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Spurious Rationale for church corporate-501(c)(3) status: tax exemption and tax deduction for contributions OR Tax Reasons Given for Church Corporate/501(c)(3) Status: A Biblical and Legal Analysis


Jerald Finney
Copyright © December 10, 2012


Note. This is a modified version of Section VI, Chapter 8 of God Betrayed: Separation of Church and State/The Biblical Principles and the American Application;  Chapter 8 of Separation of Church and State/God’s Churches: Spiritual or Legal Entities?


Contents:

Preface
I. Introduction
II. Tax reasons for which churches seek 501(c)(3) tax exemption
III. The deductibility of gifts to New Testament churches
IV. Another reason some churches seek 501(c)(3) status: the convenience offered state 501(c)(3) church members
V. Conclusion
Note

Preface

This is a teaching and helps ministry motivated by love: love for our Lord first, and love for others second. I can find no more important subject than the love relationship between Christ and His children and Christ and His churches. Since I am convinced that this is a God-called ministry, I conduct this ministry at my own expense. I do not wish to dishonor my Lord by seeking worldly gain or riches through this ministry or by teaching heresy. Since I am not paid, nor do I seek to be paid for my work in this ministry, I will be convinced only by solid biblical reasoning. In other words, no one can buy me since my Lord, and my Lord only, has paid it all. My highest allegiance is to Him.

If you can disprove what I am teaching, you have an obligation—to God first, and to your brother in Christ second—to correct me. I will not accept conclusory statements backed up by nothing. I will only accept Holy Spirit guided insights based upon biblical principles and the application of legal and historical facts to those principles. If you prove me wrong, I have an obligation to repent, ask your forgiveness, and correct my teachings. If what I am saying is true, you have an obligation to God to conform your actions to God’s principles, including, if need be, repenting and reorganizing your church according to the principles of God.

I. Introduction

Today, the most common reasons given by churches for incorporating and seeking 501(c)(3) status are (1) to obey every ordinance of man (2) limited liability; (3) to allow a church to hold property; (4) tax reasons and convenience—it is easier to get a tax deduction for tithes and offerings given to an incorporated 501(c)(3) religious organization than for tithes and offerings given to a New Testament church; (5) one’s convictions; and (6) winning souls is  more important than loving God; if a church is incorporated, don’t cause problems. Just continue winning souls because winning souls is more important than anything else, including loving God.

This article will deal with the fourth false reason, tax reasons. Other articles cover the other five reasons:  

  1. Render Unto God the Things that Are His: A Systematic Study of Romans 13 and Related Verses When a pastor is asked why his church is incorporated, he will often quickly answer: “Because of Romans 13 [Romans 13:1-2 “Let every soul be subject unto the higher powers. For there is no power but of God: the powers that be are ordained of God. Whosoever therefore resisteth the power, resisteth the ordinance of God: and they that resist shall receive to themselves damnation.” Or “We are to obey every ordinance of man.” He may also rely on some other verses. All these verses are examined in this online booklet which is also in online PDF form on this website. Not only that, no law requires a church to get incorporated or apply for 501(c)(3) status or claim 508 status. Instead, the highest law in America protects the right of churches to choose to remain free from corporate and 501(c)(3) or 508 status. See, e.g., First Amendment Protection of New Testament Churches/Federal Laws Protecting State Churches (Religious Organizations) 
  2. Limited liability (corporate status actually increases the liability of church members) (Section VI, Chapter  of God Betrayed; Chapter 6 of Separation of Church and State).
  3. Spurious rationale for incorporating: to hold property (Section VI, Chapter 7 of God Betrayed; Chapter 7 of Separation of Church and State)
  4. Spurious rationale for church corporate-501(c)(3) status: tax exemption and tax deductions for contributions OR Tax reasons given for church corporate 501(c)(3) status: a biblical and legal analysis (Section VI, Chapter 8 of God Betrayed; Chapter 8 of Separation of Church and State).
  5. Spurious rationale for church corporate-501(c)(3) status: one’s convictions (Not included in God Betrayed or Separation of Church and State)
  6. Spurious rationale for church corporate-501(c)(3) status: winning souls is more important than loving God/The Most Important Thing: Loving God and/or Winning Souls

This article will deal with the third and fourth reasons listed above: civil government recognition of tax exempt status assures church leaders, members, and contributors that the church is recognized as exempt and qualifies for related tax benefits (For example, contributors to a church that has been recognized as tax exempt would know that their contributions generally are tax-deductible); and convenience. “Church Incorporation Increases Liability of Church Members” looks at the first reason, limited liability. “Analysis of another reason given for church corporate status” addresses the second reason, to hold property.” In addition, audio teaching on these issues are available on this website (see the categories at left); and Jerald Finney has written on these issues in (See God Betrayed/Separation of Church and State: The Biblical Principles and the American Application and/or Separation of Church and State/God’s Churches: Spiritual or Legal Entities? and other books by Jerald Finney for a thorough analysis of these matters. Click the following link to preview God Betrayed: Link to preview of God Betrayed.  These books and many other resources are available on the “Books” page of  the “Church and State Law” website.)

The author judges, as instructed by Scripture, all spiritual matters which he examines by the Word of God (1 Co. 2). After all, “All scripture is given by inspiration of God, and is profitable for doctrine, for reproof, for correction, for instruction in righteousness: That the man of God may be perfect, throughly furnished unto all good works” (2 Ti. 3.16-17; see also, e.g. 2 Pe. 1.19-21). The Bible is therefore written by the Holy Spirit, and the Holy Spirit guides the born again believer who meditates upon God’s Word in conjunction with reality, historical fact, and law concerning a given subject into truth concerning the matter which he is examining (See, e.g., Jn. 16.13; 1 Jn. 4.6; 2 Ti. 2.15-26). Only when a believer, a family, a church, and a nation do this will they escape the “snare of the devil who are taken captive by him at his will” (2 Ti. 2.15-26). Sadly, many individuals (including pastors), families, and churches who profess to be Bible believers have been deceived as to biblical principle, historical fact, and law concerning the preeminent issue of separation of church and state. Many churches who proclaim that they preach the Word of God have been mislead about historical fact, law, and biblical principle concerning this issue.

God chose every Christian to be a soldier (2 Ti. 2.4). He wants us to “endure hardness as a good soldier of Jesus Christ” (2 Ti. 2.3). God told us, “No man that warreth entangleth himself with the affairs of this life; that he may please him who hath chosen him to be a soldier” (2 Ti. 4). We are further told to walk in the Spirit, not in the flesh (Ga. 5). Our weapons are to be spiritual only (Ep. 6.10-18). Only when we fight with the spiritual armor as specified by God may we “be able to stand against the wiles of the devil” (Ep. 6.11). This is because “we wrestle not against flesh and blood, but against principalities, against powers, against the rulers of darkness of this world, against spiritual wichedness in highplaces” (Ep. 6.12).

And yet most Christians, including pastors, and churches walk in the flesh in at least one way. They combine the church with the state by incorporating and getting Internal Revenue Code (“IRC”) § 501(c)(3) (“501(c)(3)”) status for earthly or fleshly reasons.

The author has fully examined the biblical principles as well as the application of those principles to the law of church incorporation and 501(c)(3) status in audio teachings, books, and articles. To fully understand these matters requires study, something which most “Christians” are unwilling to do. Some are willfully ignorant in that they just do not want to face truth. Others may be lazy, and some just don’t have the time. Pastors, evangelists, and missionaries have no good excuse. They are looked up to by other Christians for biblical guidance and leadership. They hold a high position of trust under our Lord.

II. Tax reasons for which churches seek 501(c)(3) tax exemption

As the author has shown in his articles, audio teachings, and books, according to IRC § 508, churches are an exception to the 501(c)(3) filing requirement (See, e.g., “Laws Protecting New Testament Churches in the United States: Read Them for Yourself;” “An Abridged History of the First Amendment,” etc.). Churches which do not file for exempt status under 501(c)(3) are non-taxable. Other types of religious organizations are not so: “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” (IRS Publication 1828 (2009), p. 3): this link may be slow to download. Internal Revenue Service publications are not the law, just a comment on the law.).

New Testament churches under God are non-taxable. 501(c)(3) religious organizations under civil government are tax exempt. IRC § 508 (the codification of Public Law 91-172 ratified in 1969) provides in relevant part:

Ҥ 508. 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. [Emphasis mine.]
“(1) Mandatory exceptions. Subsections (a) and (b) shall not apply to—
“(A) churches, their integrated auxiliaries, and conventions or associations of churches.” (26 U.S.C. § 508 (2007)) [Emphasis mine.]
Note. A church applies for 501(c)(3) recognition by filling out and filing IRS Form 1023.

§ 508(a),(c) says churches are excepted from obtaining § 501(c)(3) tax exempt status. In other words, churches are non-taxable; and, therefore, churches are an exception to the civil government requirement that certain organizations file for 501(c)(3) tax exempt status. Thus, even the federal government recognizes that a New Testament church is non-taxable.

If a church does not apply for exempt status, and if it is organized as a New Testament church, according to both God’s law (the hightest law) as laid out in the Bible and the First Amendment which agrees with the biblical principle of separation of church and state, the church is non-taxable. A church is better advised to claim First Amendment protection as opposed to  § 508(a),(c) status. If so, a church should not give acknowledgements for tithes and offerings. In a New Testament church, tithes and offerings are given by church members to God, not to the church. In effect, the church does the giving and the recipient is God. This does not mean the church member may not claim deductions for his tithes and offerings. contact attorney Jerald Finney for more on this matter.

If a church successfully applies for exempt status (and maybe if the church claims exempt status under § 508(a),(c)), the government is granted some jurisdiction over the church since the civil government now declares and grants an exemption.

Why then do churches seek 501(c)(3) tax exemption? The IRS gives the answer which pastors and Christians already know: “Although there is no requirement to do so, many churches seek recognition of tax-exempt status from the IRS because such recognition assures church leaders, members, and contributors that the church is recognized as exempt and qualifies for related tax benefits. For example, contributors to a church that has been recognized as tax exempt would know that their contributions generally are tax-deductible” (IRS Publication 1828 (2009), p. 3).

Many Christians who do not love the Lord and who have not studied this matter are fearful and want the assurance of civil government that their tithes and offerings will be tax-deductible. They do not realize that the First Amendment already gives them the assurance that their tithes and offerings will be tax-deductible (one day they may have to fight this issue out in court, but, as of now, the author knows of no non-501(c)(3) church member who has not been allowed the deduction after showing the IRS that the deduction claimed is for tithes and offerings to a church). What is one’s motive for giving: the glory of God or a tax deduction from the civil government?

As will be shown below, many church members also want the convenience given the state church (a church which is a legal entity such as a corporation, corporation sole, charitable trust, unincorporated association, and maybe also a 501(c)(3) religious organization) by the IRS in making their tax deductions for tithes and offerings . Many give tithes and/or offerings because they get a deduction. Some use earthly or fleshly reasoning, displease our Lord, and excuse themselves by saying that they can give more if they get the deduction, as if God could not and would not make up the difference. God does not want our money, He wants our love. If we love Him and our neighbor, all that we have will be His, and our only regret will be that we do not give more, regardless of earthly rules (See “The Most Important Thing: Loving God and/or Winning Souls” for a biblical study of the love relationship between Christ and His churches).

III. The deductibility of gifts to New Testament churches 

Will the IRS disallow a tax deduction for gifts to a New Testament church (a church which is not a legal entity such as an incorporation, unincorporated association, charitable trust, or corporation sole and which does not have 501(c)(3) status)? The IRS Code provides:

“§ 170.  Charitable, etc., contributions and gifts….
“(a) Allowance of deduction.
“(1) General rule. There shall be allowed as a deduction any charitable contribution (as defined in subsection (c)) payment of which is made within the taxable year. A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the Secretary. [Emphasis mine.] …
“(c) Charitable contribution defined. For purposes of this section, the term ‘charitable contribution’ means a contribution or gift to or for the use of— …
“(2) A corporation, trust, or community chest, fund, or foundation–
“(A) created or organized in the United States or in any possession thereof, or under the law of the United States, any State, the District of Columbia, or any possession of the United States;
“(B) organized and operated exclusively for religious, charitable, scientific, 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;’
“(C) no part of the net earnings of which inures to the benefit of any private shareholder or individual; and
“(D) which is not disqualified for tax exemption under section 501(c)(3) [26 USCS § 501(c)(3)] by reason of attempting to influence legislation, 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” (26 U.S.C. § 170).

The author has found only one case, Morey v. Riddell, 205 F. Supp. 918 (S.D. Cal. 1962), which addresses the issue of deductions for members of a New Testament church. That case held that § 170 applies to what appears from the record to have been, at least for the most part, a New Testament church. The government argued that contributions did not qualify as deductions. The Court held for the church on all points. The government’s arguments and the court’s holdings in Morey follow:

   “(1) The government argued that the church was not in fact an ‘organized association as contemplated by the statute (no distinctive identifying name, no written charter, constitution, bylaws, or operational guide other than the Holy Bible; it had no permanent headquarters, it did not maintain comprehensive records, and its funds were not held in a bank account designated as a church account.)
Held. The members of the church regard themselves simply as members of the body of Christ (as following the teachings of Christ in the NT). They have no denominational name, no written organizational guide supplementary to the NT because they believe to do so would be to add an arbitrary gloss to biblical precepts, thus obscuring the word of God. Yet, in adherence to this philosophy, they have bound themselves together in an organized association. Many of them have worshipped together for years in furtherance of the purposes of the church.  They hold regular public meetings in homes and rented quarters for Bible study, worship and evangelism. They assemble together in ‘camp meetings’. As an association, they sponsor radio broadcasts and print and distribute Bible literature.  They recognize specific individuals as ministers and as church officers, from whom they accept guidance.  Through the years their ministers have regularly performed marriage ceremonies accepted as valid by civil authorities.  Thus, while the church lacks some of the common indicia of organization, it plainly is an organized association of persons dedicated to religious purposes.
(2) The government argued that the church was not organized in the U.S. as required by statute.
Held. The basis for this contention is certain testimony that the church had its beginnings in Jerusalem in 33 A.D. It is perfectly obvious that what was meant by this testimony was that the Christian Church in the all-inclusive sense began in Jerusalem in 33 A.D. There is no doubt that the association constituting the church for whose use the contributions were made was organized in the United States.
(3) the government argued that the church does not qualify as a beneficiary for deductible contributions because no showing has been made that in the event of its dissolution its assets would by operation of law be distributed solely for religious purposes.
Held. This suggestion is prompted by [certain sections of the Income Tax Regulations and the C.F.R. that establish] that upon dissolution its assets must be distributable solely for an exempt purpose, either by terms of its articles of by operation of law. This regulation has no governing force in respect to the determination of the deductibility of plaintiffs’ contributions for two reasons. It had not yet been promulgated at the time the contributions were made and tax returns filed…. The regulation … is obviously intended as a safeguard against the possibility that funds accumulated by an organization by reason of its tax-exempt status might, in the event of its dissolution, be used for purposes other that those to which it was dedicated…. [See case for important part of the analysis.] It is evident that the contributions made by plaintiffs have long since been spent in furtherance of the religious purposes of the church, and that there is no possibility of their application to other uses.
(4) The government argued that the contributions were made by checks payable to the order of four of the church’s ministers.
Held. The government cites several cases in which bequests inured to the benefit of the order. These cases are factually distinguishable because in each case the Court found that the testator intended to make the bequest to the named individual. In the present case, it is clear from the evidence that plaintiffs did not intend to make contributions to ministers, individually, but placed the funds in their hands, as agents, for the use of the church.
 “(5) The government argued that the plaintiff’s contributions were not deductible because they inured to the benefit of individuals (the church’s ministers).
Held. The individuals benefited were the church’s recognized ministers, who employed a portion of the contributions given for the use of the church to pay their living expenses.  Such use of the contributions does not constitute a departure from the statutory requirement that no part of the net profits of the organization shall inure to the benefit of any individual, for the sums expended to meet the living expenses of the ministers were no part of the net profits of the church. They were monies expended to meet legitimate expenses of the church in implementing its religious purposes. These expenses were of the same character as the salaries paid by any religious or charitable organization to its staff. The evidence was clear that the ministers devoted the major portion of their time to work of the church and that the amount of church funds used to pay their modest living expenses was small in comparison to the extent of their services.”

The IRS agrees that contributions to a non-incorporated, non-501(c)(3) church are deductible: “You can deduct 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…. You can ask any organization whether it is a qualified organization, and most will be able to tell you. Or you can check IRS Publication 78 which lists most qualified organizations. You may find Publication 78 in your local library’s reference section. Or you can find it on the internet athttp://www.irs.gov. You can also call the IRS to find out if an organization is qualified. Call  1-877-829-5500…” (IRS Publication 526 (2009)). [Bold emphasis mine.]

IRS Publication 778 also reflects the provisions of IRC § 508IRS Publication 778 states: “Publication 78 is based on information received in applications seeking recognition of exemption under Internal Revenue Code section 501(c)(3). Churches, their integrated auxiliaries, conventions or associations of churches, and public charities whose annual gross receipts are normally not more than $5,000 may be treated as tax-exempt without filing an application. Also, many churches are included in group exemptions (see below)  Thus, they may not be listed in Publication 78.”

 IRS Publication 526 and IRS Publication 778 comply with the law, IRC § 508, which is quoted in relevant part above.

IV. Another reason some churches seek 501(c)(3) status:
the convenience offered state 501(c)(3) church members

However, the above does not tell the whole story. Another reason some churches seek 501(c)(3) status is that IRS regulations make it more difficult for members to receive tax deductions for tithes and offerings to a New Testament church than to an incorporated 501(c)(3) religious organization. Those regulations are unconstitutional in that they prefer members of corporate-501(c)(3) churches over First Amendment churches (churches who choose to retain their First Amendment and New Testament status). In other words, those regulations encourage carnal and uninformed believers to join churches organized under secular, as opposed to biblical, law.

“A donor cannot claim a tax deduction for any single contribution of $250 or more unless the donor obtains a contemporaneous, written acknowledgment of the contribution from the recipient church or religious organization. A church or religious organization that does not acknowledge a contribution incurs no penalty; but without a written acknowledgment, the donor cannot claim a tax deduction” (IRS Publication 1828 (2009), p. 24).

To receive a deduction, one must have records to prove his contributions. For cash contributions (includes cash, check, electronic funds transfer, debit card, credit card, or payroll deduction) less than $250, he must keep one of the following:

“1. A cancelled check, or a legible and readable account statement that shows:
“a. If payment was by check—the check number, amount, date posted, and to whom paid,
“b. if payment was by electronic funds transfer—the amount, date posted, and to whom paid, or
“c. if payment was charged to a credit card—the amount, transaction date, and to whom paid.
“2. A receipt (or a letter or other written communication) from the charitable organization showing the name of the organization, the date of the contribution, and the amount of the contribution.
“3. The payroll deduction records described next. … (IRS Publication 526 (2009)). See pp. 18-19 for rules for payroll deductions, contributions of $250.00 or more, and for noncash contributions.).

For contributions of more than $250, one must keep one of the following:

“You can claim a deduction for a contribution of $250 or more only if you have an acknowledgement of your contribution from the qualified organization or certain payroll deduction records.
“If you claim more than one contribution of $250 or more, you must have either a separate acknowledgement for each or one acknowledgement that shows your total contributions and the date of each contribution and shows your total contributions.” (Ibid.).

“Acknowledgement. The acknowledgement must meet these tests:

“1. It must be written.
“2. It must include:
“a. The amount of cash you contributed.
“b. Whether the qualified organization gave you any goods or services as a result of your contribution (other than certain taken items and membership benefits), and
“c. A description and good faith estimate of the value of any goods or services described in (b) other than intangible religious benefits, and
“d. A statement that the only benefit you received was an intangible religious benefit, if that was the case. The acknowledgment does not need to describe or estimate the value of an intangible religious benefit. An intangible religious benefit is a benefit that generally is not sold in commercial transactions outside a donative (gift) context. An example is admission to a religious ceremony.
“3. You must get it on or before the earlier of:
“a. The date you file your return for the year you make the contribution, or
“b. The due date, including extensions, for filing the return.”

 “If the acknowledgment does not show the date of the contribution, you must also have a bank record or receipt, as described earlier, that does show the date of the contribution. If the acknowledgment does show the date of the contribution and meets the other tests just described, you do not need any other records” (Ibid.).

“Payroll deductions. If you make a contribution by payroll deduction, you do not need an acknowledgement from the qualified organization. But if your employer deducted $250 or more from a single paycheck, you must keep:

“1. A pay stub, Form W-2, or other document furnished by your employer that date and amount of the contribution, and
“2. A pledge card or other document prepared by or for the qualified organization that shows the name of the organization.

“If your employer withheld $250 or more from a single paycheck, see Contributions of $250 or More, next.” (Ibid.).

Also, according to the IRS, a church may assist the IRS and issue written statements for gifts of $250 or more given the church, which will be honored by the IRS if such receipts contain the following information:

“the name of the church or religious organization; date of contribution; amount of any cash contribution, and description (but not the value) of non-cash contributions; statement that no goods or services were provided by the church religious organization in return for the contribution; statement that goods or services that a church or religious organization provided in return for the contribution consisted entirely of intangible religious benefits, or description and good faith estimate of the value of goods or services other than intangible religious benefits that the church or religious organization provided in return for the contribution.
“The church or religious organization may either provide separate acknowledgments for each single contribution of $250 or more or one acknowledgment to substantiate several single contributions of $250 or more. Separate contributions are not aggregated for purposes of measuring the $250 threshold” (IRS Publication 1828 (2009), p. 24).

A pastor/trustee of a New Testament church holds property for the benefit of the Lord Jesus Christ (See “Analysis of another reason given for church corporate status: to hold property”). Thus, the pastor of a New Testament church, not the church herself, may keep records if he so desires. However, since all monies given are used for legitimate purposes, there are no profits. As to membership records, only those who have been born again are members of a church and only God knows who has been saved and adds to the church. The Bible contains no example of our Lord or the church keeping financial records. Judas stole from the money bag he carried” (See John 12.6). No apostle made an issue of it. Christ knew about it, but did not rebuke him in any way or turn Judas in to the civil authority. No instructions for a church to keep financial records can be found in the New Testament.

IRS regulations require that: “All tax-exempt organizations, including churches and religious organizations (regardless of whether tax-exempt status has been officially recognized by the IRS), are required to maintain books of accounting and other records necessary to justify their claim for exemption in the event of an audit” (IRS Publication 1828 (2009), p. 21).

A New Testament church is not an earthly entity or organization. Therefore, she has no earthly matter to keep records of. Keeping records would require a church to behave somewhat like a business and keep records of tithes and offerings, thereby destroying her status as a spiritual entity. Again, the pastor/trustee of a New Testament church may keep such records if he so desires. A pastor/trustee is not the church. He is just holding property and/or funds in trust for the benefit of the Lord Jesus Christ, an awesome responsibility under the Lord.

In addition, “charitable contribution” under IRC § 170 quoted supra, means “a contribution or gift to or for the use of … a corporation, trust, or community chest, fund, or foundation … organized and operated exclusively for religious [or] charitable … purposes … which is not disqualified for tax exemption under section 501(c)(3) [26 USCS § 501(c)(3)] by reason of attempting to influence legislation, 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.” A New Testament church is not any of the organizations named in IRC § 170 and cannot accept limitations on her spiritual responsibilities. Remember, a New Testament church retains all her protections under the First Amendment to the United States Constitution, as well as under the state constitution and statutes of the state wherein she meets.

The author believes that a New Testament church cannot have employees. First, he believes that to do so is unbiblical. Secondly, to do so subjects the church to Federal Insurance Contributions Act (FICA) taxes which consist of Social Security and Medicare taxes. (Ibid., p. 18).

“Whether a church or religious organization must withhold and pay employment tax depends upon whether the church’s workers are employees. Determination of worker status is important. Several facts determine whether a worker is an employee. For an in-depth explanation and examples of the common law employer-employee relationship, see “IRS Publication 15-A, Employer’s Supplemental Tax Guide.  Those IRS definitions do not apply to members of a New Testament church involved in ministry because those members do not receive wages. The IRS states:

“Wages paid to employees of churches or religious organizations are subject to FICA taxes unless one of the following exceptions applies: (1) wages are paid for services performed by a duly ordained, commissioned, or licensed minister of a church in the exercise of his or her ministry, or by a member of a religious order in the exercise of duties required by such order, (2) the church or religious organization pays the employee wages of less than $108.28 in a calendar year, or (3) a church that is opposed to the payment of social security and Medicare taxes for religious reasons [files Form 8274]…. If such an election is made, affected employees must pay Self-Employment Contributions Act (SECA) tax… (IRS Publication 1828 (2009) p. 18).”

Other IRS rules apply to taxes on compensation of ministers. A New Testament church cannot pay wages or any type of compensation to her pastor or anyone else. According to the Bible, members of such a church can give gifts to take care of a pastor, but those gifts are not wages and are not required by contract or any other earthly rule.

Unlike exempt organizations or businesses, civil law provides that a church is not required to withhold income tax from the compensation that it pays to its duly ordained, commissioned, or licensed ministers for performing services in the exercise of their ministry” (Ibid., p. 18-19). In fact, a New Testament church cannot “compensate” anyone since she is a spiritual entity, and therefore can hold no property of any kind, nor can she hold money. Members as individuals can give tithes and offerings to be used for biblically approved uses. Such gifts are can be held by a pastor/trustee who holds property and money for the benefit of the Lord Jesus Christ and disperses money given for biblically acceptable ministries and uses.

Furthermore, anyone can give a gift or gifts to anyone else. According to the Internal Revenue Code § 102, gifts up to a certain amount are not income and therefore, not taxable. In 1998, gifts of up to $10,000 were not taxable, and that limit has increased each year since according to the formula laid out in Internal Revenue Code § 2503.

V. Conclusion

The Bible lays out the guidelines for churches. No matter what civil law says, a church and her members should adhere to those guidelines, even if inconvenienced, penalized, and/or persecuted. American law is more favorable to true New Testament churches than are the laws of almost all other nations, but the law has become somewhat convoluted, especially regarding deductions for the tithes and offerings of New Testament church members. The conveniences which the federal government offers churches through the 501(c)(3) exemption-definition-control scheme actually violates the First Amendment (See “The Internal Revenue Code § 501(c)(3) Exemption-Definition-Control Scheme” for more information on 501((3)). The First Amendment to the United States Constitution declares that “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof….”

The complications, inconveniences, and penalties caused members of New Testament churches have come about because the great majority of churches and pastors have not honored the Lord in their understanding of and application of the biblical doctrine of the church. They have not determined, as did the Apostle Paul, to present their church as a chaste virgin to Christ (See II Co. 11.2). In other words, most churches do not love the Lord as He loves His churches (See,  “The Most Important Thing: Loving God and/or Winning Souls“). Most incorporate (or become unincorporated associations or corporations sole) and get 501(c)(3) status. As to this matter at least, they walk in the flesh, not in the Spirit. As the author chronicles in Section VI of God Betrayed/Separation of Church and State: The Biblical Principles and the American Application and in other articles and audio teachings, after the adoption of the First Amendment, many “Bible believing” churches who had fought long and hard for religious liberty ignored the sound biblical advice of men like Isaac Backus and began to run to the state to incorporate. In the twentieth century churches sought 501(c)(3) status when it became available. They violated biblical principles, displeased the Lord, and gave up much of their First Amendment rights and protection.

“Nearly 30 years ago, an eminent minister insisted before Congress that: [T]he first amendment … should not permit the state to tell the church when it is being ‘religious’ and when it is not. The church must be permitted to define its own goals in society in terms of the imperatives of its religious faith. Is the Christian church somehow not being religious when it works on behalf of healing the sick, or for the rights of minorities, or as peacemaker on the international scene? No, the church itself must define the perimeters of its outreach on public policy questions” (Richard W. Garnett, A Quiet Faith? Taxes, Politics, and the Privatization of Religion. 42 B.C. L. Rev. 771, 772, 2001, citing Legislative Activity By Certain Types of Exempt Organizations: Hearings Before the House Ways and Means Committee, 92d Cong., 2d Sess. 99, 305 (1972) quoted in Edward McGlynn Gaffney, Jr., On Not Rendering to Caesar: The Unconstitutionality of Tax Regulation of Activities of Religious Organizations Relating to Politics, 40 DePaul L. Rev. 1, 20 (1990)).

A New Testament church is protected by God forever, and temporally by the First Amendment. On the other hand, a state incorporated church enters into a contract with the state, the sovereign of the corporation. By so doing, the incorporated church assumes a second personality—that of an artificial person, a legal entity, capable of suing and being sued (See “Separation of Church and State: Christians Who Call Evil Good and Good Evil” for more information on the meaning of church incorporation.). Incorporation provides for civil governmental regulation in many areas, and it does not protect the church from all governmental interference with matters outside the contract. When a church seeks and acquires 501(c)(3) status, she thereby has agreed to certain restrictions and that she will abide by public policy (See “The Internal Revenue Code § 501(c)(3) Exemption-Definition-Control Scheme” for more information on 501(c)(3) tax exemption.). She also submits herself to anti-biblical teaching from civil government through the IRS. Most egregious of all, she, like Israel who asked for a king, has committed a great wickedness against God by putting herself, at least partially, under another head. We are witnessing the undesirable consequences which follow church incorporation and 501(c)(3).

Most churches walk in the flesh and not the spirit as to the issue of separation of church and state and are guilty of one or more of the following, among other things: using far more resources to build magnificent edifices than to reach the lost; catering to individual’s flesh instead of preaching against sin, proclaming the true Gospel of salvation, and teaching the deeper principles and doctrines of Scripture; and organizing and running “businesses” instead of New Testament churches to one degree or another. The results are: churches, believers, and church families lack the power of God; many individuals, families, churches, and the nation follow Satan and his principles; and, most importantly, far fewer souls in America, as a percentage, are being saved than would be the case would churches only get serious about the love relationship between Christ and His churches.

Note

All legal conclusions in this article are those of the author, a Christian and a licensed attorney. Please do not attempt to act in the legal system if you are not a lawyer, even if you are a born-again Christian. Many questions and finer points of the law and the interpretation of the law cannot be properly understood by a simple facial reading of a civil law. For a born-again Christian to understand American law, litigation, and the legal system as well as spiritual matters within the legal system requires years of study and practice of law as well as years of study of biblical principles, including study of the biblical doctrines of government, church, and separation of church and state. One who has not paid the price and done his homework in these matters cannot gain a correct understanding of the issues by reading a few articles over the internet—including articles in this “Separation of Church and State” blog—or elsewhere; by studying cases and law himself; by consulting with lawyers, pastors, or Christians of state churches; by consulting with lawyers, pastors, or Christians who embrace a false theology; and/or by consulting with pastors or Christians who have no actual training in a bona fide law school and who have not practiced law.  Those with the proper credentials and who specialize can see and understand things that others cannot. The Lord wishes a church to be a spiritual body and each member of that body to practice the gift with which God has entrusted him. Many “Christians,” including many “Christian” lawyers who are making a lot of money by recommending legal status (non-profit corporation, 501(c)(3) tax exemption, etc), sometimes motivating the unknowledgeable through fear tactics, and helping churches to get legal entity status are not qualified under God and/or under man to advise on church-state issues. Every church and every believer is responsible to God in all matters pertaining to faith and practice, even in matters which require a deep understanding of biblical principles and man’s laws relating thereto.

The author is totally aware that many “Bible believing” pastors and Christians will not seek truth regarding these preeminent legal and spiritual facts and doctrines. He is at peace though, because he has done what the Lord has called him to do—declare the truths about these matters. That is all he can do. After all, the religious crowd did not have ears to hear and rejected the truths which were declared to them by God Himself, the Lord Jesus Christ.

The Internal Revenue Code § 501(c)(3) Exemption-Definition-Control Scheme

Jerald Finney
Copyright © September, 2009
Jerald Finney teaches on “The Internal Revenue Code 501(c)(3) Exemption-Definition-Control Scheme” Left click to hear Jerald Finney teaching on this subject. Right click the link and then left click “Save link as…” to download. The teaching is preceded by a hymn sang by Rocky Otwell, a great man of God, and prayer. The teaching is approximately 25 minutes, not including the song.
Click here to go to: ANSWER TO QUESTION REGARDING A LAWYERS FALSE STATEMENTS CONCERNING CHURCH CORPORATE 501(C)(3) STATUS

“And the lord commended the unjust steward, because he had done wisely: for the children of this world are in their generation wiser than the children of light” (Lu. 16.8b).

It is amazing to see that most of the fundamental “Bible believing” pastors and Christians that I know believe that something is wrong with a church who refuses to incorporate and get Internal Revenue Code (“IRC”) §501(c)(3) (“501(c)(3)”) status. Biblical principles are against incorporation and 501(c)(3) for churches, and civil law does not purport to require that churches get either corporate or 501(c)(3) status. In fact, the First Amendment to the United States Constitution, laws, and regulations of the federal government as well as the constitutions, laws, and regulations of the states guarantee that churches may remain free under God without persecution. This article addresses church 501(c)(3) status.

501(c)(3) invites churches to seek a tax exemption from civil government, even though the First Amendment already has erected a “high and impregnable wall” of separation between church and state which forbids civil government from making any law, including any taxing law, respecting a New Testament Church.

The more I study the subject of “separation of church and state,” the more I realize that secular scholars have more insight into the issue than do most of those, including pastors, who call themselves fundamental Bible believers.  Both the Internal Revenue Service and secular scholars know that churches are not required by law to be incorporated and get 501(c)(3) status and that 501(c)(3), as applied to churches, is an exemption-definition-control scheme which is implemented simply by invitation. In this article I give a brief review of the 501(c)(3)  exemption-control-definition scheme and insights from the law, from the Internal Revenue Service, and from legal scholars.

To qualify for tax exempt status under 501(c)(3) religious organizations must meet the following requirements, i.e. abide by the following rules:

1. Must be organized and operated exclusively for religious, educational, scientific, or other charitable purposes,
2. net earnings must not inure to the benefit of any private individual or shareholder,
3. no substantial part of its activity may be attempting to influence legislation,
4. the organization may not intervene in political activity, and
5. the organization’s purposes and activities may not be illegal or violate fundamental public policy.

The above listed rules, except for rule number 5, are stated in 501(c)(3). The original 501(c)(3) law had no accompanying rules, but four of the five were added by legislative enactment, and signed into law by the president. The last one, “may not violate fundamental public policy,”is not stated in the law; that is, it is not listed as a requirement in § 501(c)(3). This requirement was unilaterally implemented by the Internal Revenue Service and upheld as law by the United States Supreme Court in the illogical Bob Jones University, 461 U.S. 574,  (1983) case. The federal government may add additional requirements to the law in the future.

Under these rules, the state controls, defines, and instructs a corporate 501(c)(3) religious organization to a large degree. Control and definition go hand in hand. The federal government wants to control churches, and does so through 501(c)(3).

A study of relevant law, as well as IRS regulations and legal scholarship reveals that 501(c)(3) is voluntary and that it is a control-definition scheme.

IRC § 508(a),(c), in line with the First Amendment, says churches are excepted from obtaining § 501(c)(3) tax exempt status. In other words, churches are non-taxable; and, therefore, churches are an exception to the civil government requirement that certain organizations file for 501(c)(3) tax exempt status. Thus, the law recognizes that a New Testament Church is non-taxable under the First Amendment to the United States Constitution.

The IRS doesn’t hide the fact that churches are non-taxable under the First Amendment and IRC § 508(a),(c) and that the exemption-definition-control scheme is implemented by invitation. The IRS proclaims in IRS Publication 1828 (2007):

“Although there is no requirement to do so, many churches seek recognition of tax-exempt status from the IRS because such recognition assures church leaders, members, and contributors that the church is recognized as exempt and qualifies for related tax benefits…. 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.”

In the exemption and restriction scheme, the government extends an invitation to incorporated “religious organizations” to receive a tax exemption in return for allowing the government to interpret and categorize their expression and activities.

Civil government not only knows what it is doing when encouraging churches to incorporate and seek 501(C)(3) status; it also blatantly belittles the fact that the IRC provisions exempting churches from taxation and providing for certain controls over corporate 501(c)(3) “churches” are contrary to the First Amendment. The federal government flaunts the lack of knowledge and understanding of the average Christian as to both spiritual and earthly matters. IRS Publication 1828 states:

Congress has enacted special tax laws applicable to churches, religious organizations, and ministers in recognition of their unique status in American society and of their rights guaranteed by the First Amendment of the Constitution of the United States.” [Emphasis mine.] …

A comparison of the above statements of the IRS with the words of the religion clause of the First Amendment reveals the fact that the IRS flaunts the fact that Congress has enacted laws “respecting the establishment of religion and preventing the free exercise thereof.” The First Amendment religion clause says:

“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof….”  [Emphasis mine.]

Some legal scholars who have studied the issue know what the civil government is up to with the exemption-definition-control scheme. For example, Richard Garnett, assistant professor at Notre Dame Law School, wrote in A Quiet Faith? Taxes, Politics, and the Privatization of Religion, published in Volume 42 of B.C. L. Rev. starting on page 771 (this is a paraphrase of selected portions of the article with citations omitted):

  1. “The imposition of a tax is, after all, an assertion of power and an ‘application of force.’ The same is true of the decision not to tax, or to exempt from taxation. A power is no less real that is exercised selectively or indulged with restraint. The decision to exempt certain associations, persons, activities, or things from taxation presupposes and communicates the ability to do otherwise; definitional lines drawn to mark the boundaries of such exemptions implicitly assert the power to draw them differently…. My claim here is that the decision to exempt religious associations from federal taxation may reasonably be regarded as an assertion of power—the power, perhaps, to ‘destroy’—over these communities, their activities, and their expression….
  2. “In other words, maybe the power to tax churches, to exempt them from taxation, and to attach conditions to such exemptions really does as Chief Justice Marshall quipped, ‘involve the power to destroy’ religion. Neither heavy-handed repression nor even overt hostility toward faith is required, but merely the subtly didactic power of the law. Government need only express and enforce its own view of the nature of religion—i.e., that it is a private matter—and of its proper place—i.e., in the private sphere, not in politics—and religious believers and associations may yield to the temptation to embrace, and to incorporate, this view themselves….
  3. “It is an exemption-and-restriction scheme in which the government extends an invitation to ‘religious organizations’ to receive a tax exemption in return for allowing the government to interpret and categorize the expression and activities of the church.  There is the danger that, having made their own the government’s view of religion’s place, now-humbled and no-longer-prophetic religious associations will retreat with their witness to the ‘private’ sphere where—they now agree—they belong, leaving persons to face the state alone in the hollowed-out remains of the public square….
  4. “Still it strikes me that the Internal Revenue Code Section 501(c)(3)’s exemption-and-restriction scheme is noteworthy in the extent to which it invites government to label as ‘propaganda’ or ‘campaign[ing]’ what are, for religious believers and communities, expressions of their faith and responses to their calling. It is far from clear that this is an appropriate task for the liberal state….
    “My concern … is that the premises of the conditional exemption scheme, the labeling it invites, and the monitoring of distinctions it creates will tame religion by saying what it is and identifying what it is not, tempt religion to revise its conception of itself and of its mission, and convince religious consciousness to internalize the state’s own judgment that faith simply does not belong in politics….
  5. “[The tax exemption] is simply the government’s way of paying churches not to talk about certain things, enforce certain beliefs, or engage in certain actions—in other words, it’s the government’s way of privatizing the church….
  6. “By determining for its own purposes the meaning of religious communities’ statements and activities, and by enforcing the distinctions it draws, government subtly reshapes religious consciousness itself. In other words, by telling religion what it may say, really is saying, or will be deemed to have said, and by telling faith where it belongs, government molds religion’s own sense of what it is….
  7. “[Certain pronouncements] led my colleague, Professor Bradley, to suggest in another context that ‘[t]he Court is now clearly committed to articulating and enforcing a normative scheme of ‘private religion.’ Indeed, he argues powerfully that the Court’s post-Everson v. Board of Education cases ‘are most profitably understood as judicial attempts to move religion into the realm of subjective preference by eliminating religious consciousness.’ … [T]he Court turned to privatization ‘as the ‘final solution’ to the problem of religious faction.’ Its ambition—not merely the unintended effect of its decisions—is not only to confine the potentially subversive messages of religion to a ‘nonpublic ghetto,’ but also to revise and privatize the messages themselves. Having acquiesced to judicial declarations that it is a private matter, and accepted that its authority is entirely subjective, religious consciousness is unable to resist the conclusion that its claims to public truth are ‘implausible nonsense,’ and therefore cannot help but concede the field of public life and morality to government….
  8. “[T]his privatization of religion is not simply its institutional disestablishment or an entirely appropriate respect on government’s part for individual freedom of conscience and autonomy of religion institutions. Nor is the claim only that the exemption privatizes religion by deterring political activism and silencing political advocacy by religious believers and communities. It is, instead, that the exemption scheme and its administration subtly re-form religion’s conception of itself. Government evaluates and characterizes what churches say and do, and decides both what it will recognize as religious and what it will label as political….
  9. “[P]rivatization of the church is its remaking by government and its transformation from a comprehensive and demanding account of the world to a therapeutic ‘cacoon wrapped around the individual.’ It is a state-sponsored change in religious believers’ own notions of what their faith means and what it requires…. The government tells faith communities that religion is a private matter, and eventually, they come to believe it.
  10. “And finally, the retreat of religious associations to the private sphere suggests an ill-founded confidence that government will not follow. But it will. The privatization of religion is a one-way ‘ratchet that stems the flow of religious current into the public sphere, but does not slow the incursion of political norms into the private realm.’”

Michael Hatfield, Associate Professor of Law at Texas Tech University School of Law makes some important points in his article published in Volume 20 of Notre Dame Journal of Ethics and Public Policy beginning on page 125. (I suggest that the serious student get the article and study it for himself.):

  1. “There is an assumption among contemporary scholars [&, I might add, among Pastors and other Christians] that a church doing without tax exemption is ‘fundamentally repugnant,’ so there is no need for substantive analysis of the tax issues involved if a church becomes taxable. Instead of analyzing the tax problem, the tax problem tends to be used to introduce ‘bigger’ ideas about the Constitution, religion, and politics. In the current scholarship, the context of the issue – religion and politics – tends to become substituted for the substance: federal income taxation. The critical issue, however, is federal income taxation.”
  2. Professor Hatfield states that he uses the terms ‘Taxable Church’ and ‘Tax Exempt Church’ to make it clear that churches need not be Section 501(c)(3) organizations.…
  3. Professor Hatfield states, “A tax without a cost has no meaning.… Because of the unique treatment churches receive under the Internal Revenue Code, the impact of the revocation is likely to be more symbolic than substantial.”
  4. He states: “Churches ought not make guesses about the value of their assets or their moral convictions. There is no reason to believe that most American churches are eager to claim an express political identity, though there are indications that, more and more, religious and political identities in America are being fused. For churches with a clear moral conviction to campaign, the implication of the Asset Management Analysis is clear: crunch the numbers. Determine the cost of losing tax exemption. Decide if that cost is worth campaigning. Do not be distracted by imaginations as to what tax exemption is about. It is about taxes. It is about money. It is not about the ‘right’ and ‘wrong’ way to be a church, which is a religious issue and not a tax issue. It should be – and presumably is – the religious convictions and not the tax worries of churches that keep them out of politics.”

Thus, a New Testament Church (“NTC”) – that is, a church operating according to New Testament principles – is non-taxable, because even if the term “taxable” is used, civil government cannot, according to its own IRS law, tax a NTC because (1) all her income is from gifts (See Section 102 of the IRS Code; Professor Hatfield points this out in his article), and (2) a NTC spends every dime given in tithes and offerings for church ministries.  Since gifts are not net income, what is left after subtracting expenses from net income? Even a business with no net income pays no taxes. And an individual or a business has to make a certain amount of money before paying any taxes.

How can it be that “Bible believing” Christians have gotten the churches of America so far astray from the principles for churches laid down by God in His Word? Are pastors and Christians ignorant or are they willfully ignorant? We cannot hope to straighten America out unless we first straighten our churches out, but it seems that more Christians are concerned about the state of America than they are about the state of the churches in America. God’s people and God’s churches, as well as America, are being destroyed because of a lack of knowledge.

Note. The sodomites understand what 501(c)(3) for churches means, yet pastors and other Christians continue to ignore the issue because they, like lepers to whom the leprosy has spread to the head, have ‘their understanding darkened, being alienated from the life of God through the ignorance that is in them, because of the blindness of their heart: Who being past feeling have given themselves over to lasciciousness, to work all uncleanness with greediness” (Ephesians 4.18-19).  Here is a link to a sodomite article on the issue: “Equality is what we’re all about in Maine” (110518: Checked link; link is no longer active).  

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