(please visit Peter Kershaw’s website–to see everything he has to offer)

Facts about 501c3 tax-exempt status for the church

501c3 Church Facts

Lyndon B. Johnson, LBJMost churches in America have organized as “501c3 tax-exempt religious organizations.”
This is a fairly recent trend that has only been going on for about fifty years. Churches were only added to section 501c3 of the tax code in 1954. We can thank Sen. Lyndon B. Johnson for that. Johnson was no ally of the church. As part of his political agenda, Johnson had it in mind to silence the church and eliminate the significant influence the church had always had on shaping “public policy.”

Although Johnson proffered this as a “favor” to churches, the favor also came with strings attached (more like shackles). One need not look far to see the devastating effects 501c3 acceptance has had to the church, and the consequent restrictions placed upon any 501c3 church. 501c3 churches are prohibited from addressing, in any tangible way, the vital issues of the day.

For a 501c3 church to openly speak out, or organize in opposition to, anything that the government declares “legal,” even if it is immoral (e.g. abortion, homosexuality, etc.), that church will jeopardize its tax exempt status. The 501c3 has had a “chilling effect” upon the free speech rights of the church. LBJ was a shrewd and cunning politician who seemed to well-appreciate how easily many of the clergy would sell out.

Did the church ever need to seek permission from the government to be exempt from taxes? Were churches prior to 1954 taxable? No, churches have never been taxable. To be taxable a church would first need to be under the jurisdiction, and therefore under the taxing authority, of the government. The First Amendment clearly places the church outside the jurisdiction of the civil government: “Congress shall make NO LAW respecting an establishment of religion, nor prohibiting the free exercise thereof.”

Religion cannot be free if you have to pay the government, through taxation, to exercise it. Since churches aren’t taxable in the first place, why do so many of them go to the IRS and seek permission to be tax-exempt? It occurs out of:

  • Ignorance (“We didn’t know any better”)
  • Bandwagon logic (“Everyone else is doing it”)
  • Professional advice (many attorneys and CPAs recommend it)

Does the law require, or even encourage, a church to organize as a 501c3? To answer that question let’s turn to what the IRS itself has to say.

Churches Need Not Apply

In order to be considered for tax-exempt status by the IRS an organization must fill out and submit IRS Form 1023 and 1024. However, note what the IRS says regarding churches and church ministries, in Publication 557:

Some organizations are not required to file Form 1023. These include:

Churches, interchurch organizations of local units of a church, conventions or associations of churches, or integrated auxiliaries of a church, such as a men’s or women’s organization, religious school, mission society, or youth group. These organizations are exempt automatically if they meet the requirements of section 501(c)(3).

Churches Are “Automatically Tax-Exempt”

According to IRS Code § 508(c)(1)(A):

Special rules with respect to section 501(c)(3) organizations.

(a) New organizations must notify secretary that they are applying for recognition of section 501(c)(3) status.
(c) Exceptions.

(1) Mandatory exceptions. Subsections (a) and (b) shall not apply to—

(A) churches, their integrated auxiliaries, and conventions or associations of churches.

This is referred to as the “mandatory exception” rule. Thus, we see from the IRS’ own publications, and the tax code, that it is completely unnecessary for any church to apply for tax-exempt status. In the IRS’ own words a church “is automatically tax-exempt.”

Churches Are “Automatically Tax-Deductible”

And what about tax-deductibility? Doesn’t a church still need to become a 501c3 so that contributions to it can be taken as a tax deduction? The answer is no! According to IRS Publication 526:

Organizations That Qualify To Receive Deductible Contributions

You can deduct your contributions only if you make them to a qualified organization. To become a qualified organization, most organizations other than churches and governments, as described below, must apply to the IRS.

In the IRS’ own words a church “is automatically tax-deductible.”

Churches Have a Mandatory Exception To Filing Tax Returns

Not only is it completely unnecessary for any church to seek 501c3 status, to do so becomes a grant of jurisdiction to the IRS by any church that obtains that State favor. In the words of Steve Nestor, IRS Sr. Revenue Officer (ret.):

“I am not the only IRS employee who’s wondered why churches go to the government and seek permission to be exempted from a tax they didn’t owe to begin with, and to seek a tax deductible status that they’ve always had anyway. Many of us have marveled at how church leaders want to be regulated and controlled by an agency of government that most Americans have prayed would just get out of their lives. Churches are in an amazingly unique position, but they don’t seem to know or appreciate the implications of what it would mean to be free of government control.” (please visit Peter Kershaw’s website–to see everything he has to offer)

Myths about 501c3 tax-exempt status for the church

501c3 church myths

  1. A church or church ministry must be 501c3 in order to avoid paying taxes.
  2. A church or church ministry must be 501c3 in order to be tax deductible.
  3. Churches should comply with all the laws of the land because Jesus said, “Render to Caesar the things that are Caesar’s” (Mr 12:17). Therefore, it is only right for a church to become a 501c3.
  4. Being a 501c3 helps to legitimize a church in the eyes of the world. After all, Paul said, “Providing for honest things, not only in the sight of the Lord, but also in the sight of men.” (2Co 8:21)

Myths #1 & 2 have been promulgated for years by swarms of attorneys, as well as some accountants. Both myths are patently false. When it comes to legal and tax matters, most people just assume that the “licensed professionals” know what they’re talking about. Little do people realize that far too many attorneys never personally study the law for themselves, and are merely parroting what they’ve heard other attorneys say. Once a myth gets started in the legal profession, it tends to spread like a wildfire, particularly when the myth can make a lot of money for the tens of thousands of attorneys who want to take advantage of it. We’ll debunk these myths using the IRS’ own publications.

Myth #3 is often promulgated by folks who misconstrue the statements of Jesus to justify placing His church under State authority. Theologically, this is referred to as “Erastianism,” a position that holds that the church is, and ought to be, subordinate to the State.

Myth #4 is often promulgated by those who are preoccupied with pleasing men in order to win their approval. This is problematic because it inevitably results in worldly compromise. The emphasis in Paul’s teaching is first upon doing what is honest “in the sight of the Lord.” Only then are we enabled to do what is honest “in the sight of men.”

Myth #1. Tax Exempt:

The IRS has acknowledged for decades that it is completely unnecessary for any church to apply for a tax-exempt status. According to IRS Publication 557, as well as IRS Code § 508, churches and church ministries are “exempt automatically.” Application for an exempt status is not only superfluous, but to do so subordinates that church to the IRS. Churches in America have always been nontaxable anyway. It simply makes no sense for a church to go to the IRS and seek permission to be exempted from a tax the government can’t impose in the first place.

The church in America is protected from the government by the First Amendment:

“Congress shall make NO law respecting an establishment of religion, or prohibiting the free exercise thereof.”

It would be absurd to suppose that you could have free exercise of religion if you had to pay for it (taxes). If Congress can make NO law respecting the church, it can make NO law to tax the church.

The IRS lacks the jurisdiction necessary to tax the churches in America. The IRS has no more jurisdiction over the churches in America than it does over the churches in Canada. It would be as absurd (and tyrannical) for the IRS to tax the churches in America, as it would be for the IRS to tax churches in Canada. They don’t have jurisdiction.

Myth #2. Tax Deductible:

Whether or not a church or church ministry applies for and receives a “501c3 tax-exempt recognition letter” from the IRS, any contributions made to a church are “automatically qualified” as a tax write-off to the contributor, pursuant to IRS Publication 526, and IRS Code § 170(c)(2)(B). A church does not have to be a “nonprofit charitable organization” to be tax deductible, nor does it need IRS authorization to be tax deductible. According to the IRS, churches have that status “automatically.”

Myth #3. Render To Caesar:

Jesus did indeed say, “Render to Caesar the things that are Caesar’s;” but that’s only half the verse! Jesus went on to say, “and to God the things that are God’s.” The obvious question to be asked is at what time did Jesus place His church under the authority and jurisdiction of Caesar (the State)?

Mark 12:17 is the most brilliant teaching on lawful authority and legal jurisdiction that anyone has ever uttered. We can properly interpret Jesus’ teaching in this way, “Don’t render to Caesar the things that don’t belong Caesar.”

Only the “sovereign” (the supreme power) has the authority to impose a tax, and he may do so only upon his own citizen and subjects. Is the State sovereign over Jesus Christ and His body, the church? No, the civil government has no such lawful authority, biblically or constitutionally. If the civil government has the authority to tax the church, the church is a subordinate and a subject of the State.

God ordained both the church and the civil government, and has delineated their respective spheres of authority. There should be mutual accountability between the church and the State, but one is not an underling of the other.

America’s Founding Fathers forever abolished the old State-Church and Church-State systems. However, those who would now advocate that the church should be subordinate to the State are, in reality, calling for a return of that old State-Church system.

For the church to apply to the government to be exempt from taxes presupposes that the government has legitimate authority to impose taxes on the church to begin with. Such thinking smacks of Erastianism.

“It should wrong our consciences.”

The clergy in America have not always been so confused on the issue of State taxation of the church. For many years it was understood that the church cannot and must not go to the State with hat in hand and ask permission to be exempted from taxes. To do so would be an admission that the church was under State jurisdiction. Instead, the church must refuse such an admission. The Rev. Isaac Backus was one such clergyman. In September of 1775 he preached a sermon to the Massachusetts Assembly in which he stated:

“Yet, as we are persuaded that an entire freedom from being taxed by civil rulers to religious worship is not a mere favor from any man or men in the world but a right and property granted us by God, who commands us to stand fast in it, we have not only the same reason to refuse an acknowledgment of such a taxing power here, as America has the abovesaid power, but also, according to our present light, we should wrong our consciences in allowing that power to men, which we believe belongs only to God.”

Myth #4. 501c3 Status Legitimizes the Church

It’s a sad commentary on the church of our day when any church feels compelled to go to sinners to seek legitimacy. The church of Jesus Christ is in no way legitimized by the license, approval, acknowledgement or permission of wicked men (those who don’t appreciate how corrupt the IRS is haven’t taken the time to study the public record).

For any church to submit to the IRS for 501c3 approval in an effort to be perceived by the world as being honest (“Providing for honest things”), even if it is well-intentioned is, nonetheless, completely illogical. Accountability is a good thing, but only when we make ourselves accountable to those whom the Scriptures call us to be accountable, and to those who are honest and trustworthy themselves.

Is it biblical for a church to make itself accountable to the IRS? Is the IRS honest and trustworthy? Is the IRS itself legitimate such that it can, with any genuine sense of credibility, legitimize anyone else as legitimate?

le•git•i•mate, adj. 1. Being in compliance with the law; lawful: a legitimate business. 2. Being in accordance with established or accepted patterns and standards.

Let’s examine the IRS’ own track record to determine its legitimacy: The last time that the Government Accounting Office even attempted to audit the IRS’ books was in 1996 (they’re supposed to audit the IRS every year, but they are no longer able to do so). In that year, GAO audits determined that over $13 billion of the taxes that the IRS had collected (in 1995) could not be accounted for. Thirteen-billion dollars had vanished, and the IRS offered no better explanation than to shrug their shoulders! The GAO found the IRS’s books in such a shambles that they declared the IRS to be “unauditable.” Furthermore, the IRS refused to be held accountable for the “loss.”

How could 501c3 recognition from such a corrupt entity, an agency that literally holds itself to be above the law, and accoutable to no one, result in “legitimacy”? It’s simply illogical to hold that recognition from any agency that isn’t legitimate itself could result in legitimacy.

Is “honesty” (morality) a prerequisite for 501c3 recognition? If it were, then only honest and moral groups would be approved; but that is simply not the case at all. Even just a cursory review of IRS Publication 78 (an annual list all 501c3 organizations) reveals that many thousands of 501c3’s are immoral and wicked organizations. These include:

  • Satanists
  • Wiccans
  • Homosexuals
  • Pedophiles
  • Pornographers
  • Pro-Aborts
  • Pagans
  • Atheists
  • and thousands of other organizations which are hellbent on destroying the moral fabric of this nation

Becoming a 501c3 places any church in very sordid company. It is both unbiblical and illogical to claim that a church becomes “legitimate” by receiving a 501c3 status.   (please visit Peter Kershaw’s website–to see everything he has to offer)

Problems with 501c3 tax-exempt status for the church

501c3 church problems

In Bob Jones University v. United States (461 U.S. 574), the U.S. Supreme Court noted the following about the government’s intended purpose for the 501c3:

The Court asserts that an exempt organization must “demonstrably serve and be in harmony with the public interest,” must have a purpose that comports with “the common community conscience,” and must not act in a manner “affirmatively at odds with [the] declared position of the whole Government.” Taken together, these passages suggest that the primary function of a tax-exempt organization is to act on behalf of the Government in carrying out governmentally approved policies.

Government Hushmoney

IRS Code § 501c3 reads as follows:

Sec. 501. Exemption from tax on corporations, certain trusts, etc.
(c) List of exempt organizations —

(3) Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation, (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

While it may be appropriate for many non-profit organizations to waive their right to intervene in political campaigns, or to influence legislation, is this the right thing for a church to do?

Waiving such rights is to waive one’s freedom of speech. Waiving one’s right to influence legislation is especially problematic. The inevitable result has been that the church has abandoned its responsibility to influence their elected representatives to craft legislation that is biblical and that comports with the Constitution. The unchurched, and even those who are openly hostile to the church, have taken over that influence and are now seeing to it that their legislators craft statutes which are unbiblical, immoral, and unconstitutional.

One need not look far to see that the church’s acceptance of the 501c3, and its significant restrictions, has had devastating consequences to not only the church, but to the entire nation.

When a church accepts the 501c3 status, that church:

  • Waives its freedom of speech.
  • Waives its freedom of religion.
  • Waives its right to influence legislators and the legislation they craft.
  • Waives its constitutionally guaranteed rights.
  • Is no longer free to speak to the vital issues of the day.
  • Becomes controlled by a spirit of fear that if it doesn’t toe the line with the IRS it will lose its tax-exempt status.
  • Becomes a State-Church.

The church in America today is, by and large, not speaking to the vital issues of the day. The church has been effectively silenced. There has been a chilling effect upon the church’s freedom of speech for fear of IRS retribution should the church get out of line. The inevitable result is a moral downward spiral in the culture as the church stands mute.

This did not happen by accident, but by design, and it is something of relatively recent design. Churches were added to IRS Code § 501c3 in 1954. All one need do is analyze who is responsible for sponsoring the congressional bill to include churches in § 501c3 and it should become apparent that his agenda was not to empower the church, but to silence the church (hint: the sponsor was a Senator from Texas who later became President).

“The church is the moral compass of society.”President John Adams

John Adams stated while he was our President, “The church is the moral compass of society.” But in order to remain a true and faithful compass, the church must remain separate and independent of the influences of that society, particularly its civil government. It must be a “free-church.” Should the church become subordinate, or in any way controlled or co-opted by the civil government (a “State-Church” system), it can no longer effectively serve as that society’s moral compass. Unless it is respected, no one will listen to what it has to say.

Indeed, few citizens in any society, at any time in history, in any nation, have ever had any genuine respect for any State-Church system (nor should they). State-Church systems are inevitably compromised and governed by pragmatism, rather than genuine Christian faithfulness. It should surprise no one that the 501c3 church in America has lost its prophetic voice, lost the respect it once held, and is no longer “the moral compass of society.”

Facts on limited liability, perpetuity

Incorporate church, facts on church incorporation

A corporation is defined as:

Corporation. An artificial person or legal entity created by or under the authority of the laws of a state. An association of persons created by statute as a legal entity.

The legal attributes of the corporation, and the alleged “benefits” that attorneys most commonly discuss with churches to convince them of their need to incorporate are:

  1. A corporation has limited liability protection.
  2. A corporation may exist in perpetuity.
  3. A corporation may hold title to real property.

One additional legal attribute of any corporation is something that attorneys generally don’t like to discuss with their church clients:

A corporation may sue and be sued.

In point of fact, there is a great deal that your attorney is not likely to disclose, in the way of the various legal attributes of the corporation, that you might not find so attractive. In the landmark case of Hale vs. Henkel, the U.S. Supreme Court stated the following regarding corporations:

Upon the other hand, the corporation is a creature of the State. It is presumed to be incorporated for the benefit of the public. It receives certain special privileges and franchises, and holds them subject to the laws of the State and the limitations of its charter. Its powers are limited by law. It can make no contract not authorized by its charter. Its rights to act as a corporation are only preserved to it so long as it obeys the laws of its creation.

Hale v. Henkel, 201 U.S. 43 at 74 (1906)

From this case we learn that:

  • A corporation is “a creature of the State.”
  • The State is “sovereign” over the corporation.
  • The corporation is “incorporated for the benefit of the public.”
  • A corporation is a State “franchise.”
  • Incorporation is a State “privilege.”
  • A corporation is “subject to the laws of the State.”
  • “Its powers are limited by law.”
  • It must “obey the laws of its creation.”
  • A corporation has no constitutionally-protected rights.

These are not new or novel legal principles that the Supreme Court just discovered in 1906. Rather, these are legal principles that date back many centuries. The corporation is a product of ancient Rome. The corporation, as the legal entity we are familiar with today, dates back to at least 250 B.C.

By 6 A.D. and the codification of Corpus Juris Civilis (the first great codification of Roman civil law) all “spontaneous collectivities of persons” were required to incorporate. The early church was persecuted over their refusal to incorporate. Had they incorporated they could have avoided much of the persecution they otherwise suffered at the hands of the Romans.

Rome persecuted the Christians not for Who they worshipped. Rome had hundreds of deities, and they could care less who or what you worshipped, as long as you were “licit” (licensed). The church was persecuted not because they worshipped Jesus Christ, but because of the manner in which they functioned — an ecclesia. The church was declared to be “illicit,” and held in a state of “civil disobedience,” because of their refusal to incorporate. Why did the church refuse incorporation? Largely because they knew that it would destroy their testimony that Jesus Christ is “Lord” and “Sovereign.”

Under Roman civil law, “Caesar is sovereign over the corporation,” and “the corporation is a creature of the State.” The early church willingly suffered for its refusal to accept “State privileges and benefits.”

Because that for his name’s sake they went forth, taking nothing of the Gentiles. (3 John 7)

Corporations have been known and widely used for many centuries in virtually every corner of the earth. However, the corporation was not at all widely known in America during the colonial era, and for many decades after our independency. Indeed, the corporation was an entity viewed with great suspicion, if not trepidation. For many years it was extremely difficult and expensive to incorporate and, therefore, it was rather difficult to identify corporations of any kind, especially incorporated churches.

Today, all that is necessary to incorporate is that you fill out the necessary forms and file them with your Secretary Of State’s office; but that wasn’t always the case. It used to be that if you wanted to incorporate you would have to petition your state legislature for a corporate charter, and they weren’t in the habit of handing those out to just anyone who wanted one. In order to be issued a corporate charter, you had to prove to a majority of your state legislators that you simply couldn’t operate any other way. As a result, the vast majority of businesses operated as sole proprietorships and general partnerships.

Those who have ever had to petition their state legislature for anything know that it is a time-consuming process, and often leads to frustration, if not failure. For any church to request a corporate charter would surely be met by failure (at least after ratification of the Constitution and the First Amendment), since the states viewed the incorporation of any church as a government “establishment of religion.” Some state legislatures, such as Virginia and West Virginia, went so far as to amend their state constitutions to “forever prohibit the incorporation of any church.”

James MadisonIn 1811 Congress ratified a bill, to incorporate the Protestant Episcopal Church in Alexandria, Virginia. When the bill was presented for President James Madison’s signature, he promptly vetoed it. He furnished a list of his objections, in a veto message, which in part included:”Because the bill exceeds the rightful authority to which governments are limited by the essential distinction between civil and religious functions, and violates in particular the article of the Constitution of the United States which declares that ‘Congress shall make no law respecting a religious establishment.’ The bill enacts into and establishes by law sundry rules and proceedings relative purely to the organization and polity of the church incorporated… This particular church, therefore, would so far be a religious establishment by law, a legal force and sanction being given to certain articles in its constitution and administration.” James Madison had no difficulty with grasping the fact that the bill was wholly unconstitutional, although the majority in Congress evidently did not. With the Episcopal Church having already declared its intentions, the Virginia state legislature prevented any church from ever incorporating by amending their Constitution to preclude their doing so. To this very day, it is unlawful to incorporate a church in Virginia.
          In Caesar’s Grip, page 66, by Peter Kershaw

Of Madison’s historic veto, constitutional law professor John Eidsmoe states in his book, Christianity and the Constitution:

His reason was that incorporation was a form of licensing by which government gave churches permission to operate. Therefore, incorporation was superfluous; government has no jurisdictional authority to tell churches they can or cannot operate.

Madison’s veto set an historic precedent that was seldom departed from, at least up until the turn of the twentieth-century. In 1898, New Jersey became the first state to “liberalizate” their incorporation laws. The New Jersey state legislature delegated its powers to incorporate to the New Jersey Secretary Of State. Rather than issuing corporate charters, the Secretary Of State issued “articles of incorporation.” All the former impediments to obtaining corporate status were done away with.

In order to “compete” with New Jersey, other states quickly followed suit and liberalized their incorporation laws, as well. Soon the mainline church denominations, no longer hindered by state legislators, incorporated. Andrew Carnegie, a wealthy industrialist who sat on the board of directors for the largest Presbyterian denomination (PCUSA), was first to encourage his denomination to incorporate. Carnegie did so not because of all the reasons we hear today. Not once did he ever even mention limited liability protection. Rather, Carnegie spoke highly of the corporation, based upon its alleged “efficiencies.”

Other industrialist tycoons, such as Cleveland Dodge and John Wanamaker, who sat on the boards of other mainline denominations, also encouraged their denominations to incorporate, based upon their theories of “improved efficiency.” This was the industrial age and industrialists had rapidly become “corporate men.” In their worldview, the church too must become “modernized,” and incorporation was a necessary element of modernization.

Eventually, many local churches, encouraged by the example of their denominations, also incorporated. By the mid-twentieth century, incorporation of the church had become the status quo.

Madison’s veto of 1811, and his reasons for that veto have, by and large, been abandoned, if not completely forgotten.

Of even greater concern is the fact that today’s church has, with few exceptions, abandoned the beliefs of the early church fathers who refused to incorporate, and suffered Rome’s persecution, as a direct result. Incorporation was mandatory for all “spontaneous collectivities of persons” throughout Rome. Yet they refused Caesar’s “privilege.”

In America, incorporation is completely voluntary. Furthermore, as we’ve already mentioned, it used to be almost impossible to incorporate a church, based upon the fact that no church can be free and independent of that government that incorporates it.

Yet churches today incorporate routinely, a decision which they make with about as much care and consideration as what brand of tissue paper to use in their lavatories; this in spite of the fact that there are huge legal and theological ramifications to any church seeking incorporation.

Read on to discover what some of those legal and theological ramifications are.

Myths on limited liability, perpetuity

Limited Liability Protection?

Limited liability protection is generally first among the legal “benefits” used by attorneys to convince a church to incorporate. However, limited liability protection is, for a number of reasons, largely a phantasm promulgated by (you guessed it) the legal profession, and fails to take into account significant trends in tort law in recent years.

The American Bar Association has hosted “Tort & Religion” conferences since at least 1989 in which they instruct attorneys in the finer points of how to target incorporated “religious organizations” and “pierce the corporate veil.”

Incorporation does little if anything in the way of actually protecting the church. The legal reality is that a church cannot be sued and brought into court until it incorporates. A church “is not an entity recognized in law.” If the court cannot legally recognize it, it cannot be sued. A church is not subject to the jurisdiction of any court. However, should a church incorporate it most certainly may be sued. Incorporation becomes the nexus of government jurisdiction to the incorporated church. One of the legal attributes that seldom if ever is discussed by the attorney is:

  • A corporation may sue and be sued.

How they can sell that as a “benefit” is hard to comprehend.

The Fox Guarding the Henhouse

One thing attorneys will never discuss is just who offers the “protection” to the corporation. The answer is the State. Is this wise or prudent? Even decades ago when the State was openly cordial to the church it would be hard to argue from Scripture that the church should seek its “protection” from the State. But in post-Christian America when the State has grown openly antagonistic toward biblical Christianity, is it smart to seek State “protection”? That would be like asking the fox to guard the henhouse (or in biblical vernacular, the wolf protecting the sheep)!