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Unincorporated Associations  §6.01


In general, any church that is not a corporation is an unincorporated association. The term unincorporated association is defined as any group "whose members share a common purpose, and … who function under a common name under circumstances where fairness requires the group be recognized as a legal entity."[2] Barr v. United Methodist Church, 153 Cal. Rptr. 322, 328 (1979), cert. denied, 444 U.S. 973 (1980). One court has observed:

A church or religious society may exist for all the purposes for which it was organized independently of any incorporation of the body … and, it is a matter of common knowledge that many do exist and are never incorporated. For the promotion of religion and charity, they may subserve all the purposes of their organization, and generally, need no incorporation except incidentally to further these objects. [3] Murphy v. Taylor, 289 So.2d 584, 586 (Ala. 1974), quoting Hundley v. Collins, 32 So. 575 (Ala. 1901).

A few ministers have claimed that their church is free from all government regulation, including compliance with federal payroll tax reporting obligations, because the church is unincorporated. This view has been summarily rejected by the courts, in some cases resulting in substantial penalties and liabilities for the church. To illustrate, one church stopped filing federal employment tax returns and withholding or paying federal employment taxes for its employees. Church leaders insisted that the government could not regulate an unincorporated "New Testament church." When IRS attempts to discuss the matter with church leaders failed, the IRS assessed $5.3 million in unpaid taxes and interest. The IRS asked a federal court to enter a judgment for the full $5.3 million and to foreclose on a tax lien the IRS had placed on the church's property.

The church claimed that the First Amendment guaranty of religious freedom prevented the IRS from applying payroll tax reporting requirements to churches opposed on religious grounds to complying with those requirements, and also prohibited the IRS from penalizing noncompliant churches for failing to comply. The court rejected the church's position, noting that "neutral laws of general application that burden religious practices do not run afoul" of the First Amendment. Since federal employment tax laws are "neutral laws of general application" (they apply to a large class of employers and do not single out religious employers for less favorable treatment), they do not violate the First Amendment.

This case demonstrates that any attempt by a church to avoid compliance with federal payroll tax obligations (including the withholding and payment of income taxes and Social Security taxes) on the basis of the First Amendment will be summarily rejected by the civil courts. Indianapolis Baptist Temple v. United States, 224 F.3d 627 (7th Cir. 2000).

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