Acquiring Church Status
14 Points Overview
There are tax rate schedules for income that a church receives from operations that are not clearly within its exempt function. This income is termed “unrelated business income.” You must consult a tax advisor or attorney to learn of and understand the requirements. The Zondervan books make these issues clear and every organization would be wise to consult the Zondervan books for technical advice.
The four important issues above apply to all exempt organizations (organized and operated, no part of the net may inure, dissolution, and no political activity), but it does not address whether an organization is a Church or a Ministry and whether it is automatically exempt or must ask the IRS for exemption.
I direct your attention to the Zondervan Tax and Financial Planning Guide for Churches and Nonprofits. It has the list of the 14 Points, and details at length the regulations required by the IRS, including the situations where tax obligation is involved. The 14 Points will be presented at the close of this discourse. A church or religious organization must conduct its financial affairs in a professional manner, and as such must comply with the accounting practices generally applicable to all businesses. It is necessary as a matter of good business practice to have a tax advisor and/or attorney to advise the organization properly on an ongoing basis. While the tax code is clear as to what aspects are involved in tax-exempt status for organizations, there are revenue rulings and other aspects of the tax code that are more difficult to understand.
Ministry or Church…organizers assert church status…
No new group has to have every point in order to receive classification as a church from the IRS. The IRS understands this and is not out to harm any new organization or deny it church classification. During the late 70’s and 80’s thousands of individuals attempted to use the tax code provisions for churches to avoid taxation on their personal income. It was a loophole that could potentially hinder the effective processes of taxation and collection. We were wrong as an organization to attempt to use the tax laws purposely for personal gain without verifiable benefits to society as a whole. Those practices are long outdated and all legal information regarding them is publicly available at ourt ULC case law site.
The days of battling are in the past, and the IRS and the ULC are both resolved in all issues.
U.S. 9th Circuit Court of Appeals, Universal Life v USA. “The IRS revoked the Church’s tax exempt status on January 8, 1991 for fiscal years ending April 30, 1982 through April 30, 1985. The revocation letter further stated that the Church was required to file federal income tax returns for these years, pursuant to I.R.C. S 6012. The total amount of taxes, with interest, is estimated by the Church to be in excess of six million dollars.” The IRS found that the Modesto church was using the funds for private gains.
Congregations are now independent entities, not sharing the exempt status of the Mother Church. In the 70’s and 80’s the procedure was that the EIN number of the Modesto Church was to be used by the congregations. That is no longer the situation and every congregation must seek out its own EIN number (Employer’s Identification Number) which is a simple process on Form SS4.
That is the first step taken by resolution by the new organization and application is made to the IRS for the EIN number which remains the identification number of the organization thereafter. A resolution authorizing the application for the EIN in the new organization’s name should be kept in the permanent records of the new organization.
Each individual congregation is a “sovereign” entity. The Universal Life Church Ministries is not responsible in any way for the financial affairs or the liability issues of any congregation. Neither is a general agent of the other.
There is no responsibility of the Mother Church to defend or in any way lend support of any kind other than religious encouragement to the congregation and to supply religious materials as the needs may require upon request.
Giving with the intent or expectation of receiving anything in return is called a “quid pro quo” situation. Such quid pro quo giving is not entitled to tax deductible status.
Donations to be considered donations for income tax-deductible status must be made with no expectation of any benefit returning to the donor if they are to be claimed as charitable deductions to the donor.
A second possible scenario may be: A group of individuals wish to form a church and carry out church activities. It forms the organization and develops a Statement of Beliefs and Practices AND DOES THEM. The organization is aware of the 14 Points and meets all or many of those points, and is able to provide proof of their activities or a plan for activities in the future. This organization may have the belief that it is a church and is organized and operated in the general manner of churches. It is just their “call” – it is really difficult to determine, and going to the IRS in the first instance would be the appropriate manner to avoid difficulties later in the operation of the new organization and acceptance of its tax-deductible receipts to donors.