Q: We have a long relationship with a local food bank that was formerly run by another congregation and was under that church’s 501(c)(3). The food bank is now operating on its own—without the church—and its 501(c)(3) letter is pending. Our church agreed to fund the food bank’s refrigeration equipment at its new location, but do we need to wait on the 501(c)(3) letter? This is the largest food bank in our county and has long-standing, good leadership, so it is not a question of viability. We are simply concerned that we might be violating our trust of funds by giving before the paperwork is finalized.
This is a very common—and good—question.
Yes, your church can proceed with funding the food bank before its 501(c)(3) status is officially approved. The key is ensuring the funds are used for charitable purposes that align with your church’s exempt mission. To ensure compliance, follow these steps:
1. Verify nonprofit status
Before releasing any funds, obtain documentation confirming that the food bank is organized as a not-for-profit corporation. For example, request a copy of their articles of incorporation filed with the state. If the food bank has already submitted its Form 1023 application to the IRS for recognition of exempt status, ask for a copy of the submission for your records.
2. Use a grant agreement
Your church should execute a grant agreement with the food bank. This agreement should:
- Detail how the grant funds must be used (e.g., refrigeration equipment).
- Require periodic accountability reports from the food bank to confirm the funds were used as intended.
- Specify that the funds are to support exempt purposes aligned with the church’s mission.
3. Adjust requirements after IRS approval
Once the food bank receives its 501(c)(3) exemption determination letter, your church may choose to relax its documentation and accountability requirements. However, maintaining some level of oversight is always a best practice.
Can churches make grants to non-501(c)(3) organizations?
Yes, churches are permitted to make grants to non-501(c)(3) organizations. However, the church must document that the grants are being used to further its own exempt purposes. Proper documentation helps protect the church from potential liability and ensures transparency with donors.
Additional Resources for Understanding 501(c)(3) Requirements
For further insights into 501(c)(3) compliance and grant-making, consider these resources:
FAQs
1. What is a 501(c)(3) organization?
A 501(c)(3) organization is a nonprofit entity recognized by the IRS as tax-exempt due to its charitable, religious, educational, or similar purposes.
2. Can churches donate to organizations without 501(c)(3) status?
Yes, but churches must document that the donations are being used for exempt purposes aligned with their mission.
3. What happens if a church donates without documentation?
Failure to document the use of funds could lead to questions about the church’s compliance with its tax-exempt status and trust of funds.
4. How long does it take for a food bank to receive 501(c)(3) approval?
The IRS typically takes several months to review and approve 501(c)(3) applications, but processing times can vary depending on the complexity of the application.
By following these guidelines, your church can confidently support charitable efforts while maintaining compliance with IRS regulations and donor expectations.
