What It Means To Have A Non Taxable 508c1a

If you have a faith-based church ministry, you can choose to apply for tax exempt status under IRS Code Section 26 501c3.

There’s a lot of buzz around ‘508s’ and I thought we should take a minute to clear up some details.

If you have a faith-based church ministry, you can choose to apply for tax exempt status under IRS Code Section 26 501c3. Applying in this way, you are asking permission from the IRS to handle your church or ministry affairs without being subject to taxation. You will file a return every year and include all the various reporting paperwork required to maintain your status. 

Or, you can opt for the little known exception to that code, under 508c1a.

508c1a is an exception to taxation, rather than an exemption. It’s not something you request. If you have formed a faith based organization, by default that organization qualifies under 508c1a until you apply for a different status.

The advantages of being 508(c)(1)(a) Faith Based Organization include rights guaranteed under Federal Law 26 U.S.C. § 6033(a)(3(a) 

  • Tax Exempt, and can give tax deductible receipts for donations
  • Freedom of Speech, including, but not limited to, politics, referendums, initiatives, and candidates
  • Exception from Federal reporting (does not file a tax return)
  • Exception from “rendering under oath such statements, make such other returns, and comply with such rules and regulations as Secretary (IRS) may from time to time prescribe”
  • Not subject to public scrutiny due to the nonreporting requirements required by the 501c3 status
  • Not required to file for non-profit status with the IRS
  • The Founding Members cannot be removed from the Board of Directors

So does your organization meet the definition of ‘church’? Actually the IRS has not defined ‘church’ and may not, thanks to our founders. It has published the following examples of what they consider to be a church. The following is from the IRS website:

The term church is found, but not specifically defined, in the Internal Revenue Code. With the exception of the special rules for church audits, the use of the term church also includes conventions and associations of churches as well as integrated auxiliaries of a church.

Certain characteristics are generally attributed to churches.  These attributes of a church have been developed by the IRS and by court decisions.  They include:

Distinct legal existence

Recognized creed and form of worship

Definite and distinct ecclesiastical government

Formal code of doctrine and discipline

Distinct religious history

Membership not associated with any other church or denomination

Organization of ordained ministers

Ordained ministers selected after completing prescribed courses of study

Literature of its own

Established places of worship

Regular congregations

Regular religious services

Sunday schools for the religious instruction of the young

Schools for the preparation of its members

The IRS generally uses a combination of these characteristics, together with other facts and circumstances, to determine whether an organization is considered a church for federal tax purposes.

The work I do in helping people form their Faith Based Ministry falls under the category of 

‘Definite and Distinct Ecclesiastical Government.’ Your properly formed founding documents are the bedrock of forming your Ecclesiastical Government.

We also take it up a level, creating documents that distinctly lay claim to our choice to operate solely within the private (vs public) domain. There are some consultants who will help you form a public 508c1a, via registering your church with the state. For my purposes, that is exactly what we are trying to avoid.

Unless you are fine with being subject to state legal statutes, do not register your faith based organization with the state. 

If this sounds like a fit for you, learn more here about how to begin the process of forming your own Private Ministerial Association. If you don’t meet the parameters of a faith based organization, you have the choice of a Private Membership Association, a secular option for organizing within the private domain. 

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