Q&A: Are We Automatically Exempt Because We Are a Church?

Many churches seek recognition of tax-exempt status from the IRS because it offers assurance that the church is recognized as exempt and qualifies for related tax benefits.

I am confused about our church’s tax-exempt status. Are we required to apply to the IRS for recognition of exemption, or are we automatically exempt because we are a church?

Churches that meet the requirements of section 501(c)(3) of the federal tax code are automatically considered tax-exempt and are not required to apply for and obtain recognition of tax-exempt status from the Internal Revenue Service (IRS). Section 501(c)(3) imposes the following five requirements:

a church must be organized exclusively for exempt purposes;
a church must be operated exclusively for exempt purposes;
none of a church’s resources can “inure” to the benefit of a private individual, other than reasonable compensation for services performed;
the church may not engage in substantial efforts to influence legislation; and
the church may not intervene or participate in any political campaign on behalf of or in opposition to a candidate for public office.

The IRS further provides further explanation on its page devoted to churches, integrated auxiliaries, and conventions or associations of churches.

Although there is no requirement to do so, many churches seek recognition of tax-exempt status from the IRS because such recognition assures church leaders, members, and contributors that the church is recognized as exempt and qualifies for related tax benefits. For example, contributors to a church that has been recognized as tax exempt would know that their contributions generally are tax-deductible.

Churches that satisfy these five requirements are automatically exempt from federal income taxes. They are not required to obtain official recognition of exemption from the IRS by submitting an exemption application form (Form 1023) like most other public charities.

A church with a parent organization may wish to contact the parent to see if it has a group ruling. If the parent holds a group ruling, then the IRS may already recognize the church as tax exempt. Under the group exemption process, the parent organization becomes the holder of a group ruling that identifies other affiliated churches or other affiliated organizations.

A church is recognized as tax exempt if it is included in a list provided by the parent organization. The parent is then required to submit an annual group exemption update to the IRS in which it provides additions, deletions, and changes within the group. If the church or other affiliated organization is included on such a list, it does not need to take further action to obtain recognition of tax-exempt status.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.