3 myths of the 501(c)(3): When misunderstandings lead to misguidance
By Raul Rivera
YOU ARE NOT ALONE!
At our Ultimate Church Structure Conferences, I speak with many pastors who, unfortunately, have been misinformed about what 501(c)(3) tax-exempt status truly means and the impact it will have on their churches.
Pastors often attend our conference in the hopes of clearing up doubts and questions that they’ve been riddled with regarding tax law and church compliance.
For that very reason, I have listed below three of the most common misconceptions that I hear from pastors across the country regarding churches and 501(c)(3) tax-exempt status.
3 common misconceptions
Misconception #1: “Obtaining 501(c)(3) approval means my church will be a ‘state controlled church’; therefore, the government can tell me what to preach.”
When you do an Internet search on whether or not a church should obtain 501(c)(3) tax-exempt status, it is not difficult to find opinions that speak against it. Some claim that when a church incorporates and obtains 501(c)(3) status then that makes the church an organization under the control of the state. This sentiment is simply unfounded.
These voices fail to distinguish the difference between the Body of Christ (members of the Church) and the corporation (a completely separate entity from the members). The claim that incorporation or 501(c)(3) status makes a church “non-biblical by bringing the church under the authority of the government” has no theological validity because their premise for defining the church of Christ is off.
As members of the Body of Christ, we are to live in peace with, and subject to, the authorities that God has established (Romans 13; 1Tim. 2:1-3; 1Peter 2:13-17). We find that there is nothing in section 501(c)(3) that would make us violate any of God’s laws. It does not require us to water down the gospel or keep us from preaching it. It simply raises the level of accountability, which is necessary to combat the growing problem of improper use of tax-exempt status using the church model.
In fact, it’s for this reason that Congress passed section 7611, which now states that unincorporated churches shall be treated as incorporated for tax purposes. Although many who claim that receiving 501(c)(3) status is unfounded in Scripture are sincere, their claims are based on old lines of legal thought without any consideration for the current trends that are established through case law, which affect our legal system and the way the IRS enforces the law.
Misconception #2: “Obtaining 501(c)(3) approval would subject my church to participate in activities it does not condone.”
With last summer’s Supreme Court ruling that legalized same-sex marriage throughout the United States, many pastors and church leaders I speak with are concerned that if they obtain 501(c)(3) status then they, or their churches, will be forced to participate in activities they do not condone. Although this is a valid concern for pastors and churches to have, this sentiment is not entirely true.
Although there is nothing within section 501(c)(3), or the tax code for that matter, that requires churches to participate in activities they do not condone, we believe that now is the time for all churches, whether they have or have not obtained 501(c)(3) status, to be prepared for what may come. The church is called to be the head and not the tail.
Therefore, we believe your church can prepare and protect itself by implementing, what we call, a “Prohibited Activities Clause” to your church’s bylaws and establishing Written Doctrines that are separate from the bylaws. There is a strategy behind this that we teach at all of our conferences.
Misconception #3: “Obtaining 501(c)(3) approval is not required.”
With just a small amount of searching online, you will find many groups teaching that applying for 501(c)(3) is not necessary for churches because of section 508(c)(1)(a). These groups have the mistaken and misinformed notion that by simply not applying for 501(c)(3) status, the church entity is not required to meet any of the requirements of section 501 and the IRS cannot revoke its exempt status. However, this is simply not true.
Now yes, section 508(c)(1)(a) provides that churches do not have to apply for 501(c)(3) status. However, in a case heard before the United States Tax Court (Jack Lane Taylor v. Commissioner), the court ruled that “Section 508(c)(1) simply relieves churches from applying for a favorable determination letter regarding their exempt status as required by section 508(a).” Nothing in section 508(c)(1) relieves a church from having to meet the requirements of section 501(c)(3).
Where we stand on the matter
In my firm and honest opinion, I believe that applying for 501(c)(3) status is the best First Amendment defense available to your church. Through our StartRIGHT® Program we have helped thousands of churches and ministries to protect that which God has entrusted to them. When you apply for 501(c)(3) status, your organizational and governing documents (articles of incorporation, bylaws, written doctrines, etc.) all become a part of your public record.
If, after reading this, you have further questions, we have the answers! Please feel free to reach out to us at (770) 638-3444. And be sure to download our helpful eBook.
Church Planter. Speaker. Author. CEO. Raul Rivera has had ample experience in the church planting world. His current venture, StartCHURCH, has helped thousands of churches to start right. Rivera has compiled an array of manuals and software tools that help churches stay compliant with the IRS. He also hosts more than 35 national conferences per year, training pastors on how to launch their churches. Raul is married to his wife, Genel. They and their five children live in Atlanta.