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. ...
(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
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.
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.
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.
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.
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.
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.