On May 17, 2010, the IRS began revoking the tax-exempt statuses of nonprofits that failed to file three consecutive annual returns (Form 990-N, 990-EZ, or 990-PF).  As a result, as many as 300,000 nonprofits may lose their tax-exempt status, effectively shrinking the nonprofit sector by 25%.

On July 26, 2010, the IRS released a guidance on filing relief for Form 990-N and 990-EZ filers in danger of losing their tax exemptions.  However, this one-time relief is ONLY available to small organizations whose filing deadlines fall on or after May 17, 2010, and before October 15, 2010.  (All returns filed under this program are due no later than October 15, 2010.) 

These events beg the question:  Why is it important to preserve an organization’s tax-exempt status? 

A nonprofit organization has numerous benefits that will help it to survive economically.  There are also benefits to the contributors, which make a donation to the organization more attractive.  Some of the benefits of being a nonprofit organization include:

• Exemption from paying federal income tax.
• May receive tax-deductible gifts.
• May receive tax-deductible contributions.
• Eligibility to receive grants from foundations.
• Contributions to a nonprofit are tax deductible for donors to the organization.

Protecting the organization’s tax-exempt status is vitally important to a nonprofit organization.  But, what happens to a nonprofit that loses its exemption?  What happens if a donor gives to a charity that has lost its exemption?

Contact the Church Law Group at 972-444-8777 to find out the answers to these questions and more!

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Churches that meet the requirements of the Internal Revenue Code section 501(c)(3) are automatically considered tax exempt.  This means that churches are not required to apply for and obtain recognition of tax-exempt status from the IRS.

Even so, many churches seek tax-exempt recognition from the IRS simply because it provides assurance that financial contributions to the church would generally be tax-deductible.

The term church is found, but not specifically defined, in the Internal Revenue Code.  The IRS has compiled a list of certain characteristics that are generally attributed to churches.  They include:

• Distinct legal existence
• Recognized creed and form of worship
• Definite and distinct ecclesiastical government
• Formal code of doctrine and discipline
• Distinct religious history
• Membership not associated with any other church or denomination    Organization of ordained ministers
• Ordained ministers selected after completing prescribed courses of study Literature of its own
• Established places of workshop
• Regular congregations
• Regular religious services
• Sunday schools for the religious instruction of the young
• Schools for the preparation of its members

Recently, the IRS denied several organizations church status when the organizations applied for tax-exempt recognition as a church.  The IRS concluded that the organizations failed to meet the legal definition of “church.”

One of the organizations that applied for recognition as a “church” was denied because its worship services were conducted solely by teleconference.  The IRS concluded that worship by teleconference does not bring people together for worship, and that “sitting at home holding a ‘service’ over the telephone does not meet the more restrictive definition of a ‘church.’”

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