Tax Exemption and Fellowship
For Churches & Para Church ministries
All churches in the United States are automatically tax exempt if they meet the criteria of the Internal Revenue Service. However, it is important to understand that to protect those that donate to the ministry, be it financial, personal property, land, buildings, etc., it is highly recommended that a church or para-church ministry have tax exemption status under section 501(c)(3) of the IRS Code. A para-church ministry (church controlled) such as a outreach ministry, must have tax exemption status before it can legally consider its income as tax exempt and to issue contribution receipts to donors. There are two ways to obtain such status.
By applying directly to the IRS using their form 1023. You will be required to submit a nonrefundable application fee will be approximately $800. You will also be required to submit a 2/4 year projected budget along with other originating and operating instruments. You may also find it necessary to use the services of an attorney, as the procedure can get a little complicated. The attorney fees vary. It is not uncommon to pay $3,000 to $4,000.
A simpler way is to associate with an organization, such as GMCI, that has group exemption status with the IRS. Coming under our umbrella, so to speak, allows your church to remain sovereign within itself, but have exemption under section 501(c)(3). This also provides spiritual covering and opportunities for networking with other churches and ministries. Churches affiliation is by application only.
Does the fellowship/organization you are considering to join have GROUP exemption status?
Though it may be tax exempt itself, not all fellowships/organizations have group exemption status. This could cause members many problems, including the rejection of their contributors personal income tax deduction. If a fellowship/organization has not been issued a four digit group exemption number by the IRS, they DO NOT have group exemption status.
Tax Exemption Numbers
It is important to understand that there is NO SUCH THING as a TAX EXEMPTION NUMBER. Many times, this is confused with an Employer Identification Number (EIN). What confirms tax exemption status is a Letter of Determination from the IRS. One must have an EIN in order to get a Letter of Determination, but the EIN by itself does not give exemption. Most banking institutions will require an EIN prior to opening a checking account.
Other Purposes for 501(c)(3)
There are several benefits to 501(c)(3) tax exemption status. It is necessary in order to get a non-profit bulk mailing permit. Using such a permit can save hundred of dollars a year in postage.
Most food banks also require 501(c)(3) status in order to be a recipient of goods.
In some states, but not all, you may receive an exemption from sales tax if you are a 501(c)(3) entity.
There are several charities and corporations that require a recipient to be a 501 organization before they will donate to that organization.