Establishing a 501(c)(3) Ministry at Church
Do we need to start a separate tax-exempt entity?

Question:
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.?

Answer:
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.

Log In For Full Access

Interested in becoming a member? Learn more.

View All
from our store
Church Finance

Church Finance

Learn about budgeting, financial reporting, tax compliance, insurance coverage, and more.
2019 Church & Clergy Tax Guide

2019 Church & Clergy Tax Guide

Find comprehensive help understanding United States tax laws as they relate to pastors and churches.
Politics and the Church

Politics and the Church

Tax and legal guidelines faith-based organizations need to know before jumping into the political fray.
Unrelated Business Income — The General Rules

Unrelated Business Income — The General Rules

How unrelated business income, and the possible taxes owed from it, works for churches.

ChurchSalary

ChurchSalary

Experience a whole new way to set compensation. Eliminate the guesswork – get access to detailed compensation reports in just minutes.