1. “A corporation is a creature of the state. It is presumed to be incorporated for the benefit of the public. It receives certain special privileges and franchises and holds them subject to the laws of the state and the limitation of its charter. Its powers are limited by law. It can make no contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys the laws of its creation. There is a reserved right in the legislature to investigate its contracts and ascertain if it has exceeded its powers...” (Hale v. Henkel, 201 U.S. 43)

2. “[A corporation is] an artificial person or legal entity created by or under the authority of the laws of a state. An association of persons created by statute as a legal entity.... The corporation is distinct from the individuals who comprise it (shareholders).... Such an entity subsists as a body politic under a special denomination, which is regarded in law as having a personality and existence distinct from that of its several members.” (Black's Law Dictionary 6th Edition, page 340)

3. “A corporation derives its existence and all of its powers from the State and, therefore, has only such powers as the State has conferred upon it. Power is used here to mean the legal capacity to execute and fulfill the objects and purposes for which the corporation was created, and the source of this power is the charter and the statute under which the corporation was organized.” (Len Young Smith and G. Gale Roberson, Smith and Roberson's Business Law, West Publishing Company, 1966, page 796)

4. “Corporate existence is a privilege granted by the sovereign upon compliance with specified conditions...” (Len Young Smith and G. Gale Roberson, Smith and Roberson's Business Law, West Publishing Company, 1966, page 931)

5. “Corporations are not citizens.... The term citizen... applies only to natural persons... not to artificial persons created by the legislature...” (Paul v. Virginia, 8 Wall. 168, 177; Opinion of Field, J., in the Slaughterhouse Cases, 16 Wall. 36, 99)

6. “The objects or purposes for which a corporation is formed are expressly stated in its articles of incorporation, which delineate in general language the type of business activities in which the corporation proposes to engage...” (Smith and Roberson's Business Law, West Publishing Company, 1966, page 798) 7. “Instances of non-profit corporations are educational institutions, athletic clubs, library clubs, fraternities, sororities, hospitals, and organizations which have exclusively a charitable purpose...” (Smith and Roberson's Business Law, West Publishing Company, 1966, page 789)

8. “The most common form of business organization, and one which is chartered by a state and given many legal rights as an entity separate from its owners. This form of business is characterized by the limited liability of its owners, the issuance of shares of easily transferable stock, and existence as a going concern. The process of becoming a corporation, call incorporation, gives the company separate legal standing from its owners and protects those owners from being personally liable in the event that the company is sued (a condition known as limited liability).

Incorporation also provides companies with a more flexible way to manage their ownership structure. In addition, there are different tax implications for corporations, although these can be both advantageous and disadvantageous. In these respects, corporations differ from sole proprietorships and limited partnerships...” (Investorwords)

9. “A religious corporation is a type of religious non-profit organization, which has been incorporated under the law. Often these types of corporations are recognized under the law on a subnational level, for instance by a state or province government. The government agency responsible for regulating such corporations is usually the official holder of records, for instance the Secretary of State. In the United States, religious corporations are formed like all other nonprofit corporations by filing articles of incorporation with the state. Religious corporation articles need to have the standard tax exempt language the IRS requires.

Religious corporations are permitted to designate a person to act in the capacity of corporation sole. This is a person who acts as the official holder of title on property, etc.” (Wikipedia)