I often get asked whether or not churches (both established and church plants) need to file with the State and the IRS to become a nonprofit organization. The short answer is no. Churches, by definition, are already nonprofit organizations. However, many churches find that it is still in their best interest to apply to the IRS and become a registered 501(c)(3) nonprofit organization.
As churches grow and seek to serve through a variety of ministries that reach the community, leadership teams may want to think about registering with the IRS. Doing so will enable the church to solicit outside funding to support the ministry including grants from government and foundation sources. Establishing a new, separate organization will also enable the financial records of the ministry and the church to be kept completely separate.
On the other hand, when the decision is made, church members may feel that they no longer need to support the ministry. Running two separate organizations can be costly as well; registered nonprofits must file a 990 with the IRS each year; this tax form for nonprofits is usually completed by an accountant. It is also a good idea to have an independent audit each year to verify to supporters that the organization is operating under Generally Accepted Accounting Principles (GAAP).
Currently, because of the separation of church and state in the US, churches are not required to submit a 990; so registering with the IRS will change the church’s status and the church will be required to follow the rules of all 501(c)(3) nonprofits.
Confusing? A bit. Feel free to give us a call if we can help you. Watch our website, we will soon be offering a webinar on this topic.