If you are starting a new church or ministry in the USA and want to have tax exempt status from the IRS or waiting on approval don’t do it, it’s a dirty trick from Satan and you would be playing right into his hands! Be sure to read all the fine print on that 501(c)(3) contract before it goes through. Please don't think I'm being pushy, I'm just looking out for the body of Christ.
We considered doing the same when we founded God’s Word First Biblical Research & Teaching Ministry. Through extensive reseach on the subject we decided against the bad deal of tax exempt status. A 501(c)(3) Corp Status is a Bad Deal for a church just say NO! Here’s why: You don’t own your church, you only control it. The government owns it in direct violation of the Separation of Church and State Law. That means your church is operating illegally!
Here's why: In any 501(c)(3) tax exempt organization, THE GOVERNMENT OWNS IT, not you and/or your board of directors. If what you are forming is a religious organization then the 501c3 tax exempt status is in DIRECT CONFLICT with the Separation of Church and State law. That means your organization is OPERATING ILLEGALLY.
The government holds the power to shut you down for any reason they want and site “illegal formation” or “illegal operation” as their cause. This is irrefutable by you in a court of law and can also land you in prison for fraud if the government so desires to dispose of you! Think about it, someday in the near future when the US government finally issues Martial Law, and that dark evil day is coming, the first thing they will do is SHUT DOWN all the churches they own so the people have to look to the government for salvation. Not good!
Also, if you ever decide to reverse the tax exempt status you will find it locked in forever. Once they have control over it they will not give it back. It's all in the fine print.
There are Some Advantages of a Tax Exempt Nonprofit Status
Being organized as a tax-exempt corporation is a common requirement for obtaining grant funds from federal government and state agencies. Why is this? Because the government only funds that which it owns or has a controlling interest in! Generally, tax-exempt government foundations as well as private foundations and charities are required by their own operating rules and by IRS regulations to donate their funds only to 501(c)(3) tax-exempt organizations or else forfeit their own tax-exempt status.
Additionally, tax-exempt nonprofit corporations provide donors with a misleading incentive of an individual tax deduction on all donations given to your nonprofit. Additional benefits may include: low cost mailing, discounted advertisements and other private discounts, but only at the charitable mercy of other businesses. You are not entitled to demand discounts or special treatment from anyone just because you hold a non-profit status.
What are the disadvantages of forming a tax-exempt nonprofit?
Your nonprofit income activities will be in most part restricted to the stated purpose of your tax-exempt basis. Income from sources unrelated to the purpose of the organization will be taxable. If this unrelated income starts to become a substantial portion of the income earned, this could attract attention from the IRS and prompt a reconsideration of the 501(c)(3) tax-exempt status.
Put in laymen’s terms, this means the government and the IRS can charge you with fraud and then come after you for fines, fees, penalties, etc.
Additionally, you will not be able to benefit from the value of any assets of the nonprofit corporation. All assets of the corporation must be dedicated to tax-exempt purposes. This includes all the assets that you personally put into the business during start up and in due course of operations.
Upon dissolution of the corporation, all assets must be distributed to other 501c3 corporations. Why? Because YOU DON’T OWN THE COMPANY! You are your own employee but you are taking all the risk of the business like an owner. Furthermore, payments of dividends to shareholders or payments of profits to directors, officers, members or staff are prohibited, however reasonable salaries are allowed.
Can a nonprofit corporation make a profit?
Yes. A nonprofit corporation can take in more money than it spends. It can use the tax free profits for its own operating expenses including salaries. What a nonprofit corporation cannot do is distribute any profits to its officers, directors or employees. Once again, this is because YOU DON’T OWN THE COMPANY!
You are in essence saying to the government that you will pay for all the start up costs of the new business, take all the risk, run it for a small salary, take nothing upon retirement, can never sell it but let the government own the whole thing without any risk to itself. That’s insane!
Do you really want to give everything you have to the government and get little to nothing in return? If some individual or a potential employer came to you proposing this same kind of business arraignment you would probably tell him where to stick it! I know I would! I’d rather just pay my fair share of taxes and call that good. Paying taxes is a better deal over a 501(c)(3) – by far.
Seek Professional Council
Since the author of this article is not a CPA or a tax attorney, don’t take this general article as sound legal advice concerning your own unique needs and situation. But for God’s sake make sure you have a skilled attorney go over your 501(c)(3) corporation nonprofit tax exemption paperwork with a fine tooth comb BEFORE you sign it. Better safe than sorry, especially when God's children are involved.
Here’s a link to IRS Publication 557 “Tax Exempt Status for Your Organization” for your convenience- http://www.irs.gov/pub/irs-pdf/p557.pdf - 72 pages of fine print showing you what is involved in tax exemption and how you may be allowing the government to have their way with you.
This is a very important subject that every Christian believer should consider carefully.
Like tax exempt tithing, most donors do not realize that charitable deductions are a major red flag for IRS audits if the amount exceeds 10% of there gross income. And of course, going this route they will require receipts from the receiver denoting such. Who among us gets receipts from their church for cash tithes and gifts? In the case of an audit, no receipt = “Disallowed Exemption”.
Furthermore, unless the tithe exceeds their standard deduction, and/or the donor does not fill out a Schedule A Form along with the 1040, then tax exemption is a moot point to the giver; meaning they can’t claim it as a deduction anyway!
Something every Charitable Donor needs to know:
The non-profit or tax exempt status applies to the organization only, not to the donor. It means that the organization does not pay certain taxes on their gross income. Tithes, gifts and donations to non-tax exempt organizations (like God’s Word First) can still be tax deductible on the giver’s taxes as a charitable donation. They could also list their purchases of educational materials as deductions. We ALWAYS extend the courtesy of sending a reciept for charitable contributions.
Once again, we are not a CPA or an attorney. We are not dispensing legal advice, just just telling you what we know as one US citizen to another who faithfully does his taxes every year researching and using every law available to his own advantage. We suggest you consult with a knowledgeable tax professional concerning your own unique situation in these matters before you file your taxes again and most certainly before you sign away your church on the dotted line for 501(c)3 tax exempt status.
A lot of good hearted Christians do not fully understand the laws of the land that they are charged to live by. And then fall victim to the legal financial issues thereof. Just food for thought.
God bless you!
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Daniel Sweet is the founder and President of God's Word First and is a leading expert on the Gift of Holy Spirit. As an ordained minister, biblical scholar, humble follower and faithful teacher, he and his wife Debbra Sweet have been instrumental in helping many people come to the knowledge and truth of God’s Word. He is widely known for his lively sense of humor, his fun loving attitude and openly candid opinions. Daniel Sweet is also a published author on the subject of Leadership, an investor and an entrepreneur owning several small businesses.