What is a Religious Organization?
The law employs a broad concept for "religious organization." A generally-accepted definition of a religious organization in the legal field is "a congregation, church, or other organization of any denomination, group, or sect whose primary purpose is the study, practice, worship, or presentation of religion." An even broader concept accepted by the IRS in its formal rules and regulations is "an organization that is organized and operated exclusively for religious purposes." The latter definition would certainly include a church, but may not include a religious broadcast ministry or religious magazine, for example, since other "purposes" are being advanced to support the mission.
The most common organizational form for churches is that of a nonprofit corporation. In many states, there are no laws or specific legislative provisions regarding churches, and the general nonprofit corporation statutes are the main body of law governing a church’s incorporation, administration, and dissolution . Incorporating a church is generally a sound decision, because incorporation provides the same legal rights, benefits, and protections that exist for other corporations-namely, it limits the personal liability of the church members for corporate debts and liabilities, and may provide tax benefits.
It is also important that a church be careful to follow all laws to which corporations are subject, as well as to comply with laws applicable to charitable organizations, if the church elects to solicit or receive donations that could be considered charitable contributions. These laws include things such as obtaining and complying with a business registration and sales tax license, submitting property for exemption from local ad valorem taxes, registering with the state before soliciting contributions, and meeting any state-level accounting and recordkeeping requirements.
Incorporation and Related Issues
When a church is birthed, it doesn’t happen in a vacuum. A new church is always the result of the ministry of some other church or group. Their funding often comes by way of a sponsoring church, or through the cooperative efforts of other larger churches in the denomination.
The leaders of a new church plant are often drawn from existing churches, bringing along with them things as diverse as personal baggage and spiritual gifts. They are also usually motivated by the sincere belief that God has a mission for them, something that will serve the kingdom.
Unfortunately the process of establishing a new church all too often resembles a backyard barbecue gone wrong. There are some things that need to be prepared before you arrive at the job site. Otherwise, things can get messy, and your congregation may end up with a case of indigestion.
More than just advice
A checklist of things like "choose a name", "organize a charter group", "Schedule worship services" and "find a building" are certainly helpful. But checklists are not enough.
You are starting a life changing production, not a pop-up restaurant or a food truck operation. Your work will impact the community around you, and your church will be around long after the names of who started it have faded from memory.
Your church must navigate the maze of state mandated provisions for being an incorporated entity. In most cases churches are required to incorporate (or file as a 501(c)(3) on the federal level).
Incorporation
When churches incorporate, they must adhere to the state statutes that govern the formation, activities and dissolution of non-profits.
The existing corporation statutes were not designed for the types of activities unique to churches. For example, to satisfy the requirement that you be a non-profit, church plants commonly provide a list of 501(c)(3) named contributors.
Having a list of 501(c)(3) contributors may not be appropriate for new congregations. For both theological and practical reasons churches are not bound in perpetuity to their existing members.
Current congregations with schedules and locations established can have a list of 501(c)(3) contributors that helps satisfy the requirements of incorporation. But startup congregations typically do not have this list. For churches that cannot provide corporate contributions or donors that can be verified as qualified, the state statutes can be extremely narrow and extremely technical.
This is often daunting to new congregations. But it’s possible to meet all of the legal requirements that your church is obligated to meet. You don’t need to give up on church planting because you can’t find free legal counsel or you don’t have the members on a list of 501(c)(3) donors.
There is much to take care of when launching a new church. We want to help.
Tax Exempt Status and Requirements
To obtain 501c3 tax-exempt status or otherwise known as tax-exempt status under IRS Section 501(c)(3), churches must apply to the IRS by completing Form 1023. A church must be organized and operated for exempt purposes, which include religious, charitable, scientific, testing for public safety or educational purposes, to name a few. To be recognized as a tax-exempt organization, the organization must complete the following:
- Prepare and adopt bylaws.
- Draft a mission statement with other standard organizational documents.
- Obtain an Employer Identification Number (EIN).
- Complete IRS Form 1023.
- File Form 1023 with the IRS and pay the fee.
- If approved, you will be indexed in Exempt Organizations Business Master File (EOFMF) and be assigned a four-digit number called a Cumulative Indexing Number (CIN).
Section 501(c)(3) organizations are exempt from federal income tax. However, they must comply with the rules or risks losing or not obtaining their tax exempt status. These organizations cannot carry out propaganda or attempt to influence legislation or it risks losing its tax-exempt status. In addition, the organization cannot participate in any campaign activity for or against political candidates.
Zoning / Land Use Approval
Zoning and land use permits are not filed when a church has purchased undeveloped property. Local government agencies control the use of land and which portions of a municipality are zoned for what purposes. Certain zoning districts have restrictions upon the type of activities that can take place in the area. Most municipalities have zoning laws that restrict certain activities including churches, places of worship, and religious schools. Your church must be aware of these zoning restrictions prior to making an offer on a property. When establishing a church and purchasing property, many municipalities require special zoning permits (i.e. conditional use permits and variances) if the property is classified as residential. These permits allow limited religious activities in areas where a church is not a permitted use. Additionally, real estate that is zoned commercial or industrial may also require special zoning permits to be used as a church. A variance may be sought to vary from the strict requirements of the zoning code or a conditional use permit may be necessary to expand the intended use of the property. Again, it is imperative that proper zoning permits are obtained before beginning any construction, renovation, expansion or activity in the newly acquired property.
By-Laws and Organizational Structure
At this stage, you will want to establish a set of by-laws. By-laws are governing rules for your church. Once approved, such by-laws would be filed and made part of the official corporate records. Without by-laws, corporate church governance can become unwieldy and ineffective.
Though by-laws are not designed to address every contingency, they are generally structured to form the basis for governance, meetings, voting procedures, and other similar organizational and operational matters. For example, who presides over board meetings and what authority does that position carry? Are officers and directors required to be current congregational members? It is this sort of detail that makes up a typical governance structure . Consulting an experienced church lawyer during this process is important because this is an area where consistency in application can hold the greatest visibility.
As a theoretical construct, by-laws are entered into as a contract with and between the incorporated church and the government. However, in application, they are primarily a matter of church and internal governance — a type of church law, analogous to the internal laws of other organizations, such as a business corporation or a condominium complex.
Employment Law Compliance
If your church hires employees, there are a number of federal laws with which you will need to comply. Though not an exhaustive list, the following are some of the key federal employment laws that not only apply in most cases to secular employers, but to churches as well: the Fair Labor Standards Act (FLSA), the Family and Medical Leave Act (FMLA), the Occupational Safety and Health Act (OSHA), and the Civil Rights Act of 1964. All of these laws provide at a minimum basic employee protections relating to pay, working conditions, family leave, sexual harassment, and discrimination. Generally speaking, the FLSA requires, among other things, the payment of a minimum wage and overtime compensation to all non-exempt employees. The FMLA entitles an employee who meets certain eligibility criteria to take unpaid leave for childbirth, adoption, or other family related reason. OSHA imposes certain safety employment standards in an effort to reduce workplace accidents. Finally, regardless of the size of the employer, the Civil Rights Act prohibits discrimination in the workplace based on, among other things, race, color, religion, sex and national origin. Though duly recognizing the free exercise rights of churches protected under the First Amendment, the courts have removed that protection from the employment of individuals in many of the circumstances described above. For example, overtime pay, minimum wage, leave, and workplace safety provisions under FLSA and OSHA do apply to churches, and churches are obligated to comply with those laws. Likewise, the harassment and discrimination provisions of Title VII do apply to churches. Thus, churches cannot discriminate on the basis of race, color, religion, sex, or national origin.
Insurance Requirements
It is important for a church to obtain the appropriate type of insurance such as liability, property, and workers compensation. The decision of what types are needed may depend on the size of the church and its activities. A general liability policy provides coverage for accidents that may occur during church programs, such as someone being injured on church property. Many policies, however, include "parsonage damage," which covers any damage you cause to your rented home such as fire damage. Property insurance for churches usually includes two categories: building and contents. Building coverage covers the church itself, while contents coverage protects church owned belongings. Workers compensation coverage protects your employees, but it is not necessary if you only have volunteer workers. It is also important to review your auto insurance policy to ensure adequate coverage for church-owned vehicles when taking the van for youth activities or to transport staff. There are a few other areas to review, but you should consult with an insurance professional to evaluate your needs and provide recommendations.
Annual Registrations and Other Requirements
Once a church is established, the law imposes several reporting requirements that must be taken seriously. A church may endanger its tax-exempt status if it fails to comply with the annual reporting requirements imposed by the Internal Revenue Service (IRS) and state governments. Every year churches must file with the IRS the form 990-EB. Also , churches with employees must deposit federal payroll taxes and withholdings. They must also pay employment taxes, including Social Security and Medicare contributions. Churches are entitled to a payroll tax exemption if they meet certain requirements. To establish proof of their compliance with the federal payroll tax exemptions, churches must file Form 8274 each year.