What It Means To Have A 508c1a Church

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.

Most importantly, forming a 508(c)(1)(a) does not absolve you of rules, regulations or mandates.

If you are forming a church, you can choose to apply for tax exempt status under IRS Code Section 26 501(c)(3). 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. 

A popular misconception is that you can circumvent the code by considering yourself a church under the ‘exception’ of 508(c)(1)(a). However, if you dig deeper, you’ll discover that while this structure does come with the benefits of not seeking approval or reporting requirements, a church operating under 508(c)(1)(a) is actually still accountable to all the other rules of 501(c)(3).

This is actually an automatic default for a church that doesn’t go through the 501(c)(3) application process with the IRS. It’s not something you request. If you have formed a church, by default that organization qualifies under 508(c)(1)(a) until your application for a different status is accepted. Also by default, your church is expected to follow the guidelines for 501(c)(3).

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

  • Tax Exempt, but you cannot issue tax deductible receipts for donations (well, you CAN, but it could lead to an audit which forces your donor to prove you’re a bona fide church)
  • Exception from Federal reporting (does not file a tax return)
  • Not subject to public scrutiny due to the nonreporting requirements required by the 501(c)(3) status
  • Not required to file for non-profit status with the IRS
  • A 508(c)(1)(a) is subject to all the rules of 501(c)(3)

So does your organization meet the definition of ‘church’? Actually the IRS has not defined ‘church’ and legally cannot. 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.

Besides operating as a bona fide church in multiple other ways, it’s recommended that you have a ‘Definite and Distinct Ecclesiastical Government.’ Your properly formed founding documents are the bedrock of your Ecclesiastical Government.

There is also the option of a Free Church. The roots of the Free Church date back to the founding of our nation. While it’s recommended that your Free Church follows the guidelines for being recognized as a Church in the event of a challenge (audit), the Free Church is founded on the principle that the government does not hold authority over its existence.

Learning the ins and outs of how to best form the foundation of your church is something I can help with. Besides operating as a bona fide church in multiple other ways, it’s recommended that you have a ‘distinct legal existence’ and ‘definite and distinct ecclesiastical government.’ Your properly formed founding documents are the bedrock of your legal existence and ecclesiastical government.

If you’re considering forming a Private Membership Association (PMA) or Faith Based Organization or Church, please reach out to me before you commit to any documents. I can help you navigate some potential pitfalls and misinformation that are currently being promoted in the freedom community.

If you decide this path is correct for your organization, I can provide you with document templates for the creation of your church or association at a fraction of the cost of what most are charging for founding documents.

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