IRS Compliance FAQ:
Is our church required to have a 501(c)(3) “determination letter” from the IRS stating that we are exempt from federal income tax?
No. Contrary to popular belief, churches are automatically considered tax-exempt and are not required to file for formal recognition as such.
If we incorporate a ministry, will it be automatically 501(c)(3) exempt, and will it be required to file an annual Form 990?
Most independent ministries are required to apply for 501(c)(3) status by filing IRS Form 1023, which is a detailed and tedious process. Additionally, most of these ministries are required to file an annual Form 990 (an informational return). However, there are several types of organizations that are exempt from one or both of the Form 1023 and Form 990 requirements. These include churches, integrated auxiliaries of churches, and foreign missions societies. Contact us for details on how to set up these preferred entities.
Are the housing allowances our church pays in jeopardy of being reclassified as salary?
Housing allowances are limited to the lesser of three factors: (i) the amount actually spent on housing-related expenses, (ii) the fair rental value of the home, and (iii) the amount formally designated as housing allowance in advance by the church by the board of directors. The most commonly overlooked of these is the requirement that housing allowances be officially designated by the church. In order to properly document their designation, they should be recorded in the annual board of directors’ minutes of the church before they are paid (in other words, at the beginning of each year).