For purposes of U.S. tax law, churches are considered to be public charities, also known as Section 501(c)(3) organizations. As such, they are generally exempt from federal, state, and local income and property taxes. “Exempt” means they don’t have to pay these taxes. This is so even though they may earn substantial amounts of money.

Not just anybody can call themselves a church and enjoy a tax exemption. An organization must be an authentic church to qualify. For tax purposes, a church is a place of worship including Christian churches, temples, mosques, synagogues, and other worship places. Churches also include conventions and associations of churches—for example, the United Methodist Church or the Southern Baptist Convention. “Integrated auxiliaries” of churches—seminaries, for example– also qualify.

Usually, it’s pretty obvious whether an organization qualifies as a church. However, where questions arise, the IRS looks at the following factors to determine whether an organization is a church for tax purposes. These include whether it has:

    •  a distinct legal existence
    • a recognized creed and form of worship
    • a definite and distinct ecclesiastical government
    • a formal code of doctrine and discipline
    • a distinct religious history
    • a membership not associated with any other church or denomination
    • ordained ministers ministering to its congregations
    • ordained ministers selected after completing prescribed studies
    • a literature of its own
    • established places of worship
    • regular congregations
    • regular religious services
    • Sunday schools for religious instruction of the young, and
    • schools for the preparation of its ministers.

No single factor determines the answer, and not all factors must be present. This is something the IRS decides on a case by case basis.

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

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