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The Tax Code's "No Inurement" Limitation

Failure to meet certain conditions can jeopardize a church's exempt status.

To be exempt from federal income taxation, a church must satisfy several conditions enumerated in section 501(c)(3) of the tax code. One of these conditions is that no part of a church's net earnings may "inure" to the personal benefit of an insider. A related condition is that a church cannot provide a substantial "private benefit" to anyone. It is important for church leaders to be familiar with these conditions since a violation jeopardizes a church's tax-exempt status. This article explains these requirements in light of the most recent precedent and identifies church practices that may violate one or both limitations.

Inurement defined

Section 501(c)(3) of the federal tax code exempts the following organizations from federal income tax:

Corporations, and any … fund or foundation, organized and operated exclusively for religious, charitable … or ...

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Posted:
  • February 22, 2016

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