Question: What’s the Difference Between a Church and a Religious Organization?
Answer: Let’s first do what we can to define the terms and then address the question. As we all know the Internal Revenue Code (IRC) is not always an easy read, but here are a few facts:
“Churches” Defined
The term church is found, but not specifically defined, in the Internal Revenue Code. With the exception of the special rules for church audits, the use of the term church also includes conventions and associations of churches as well as integrated auxiliaries of a church.
Certain characteristics are generally attributed to churches. These attributes of a church have been developed by the IRS and by court decisions. 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 worship (e.g., temples, mosques, and synagogues)
- Regular congregations
- Regular religious services
- Sunday schools for the religious instruction of the young
- Schools for the preparation of its members
The IRS generally uses a combination of these characteristics, together with other facts and circumstances, to determine whether an organization is considered a church for federal tax purposes. Therefore, the term “church” can include a religious order or a religious organization if the order or organization is an integral part of a church and is engaged in carrying out the functions of a church whether as a civil law corporation or otherwise.
A ”Religious Organization” is defined best by what it is not.
Religious organizations are not places of worship. They may be, for example, non-denominational ministries or entities whose principal purpose is the study or advancement of religion. Unlike churches, religious organizations that wish to be tax exempt generally must apply to the IRS for tax-exempt status unless their gross receipts do not normally exceed $5,000 annually.
You may also hear the term, “Faith-based organization”. Faith-based organizations might be a church, but often are not. They differ from secular charities like the Red Cross and United Way in that their call to serve is based on scripture or other religious texts. The Salvation Army and Catholic Charities are two such examples of what are broadly construed as faith-based organizations.
Figuring out how the IRS will see your organization and understanding its obligations is not always an easy matter. The Internal Revenue Manual outlines an number of specific characteristics the IRS will review during its 501(c)(3) examination of a religious organization not claiming church status:
- Determine that the organization is both organized and operated for IRC § 501(c)(3) purposes;
- Ensure the organization operates for public purposes rather than private interests;
- Ascertain whether the organization engages in any substantial nonexempt activity, such as trade or business, social or recreational activities;
- Ensure the organization’s assets are permanently dedicated to IRC § 501(c)(3) purposes;
- Evaluate the organization’s procedures to account for funds disbursed to individuals or non-IRC § 501(c)(3) organizations;
- Determine if the organization pays, directly or indirectly, any excessive compensation, fees, allowances, or taxable benefits;
- Determine whether the organization has participated in any substantial legislative activities;
- Determine whether the organization has intervened in any political campaign on behalf of or opposition to any candidate for public office
- Verify the organization’s foundation status.
Is your Nonprofit a Church or a Religious Organization? Hopefully, this Post has shed a little light on the complexity of that question and how the IRS might see things.