Whether or not a church should obtain its own 501(c)(3)ruling letter from the Internal Revenue Service (IRS) is a question with some confusion. It is a simple question with a multi-layered answer so here is my take on this issue.
1. The IRS considers, by definition, all churches to be exempt from federal income taxes. Thus, just because you are a church, the IRS will not tax the organization for income tax purposes.
2. Most churches that belong to denominational bodies fall under an umbrella that covers all churches in the regional, state or national organization. For instance, the local Episcopal diocese has a letter with the IRS which covers all churches in the Richmond diocese. That way, churches do not have to obtain their own ruling letter from the IRS.
3. Times are changing and church finances are getting more complicated every day. In 2008, some churches have intentionally sought to violate the IRS requirement that churches not endorse a political candidate. In 2004, the IRS revoked the non-profit status of 56 churches (albeit temporarily while there was an investigation).
4. Because some churches are getting involved in national politics, I am of the opinion that each church should control its own destiny as regards the IRS. I would hate for an umbrella letter (covering hundreds of churches) to be revoked because a few churches in that group decided to flaunt the IRS. My worst case scenario would be that the IRS would revoke the tax-exempt status of the entire umbrella while there is an investigation. In the end everything will work out fine, but in the meantime there can be some heartache because of the actions of other churches. So, my recommendation is that each church obtain its own ruling letter from the IRS. Yes, it is a pain to fill out the forms, get things approved, write a check for a few hundred dollars, and wait on the IRS for a few months, but think about the headache and hassle it could save the church later. Again, I feel it is important to control your own destiny and not potentially suffer because of the actions of other churches.
I hope that helps you and the decision by your church. I’ll be happy to talk with anyone about this. In January I’m going to launch a new career of consulting with churches in the area of finances; if I can help you and your church, please contact me.