Establishing A Church: Federal Law Requirements And Steps

Churches are considered tax-exempt organisations under Section 501(c)(3) of the Tax Code, and while this means they don't pay taxes, it also means there are specific guidelines that determine which organisations can claim this status. The process of becoming a church under federal law involves several steps, including incorporating your church, obtaining a Federal Employer Identification Number (FEIN), creating and adopting bylaws, establishing policies and procedures, and applying for tax-exempt status.

The first step is to choose a unique name for your church and file the articles of incorporation, which should include a purpose statement and other relevant information. The second step is obtaining a FEIN from the IRS, which will serve as your organisation's tax identification number. The third step is to create bylaws, which will protect your church from public accommodation laws that may violate its First Amendment rights. The fourth step is to establish policies and procedures to ensure compliance with state and IRS regulations. Finally, the fifth step is to apply for 501(c)(3) tax-exempt status with the IRS, which can be a time-consuming and labour-intensive process.

Define the church's mission, goals, and leadership structure

To become a church under federal law, you must meet the requirements of section 501(c)(3) of the Tax Code. This grants your church tax-exempt status. While this is not a requirement, it is beneficial for confidence in your tax status and that of your donors, as well as for financial transparency and the ability to apply for grants.

Mission, Goals, and Leadership Structure

The mission of your church should be clearly defined and outline what you are trying to bring to the community and your values and guiding principles. This will shape your goals and how you create your church.

For example, if your mission is to provide a safe haven for those in need in your community, your goal might be to create a weekly soup kitchen or food bank, and to achieve this, you will need to establish a leadership structure that can make this happen.

Your leadership structure could include a board of directors, elders, or a combination of member and director management. This should be outlined in your formation documents, including the articles of incorporation and bylaws.

Your bylaws are the most important document for your church, after the Bible. They are the guide to how your church will be organized and should be carefully constructed to comply with 501(c)(3) requirements.

Your mission, goals, and leadership structure should all be defined before you begin the process of legally establishing your church, as they will inform many of the steps you take.

Other Steps to Legally Establish Your Church

• Select a unique name and check its availability with the secretary of state.
• Recruit a board of directors or church council.
• Decide on your business structure and file corporate formation documents.
• Obtain an Employer Identification Number (EIN).
• Open a bank account.
• Establish policies and procedures.
• Apply for tax-exempt status.
• Apply for state exemptions and permits.

Register a unique name and file articles of incorporation

Registering a unique name and filing articles of incorporation are crucial steps in establishing a church and ensuring its legal compliance. Here's a detailed guide on how to navigate these processes:

Registering a Unique Name

Selecting a unique name for your church is the first step in legally establishing your religious entity. It is important to choose a name that is distinct and does not match the exact name of any other existing organization in your state. You can conduct a name search through the secretary of state's office to ensure the uniqueness of your chosen name. Most states require your nonprofit's name to be distinguishable to avoid confusion and misleading associations. Additionally, you may need to include a corporate suffix, such as "corporation" or "inc.," at the end of your church's name if it is structured as a corporation.

Filing Articles of Incorporation

Once you have secured a unique name, the next step is to draft and file the articles of incorporation with the secretary of state. This process establishes your church as a legal entity and offers certain protections and advantages. Here are some key considerations for filing the articles of incorporation:

• Purpose Statement: Your articles of incorporation should include a clear statement outlining the purpose of your church. If your church intends to ordain ministers, be sure to specify that it will license, ordain, and oversee ministers of the gospel.
• Dissolution Statement: Include a statement detailing what will happen to the church's assets and property in the event of its dissolution. Nonprofits seeking 501(c)(3) tax-exempt status must ensure that their assets are not used for personal enrichment but are instead dedicated to furthering nonprofit goals or distributed to governments for public benefit.
• State and IRS Provisional Language: Familiarize yourself with the specific language and provisions required by your state and the IRS. For example, if you intend to seek 501(c)(3) tax-exempt status, include the necessary tax-exempt language in your statement of purpose.
• Designate a Registered Agent: Appoint a registered agent who can accept official mail and legal notices on behalf of the church. This can be an individual or an entity with a physical address in the state. Some states allow the church to act as its own registered agent using its physical address.
• Include Required Information: The articles of incorporation must include specific details, such as the name and address of the initial directors, a statement on membership (whether the church will have members or not), and a statement confirming that the organization is established for religious purposes.
• Sign and Submit the Articles: The articles of incorporation must be signed by the incorporator, who can be someone designated to process the incorporation paperwork or an external professional such as an attorney or business expert. Submit the signed articles to the secretary of state's office, typically by mail, fax, or electronic filing systems. Include the required state filing fee.

Remember, the specific requirements for forming a religious corporation may vary from state to state, so be sure to review the guidelines provided by your state's secretary of state or relevant agency.

Obtain a Federal Employer Identification Number (FEIN)

To obtain a Federal Employer Identification Number (FEIN), you must apply to the Internal Revenue Service (IRS). This can be done online, by mail, by fax, or by telephone if your church was formed outside the U.S. or U.S. territories. The FEIN is a unique number that identifies your church to the IRS and will be used on all federal tax returns and receipts. It is also necessary for opening a bank account in the name of your church.

When applying for a FEIN, you must select 'church' or 'church-controlled organisation' as the type of entity. It is important to note that you should not apply for a FEIN until your church is legally formed. This is because nearly all organisations are subject to automatic revocation of their tax-exempt status if they fail to file a required return or notice for three consecutive years. When you apply for a FEIN, the IRS presumes your church is legally formed, and this three-year period begins.

To apply for a FEIN, you should obtain Form SS-4 and its instructions. You can use this tool to get a FEIN directly from the IRS in minutes for free. Answer the questions and submit the application. If it is approved, the IRS will issue your FEIN immediately online. You can only apply for one FEIN per responsible party per day.

You must also have the Social Security or individual taxpayer ID number (ITIN) of the responsible party in control of your church. If your principal place of business is outside the U.S., you must apply by phone, fax, or mail.

Create and adopt bylaws

Creating bylaws is a complex task that requires legal knowledge and experience. It is recommended that churches seek legal assistance when drafting their bylaws.

Bylaws are a church's rules of internal government, which the church adopts through its articles of incorporation and under the theological premises of its constitution. They provide a grand overview of an organization's operational structure and are a "living" document that encompasses a church's history, theology, and guiding operational structure.

• Define Membership: The bylaws should outline the requirements to become a member, the privileges and responsibilities of members, voting privileges, and church discipline/removal from membership.
• Board of Directors: Identify the process to become a board member, the number, qualifications, and terms of board members, the board's powers, and the process to remove a board member.
• Officers: Define the day-to-day operators of the church. Most states require three officers: President, Treasurer, and Secretary. Clearly define the powers and duties of officers in contrast to board powers.
• Teams and Committees: Define the roles and responsibilities of permanent (standing) committees such as finance, nominations, or personnel. Include a separate clause for special teams or ad hoc committees that the church needs occasionally.
• Disciplinary Processes: Categorize and define the church's disciplinary processes, including a statement of disciplinary figures, procedures for announcing disciplinary occurrences, privileges revoked, and penalties incurred. Ensure that disciplinary protocols align with the church's theological beliefs.
• Dispute Resolution: Include a biblically-based dispute resolution clause, requiring individuals involved in disputes to first seek counsel from pastors, elders, and other members. Indicate that all discussions will be kept confidential.
• Amendments: Create a smooth and swift amendment process to prevent bylaws from becoming outdated. A short notice period and a simple majority vote are usually sufficient for amending bylaws.
• Arbitration and Mediation: Include a provision requiring specified disputes to be resolved through mediation or binding arbitration.
• Parliamentary Law: Choose a model of parliamentary procedure to govern membership meetings. Many church leaders assume that Robert's Rules of Order Newly Revised governs church business meetings, but there are dozens of competing models to choose from.
• Voting: Specify if absentee or proxy voting is permitted at membership meetings. Absentee voting is not ordinarily permitted unless expressly authorized by an organization's bylaws.
• Check-Signing: State which two officers have the authority to sign church checks. It is a basic tenet of internal control that two persons sign checks.
• Indemnification: Include an indemnification clause providing for the indemnification of officers and directors who are sued as a result of actions or decisions made in the course of performing their duties.
• Fiscal Year: Specify the church's fiscal year.
• Staggered Voting: Consider "staggered voting" or a "rotating class" model for the board of directors to ensure continuity in church leadership and promote fresh perspectives.
• Meetings: Address whether the church board can act without conducting a formal meeting. Specify if the bylaws authorize the church board to conduct meetings by telephone, video conference, or other electronic means.
• Quorum: Define what constitutes a quorum for meetings and votes.
• Conflict of Interest: Implement policies to prevent conflicts of interest, such as an anti-terrorism policy.
• Compliance: Ensure that the bylaws comply legally with state corporate and IRS provisions.
• Flexibility: Keep the bylaws flexible and adaptable to new legislation and the evolving needs of the church.
• Transparency: Create transparency in the church by giving members a clear explanation of the governing rules.
• Protection: Protect members from abuse of authority and discipline without due process by balancing church leaders' powers and establishing protective procedures.

Apply for tax-exempt status

To apply for tax-exempt status, you must file an application with the IRS. This is usually done using IRS Form 1023, a 25-page form that can be up to 70 pages long when filled out. It is a time-consuming and labor-intensive process that can take anywhere from 100 to 150 hours to complete. This form is used by most organizations seeking recognition of exemption from federal income tax. However, churches are not required to file this form and are automatically granted tax-exempt status under Section 501(c)(3) of the Tax Code.

Despite this, many churches choose to officially apply for tax-exempt status for several reasons. Firstly, it provides confidence and peace of mind, eliminating any doubt about their organization's tax-exempt status. Secondly, it assures contributors that their donations are tax-deductible, which can be a significant incentive for giving. Thirdly, it promotes financial transparency, as churches with official tax-exempt status are not required to file annual financial reports like other 501(c)(3) nonprofits. Finally, official tax-exempt status allows churches to apply for grants, as some grantmakers require this status or prefer organizations with full financial transparency.

To apply for tax-exempt status, churches can either file Form 1023 with the IRS or be included in a "group-exemption ruling" obtained by a convention or association of churches. If a church independently applies for tax-exempt status, it must notify the IRS of any significant changes in its sources of support, purposes, character, or methods of operation. On the other hand, churches included in a group exemption ruling must annually notify their convention or association of any changes in their purposes, character, or methods of operation.

It is important to note that ministries, which are different from churches in the eyes of the IRS, must apply for tax-exempt status within 27 months of formation. They must also file Form 990 annually, unless they officially apply for 501(c)(3) status.

Frequently asked questions