501(c)(3) Purposes Defined: Religious

We’ve talked in the past about 501(c)(3) charitable purposes…what they are and how they’re defined. Today, we’re going to start a series where we spend a little more time exploring each of the categories and looking at the types of nonprofits that might fit in each.

We’ve well established the fact that all 501(c)(3) nonprofits must satisfy a charitable purpose. We put out a video a while back where we looked at each category and briefly described them. In fact, it’s one of our most watched videos.

The acceptable categories of charitable purposes that qualify for 501(c)(3) status are as follows:

• Religious
• Educational
• Scientific
• Literary
• Testing for public safety
• Amateur sports promotion
• Prevention of cruelty to animals and children
• Generally charitable

Today, we are going to take a deeper look at the “Religious” category.

Section 501(c)(3) of the Internal Revenue Code states that promotion of religion is a charitable purpose that qualifies for tax exempt status. Interestingly, the IRS treads pretty lightly when it comes to defining religion. In fact, they really don’t try, and that’s a good thing. The definition of religion is really in the hearts and minds of the believer and it can span a pretty wide gamut of possibilities.

Federal law merely says that to qualify as religious, your beliefs must be:

1. Truly and sincerely held
2. Your activities don’t violate other well-established law as a manner of acting.

For example, if you truly and sincerely believe that Christ was God who took on flesh and gave his life and was resurrected to redeem sinful man, that’s religion. By the same token, if you truly and sincerely believe that the pinnacle of religion is understanding and aligning with the 7 chakras, well, that’s religion, too.

So essentially, any nonprofit entity that exists for the primary purpose of promoting religion qualifies for 501(c)(3) status. What’s interesting is the variety of organizational types that satisfy this purpose, and how the IRS treats them differently.

The first category that I’ll go over here is the “general promotion of religion”. Now, the IRS doesn’t have a named sub-category called general promotion of religion…that’s just what I’m calling it. But in this group of entities is any nonprofit that has the primary purpose of promoting religion, but isn’t a church or a religious order, the two sub-categories I’ll talk about next.

Examples that I would put in the general promotion of religion category include:

• Missionary organizations
• Evangelistic ministries
• An independent seminary that isn’t part of a church
• Basically, any nonprofit that teaches or promotes religious activity as its primary function.

Now, this list looks rather Christian, I suppose, and that’s probably true given my personal filter. But you could just as easily include a Buddhist study group or a Jewish nonprofit that provides instruction in the Torah or Talmud. The possibilities go on and on.

What is common among groups that fall into this general promotion of religion category, however, is the need to follow the same universal procedures as other 501(c)(3)’s to get launched and maintain 501(c)(3) status. Those being:

• Incorporate
• File Form 1023 to apply for 501(c)(3) status
• Once approved as a 501(c)(3), file Form 990, what amounts to your annual tax return, every year without fail, and Make sure you continue to qualify as a 501(c)(3) by consistently fulfilling a religious purpose

Our next sub-category is that of a church. A church is defined for IRS purposes as a specific type of religious organization that has several defining characteristics, including

• The conduct of organized religious worship
• A congregation that meets regularly at a defined, tangible place
• A clergy member or members that leads the congregation
• A defined belief system and/or creed, and
• Religious instruction of the children

It’s important to point out that this list is very subjective. Organizations can be approved as churches with only some of this list satisfied. It just depends on the weight of evidence when the IRS is reviewing the 501(c)(3) application.

What you will notice here is an interesting thing. One is the need for a regular place of worship. At least as of now, the IRS still expects that to be a real place, not a virtual place. We get asked quite often about helping someone establish a virtual online church. And that will work, but it works as a generally religious charity, not a church. Will the IRS eventually cave on that? Hard to say, as they’ve never mentioned it that I’m aware of.

The other part of this sub-category is what’s called Associations of Churches. Think of these as denominations or groups of churches, such as the Southern Baptist or Presbyterian Church in America denominations. The IRS makes no distinction between a local congregation and these greater collectives of churches.

So why does any of this matter? What’s the difference between qualifying as a church vs. as a generally religious charity if both are considered religious for 501(c)(3) purposes? It comes down to two primary reasons.

Number one is the process for obtaining 501(c)(3) status. Churches and associations of churches are considered 501(c)(3) automatically just by virtue of existing. In other words, a church doesn’t have to apply to the IRS for a 501(c)(3) determination letter in order to be 501(c)(3). It just is. This is spelled out in the Internal Revenue Code under Section 508(a).

There’s a lot of misunderstanding and misinformation about this topic, and I mean a ridiculous amount. And for what it’s worth, although churches have this status of 501(c)(3) tax-exemption by default, we highly recommend most churches seek official 501(c)(3) determination by filing Form 1023 anyway. There’s a variety of reasons for that, one of which is that it’s better for your donors.

The second reason why the difference between a church and a generally religious charity matters comes after you’ve obtained 501(c)(3) status. Churches are exempt from filing Form 990 every year. They simply do not have to do it. They can do it voluntarily, and a few do, but most don’t. That exemption, however, does not relieve the necessity of operating in a tax-exempt manner and maintaining accurate books and records. So don’t get sloppy simply because you don’t have to file a Form 990!

Our third sub-category of religious organization is the Religious Order. Now, religious orders are interesting organizations. There aren’t many of them by numeric standards, so I’ll just hit the high points.

A religious order is a group of adherents who live together communally and maintain a life of general separation from society at large for the purpose of studying and living out their religion. Monasteries can fall into this category. Generally speaking, religious orders are connected to a church or association of churches by affiliation. But, religious orders often seek their own 501(c)(3) status. The reason is that their members may receive tax exclusions, like the requirement to participate in Social Security, by being a member. That in itself is a very complicated conversation that we won’t bother with today.

Religious orders DO have to file for 501(c)(3) recognition as a religious charity. They can’t get that automatically like a church can. They are, however, generally exempt from filing Form 990 each year, so long as they are organized for exclusively religious purposes.

You didn’t realize that these categories of charitable purposes could go so deep, did you? It’s like peeling an onion. There’s layer after layer. I hope you learned a bit more about the 501(c)(3) religious category.