Q&A: Establishing a 501(c)(3) Ministry at Church

Do we need to start a separate tax-exempt entity?

We’re looking for funding to help with summer activities for youth, such as day care programs, field trips, community involvement, tutoring, etc. Since we originally included education as a part of our ministry, would these activities fall under the church’s bylaws, or do we need to establish a new 501(c)(3) as a separate entity apart from the church? If so, would we need to set up a new corporation, complete with board of directors, bylaws, articles of incorporation, etc.?
Churches sometimes form separate 501(c)(3) organizations to carry out certain activities that the church itself would ordinarily be able to conduct. The reasons for doing so are typically based on some practical expedience factor, such as a desire to limit exposure to liability (either way), difficulty in attracting grant funds from grant funders who, by policy or preference, are reluctant to make grants to a church, or for a variety of other practical reasons.
Since churches are themselves 501(c)(3) organizations, it is generally true in federal tax law that the activities that may be carried out by such “subsidiary” 501(c)(3) entities are of a type that could be carried out by the church itself, should it choose to do so.
The matter of whether a given activity is within the stated mission or purposes of a church is very fact-specific and should be addressed by the church with its legal counsel. In fact, legal counsel should advise the church regarding the potential use of a separate 501(c)(3) entity as well, to address liability insulation and other legal factors.
Even if a given activity does not conform to a church’s stated mission or purposes, the governing documents of the church may be amended as necessary. This, too, is a matter to be addressed with legal counsel.
Michael (Mike) E. Batts is a CPA and the managing partner of Batts Morrison Wales & Lee, P.A., an accounting firm dedicated exclusively to serving nonprofit organizations across the United States.

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