• Remember Freedom

    Rediscovering a Little-Known Tax Code about Religious Freedom

  • Tax Code

    Did you know? Churches are tax-exempt and tax-deductible -- by default. No 501c3 needed.

    It's a little-known fact, but see for yourself:

    Special Rules with Respect to 501(c)(3) Organizations

    (a) New organizations must notify Secretary that they are applying for recognition of section 501(c)(3) status except as provided in subsection c. ...

    (c) Exceptions.

    (1) Mandatory exceptions. Subsections (a) and (b) shall not apply to --

    (A) Churches, their integrated auxiliaries, and conventions or associations of churches.

    Application for Recognition of Exemption (pg.22-23)

    Your organization must file its application for recognition of exemption on Form 1023. ... Some organizations are not required to file Form 1023. These include: churches, interchurch organizations ... , religious school, mission society, or youth group.

  • The 508 Church

    How Churches Always Were -- Until 1898

    508(c)(1)(A) Status

    Freedom from Federal Regulation

    For over a century, American churches spoke freely on the vital issues of the day. They paid no taxes, were tax deductible, and enjoyed "independent but friendly relation to the civil government." Common practice has changed much since then, but that freedom is still available today. We call it a 508 Church.

    Unincorporated

    and the Boom of the Industrial Age

    Until 1898, churches were rarely even incorporated. But as we pioneered the Industrial Revolution, our culture was understandably set abuzz with a love of systematizing & efficiencies. Industrialists like Andrew Carnegie convinced entire denominations to incorporate, and so bring themselves under state regulation.

    501(c)(3) Status

    The Johnson Amendment and Beyond

    America's economy was changing the world. In an understandable excitement, churches also took on 501c3 status. IRS regulation was added to State, and 508 status was largely forgotten. This wasn't a problem at first. But over the decades, restrictions to 501c3 status grew. Today, we believe they are beginning to encroach upon the freedom of the church. Let's review our options, and rediscover the 508 Church.

  • 508 Status: What Religious Freedom used to mean

    "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof...."

    America's Grand Experiment

    America pioneered a new legal structure for its country. From the very beginning, this included an entire lack of regulation on churches. In the Bill of Rights, America's first commitment was that "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof . . . ."  It's a familiar passage, but what does that mean for your church?

     

    In 1888, Swiss-born Historian Philip Schaff praised it as marking a new epoch -- "a free church in a free state, or a self-supporting and self-governing Christianity in independent but friendly relation to the civil government." (from Church & State in the United States)

    Independent but Friendly Relation to the Civil Government

    That's what a 508 church is. It was central to our Founding Fathers' notion of freedom. In the US Tax Code, we see this too -- churches are not even categorized. A variety of legal entities are, and each has a set of regulations. But churches are only mentioned throughout the Code as being exceptions. This is because the Constitution placed them outside the scope of federal regulation. 

     

    That doesn't mean the citizens don't have to obey US law. It means that the church as an organization is protected from federal regulation. In the days of the Founding Fathers, this restriction was all over Europe -- even in their own Church of England. That's why it was so important to them to put the church outside the scope of federal regulation. And this is the freedom American churches still have by US law. We call them a 508 Church.

  • "It would be a great calamity if religion were to become subject to our ever-changing politics."

    from Church & State in the United States

    by Swiss Historian Philip Schaff, 1888

  • How Things Changed

    The Industrial Revolution and its Effects on Church Culture

    Articles of Incorporation

    Back in the day, churches were rarely even incorporated. It was redundant to do so.

     

    When Congress passed a bill to grant church incorporation in 1811, it was promptly vetoed. President James Madison, one of the seven key Founding Fathers of the Constitution, vetoed it on principle: 

     

    "the bill exceeds the rightful authority to which governments are limited by the essential distinction between civil and religious functions, and violates in particular the article of the Constitution of the United States which declares that 'Congress shall make no law respecting a religious establishment.'" (James Madison: Writings, 1772-1776 , Library of America)

    The Essential Distinction between Civil and Religious Functions

    This precedent was respected for the rest of the century. But times changed. America attracted the most vibrant business culture in the world. It pioneered the Industrial Revolution, and became an economic world leader. And this from youngest country in the globe! Our culture was understandably abuzz with a love of systematizing and efficiencies.

     

    In the 1890s, the States began a historical race of to streamline their incorporation process and thus attract businesses. It was opened even to churches, and offered a way to more efficiently do commerce and handle litigation. Industrialist tycoons like Andrew Carnegie, Cleveland Dodge, and John Wanamaker sat on the Boards of various mainline denominations, and were influential in convincing entire denominations to incorporate. (The Organizational Revolution, pg.s 41-42)

     

    This wasn't a problem at the time, but it set the stage for the problems we face today. These articles of incorporation include a promise to adhere to all present and future State regulations. Thus churches departed from their First Amendment freedom and submitted to all state regulations pertaining to corporations. It traded some of its freedom for certain efficiencies of commerce and litigation.

    501c3 Status: Present and Future Regulation

    Next came the widespread adoption of 501c3 status. This gave large and estate donors the extra assurance of a church's tax deductibility, even though churches were already tax deductible by default. This was the second step into the world of regulation -- this time promising to adhere to all present and future IRS regulations.

     

    It wasn't a problem until 1954, when 501c3 amendments began to restrict the free speech of such organizations. The Johnson Amendment simply restricted 501c3s from endorsing a political candidate. But this gradually expanded to prohibit the influencing of legislation. And as more and more social issues were politicized, this restriction began to press into the realm of social issues.

     

    Today, churches in Massechussets face LGBT public accommodation laws, and christian businesses have been forced to support gay marriage. We anticipate that such regulations will continue to increase. That's why we believe it is timely for you to review the two sets of promises your church has made to the state and federal government. In your 501c3 application (and probably in your articles of incorporation (see Section 4(b)), you promised to adhere to all present and future Federal (and probably State) regulations. It's time to understand what this means for you, and see if being a 508 Church is right for you. As with all freedom, there is a cost to it.

  • The Cost of Freedom

    As you reconsider your legal status, we recommend first re-examining your 501c3 status. We've provided a complete checklist of things to consider at the bottom of the website, but here's an overview:

     

    The Cost of Becoming a 508 Church

    1. No 501c3 Grants. If you rely on federal or state grants to run parts of your ministry, you'd have to do some shifting. The workaround is to incorporate that ministry separately as a 501c3, distinct from your 508 Church.

    2. No IRS Stamp of Approval. You won't have the extra assurance of an IRS certificate proving your federal exemption & deductible status. It will rest on your actually being a church, and not a tax evasion scheme (which has happened before). See our checklist at the bottom for details.

     

    The Gain of Becoming a 508 Church

    1. No IRS Regulation. Without IRS regulation, you don't have to worry about losing 501c3 status if you mention a politician, or talk about what the Bible calls sin (which is increasingly being seen as a form of "hate speech"). You are also better positioned in the growing pressure for churches to perform gay marriages, or provide LGBT accommodations.

    2. No IRS Reporting. Outside of 501c3 status, you won't have any accounting requirements from the IRS.

    3. Non-Taxable & Tax Deductible . More than just being tax-exempt, churches are non-taxable -- they fall outside the scope of IRS regulation. 508 Churches are also tax fully deductible. (IRS Publication 526, pg.2)

  • Next Steps

    To help you consider all the implications of becoming a 508 church,

    we've put together a list of the questions you'll need answered.

    Below is a checklist for reconsidering 501c3 status;

    check back soon for one on reconsidering incorporation.

  • Be Free.

    This website is a gift for Jesus' church -- part of a sharing project called The Toolshed, launched by a tech company in Durham, NC.

     

    Was this site helpful? Share feedback, request resources, or share your story of switching to a 508 Church.

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We are not lawyers; this website does not constitute legal advice. But we are pointing out very relevant parts of the law -- we're a 508 Church ourselves. If you're looking for legal advice, Helping Hand Outreach specializes in helping churches become 508 Churches. We've never used them, but they do have a lawyer on staff, and over 20 years of experience on this issue.

We expect this will prompt you to study the issue yourself, especially to become informed on the relevant laws in your state. Make your own decision. We've worked hard to provide pure and accurate information. We've cited our sources, had it fact-checked by others, and are practicing it ourselves. We see nothing inaccurate in here. If you do, please let us know. We want this site to bless you.