Tax Exempt and Government Entities

EXEMPT ORGANIZATIONS

Tax Guide for 

Churches & Religious 

Organizations

501(c)(3)

Publication 1828 (Rev. 8-2015) Catalog Number 21096G Department of the Treasury Internal Revenue Service www.irs.gov
Congress has enacted special tax laws that apply 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. Churches and religious 

organizations are generally exempt from income tax and receive other favorable treatment 

under the tax law; however, certain income of a church or religious organization may be 

subject to tax, such as income from an unrelated business. 

The Internal Revenue Service offers this quick reference guide of federal tax law and procedures for churches and religious organizations to help them voluntarily comply with tax rules. 

The contents of this publication reflect the IRS interpretation of tax laws enacted by Congress, 

Treasury regulations and court decisions. The information given is not comprehensive, 

however, and doesn’t cover every situation. Thus, it isn’t intended to replace the law or be the 

sole source of information. The resolution of any particular issue may depend on the specific 

facts and circumstances of a given taxpayer. In addition, this publication covers subjects on 

which a court may have made a decision more favorable to taxpayers than the interpretation 

by the IRS. Until these differing interpretations are resolved by higher court decisions, or in 

some other way, this publication will present the interpretation of the IRS. 

For more detailed tax information, the IRS has assistance programs and tax information 

products for churches and religious organizations, as noted at the end of this publication. 

Most IRS publications and forms can be downloaded from the IRS website at www.irs.gov. 

Specialized information can be accessed through the Exempt Organizations (EO) website 

under the IRS Tax Exempt and Government Entities division at www.irs.gov/eo or by calling 

EO Customer Account Services toll free at 877-829-5500. 

The IRS considers this publication a living document, one that will be revised to take into 

account future developments and feedback. Comments on the publication may be submitted 

to the IRS at: 

Internal Revenue Service 

1111 Constitution Avenue, NW 

Washington, DC 20224 Attn: SE:T:C&L 
iii

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Tax-Exempt Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Recognition of Tax-Exempt Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Applying for Tax-Exempt Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Public Listing of Tax-Exempt Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Jeopardizing Tax-Exempt Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Inurement and Private Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Substantial Lobbying Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Measuring Lobbying Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Political Campaign Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Unrelated Business Income Tax (UBIT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Net Income Subject to the UBIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Examples of Unrelated Trade or Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Tax on Income-Producing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Employment Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Social Security and Medicare Taxes — Federal Insurance Contributions Act (FICA) . . . . . . 21

Federal Unemployment Tax Act (FUTA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Special Rules for Compensation of Ministers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Withholding Income Tax for Ministers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Parsonage or Housing Allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Social Security and Medicare Taxes — Federal Insurance Contributions Act (FICA) 

vs. Self-Employment Contributions Act (SECA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Payment of Employee Business Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Accountable Reimbursement Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Non-accountable Reimbursement Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
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Recordkeeping Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Books of Accounting and Other Types of Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Length of Time to Retain Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Filing Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Information and Tax Returns — Forms to File and Due Dates . . . . . . . . . . . . . . . . . . . . . . . . 27

Charitable Contributions— Substantiation and Disclosure Rules . . . . . . . . . . . . . . . . . 29

Recordkeeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Recordkeeping Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Substantiation Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Disclosure Rules that Apply to Quid Pro Quo Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Exceptions to Disclosure Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Special Rules Limiting IRS Authority to Audit a Church . . . . . . . . . . . . . . . . . . . . . . . . 31

Tax Inquiries and Examinations of Churches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Audit Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Help From The IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

IRS Tax Publications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

IRS Customer Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

EO Customer Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

EO Website . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

EO Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
1

Introduction

This publication explains the benefits and the responsibilities under the federal tax system for 

churches and religious organizations. The term church is found, but not specifically defined, in 

the Internal Revenue Code (IRC). The term is not used by all faiths; however, in an attempt to 

make this publication easy to read, we use it in its generic sense as a place of worship including, for example, mosques and synagogues. With the exception of the special rules for church 

audits, the use of the term church throughout this publication also includes conventions and 

associations of churches as well as integrated auxiliaries of a church. 

Because special tax rules apply to churches, it’s important to distinguish churches from other 

religious organizations. Therefore, when this publication uses the term “religious organizations,” it isn’t referring to churches or integrated auxiliaries. Religious organizations that are not 

churches typically include nondenominational ministries, interdenominational and ecumenical 

organizations, and other entities whose principal purpose is the study or advancement of religion. 

Churches and religious organizations may be legally organized in a variety of ways under state 

law, such as unincorporated associations, nonprofit corporations, corporations sole and charitable trusts. 

Certain terms used throughout this publication—church, integrated auxiliary of a church, minister and IRC Section 501(c)(3) — are defined in the Glossary.
2

Tax-Exempt Status

Churches and religious organizations, like many other charitable organizations, 

qualify for exemption from federal income tax under IRC Section 501(c)(3) and are 

generally eligible to receive tax-deductible contributions. To qualify for tax-exempt 

status, the organization must meet the following requirements (covered in greater 

detail throughout this publication): 

n the organization must be organized and operated exclusively for religious, 

educational, scientific or other charitable purposes; 

n net earnings may not inure to the benefit of any private individual or shareholder; 

n no substantial part of its activity may be attempting to influence legislation; 

n the organization may not intervene in political campaigns; and 

n the organization’s purposes and activities may not be illegal or violate 

fundamental public policy. 

Recognition of Tax-Exempt Status 

Automatic Exemption for Churches 

Churches that meet the requirements of IRC Section 501(c)(3) are automatically 

considered tax exempt and are not required to apply for and obtain recognition of 

tax-exempt status from the IRS. 

Although there is no requirement to do so, many churches seek recognition of 

tax-exempt status from the IRS because this 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. 

Church Exemption Through a Central/Parent Organization 

A church with a parent organization may wish to contact the parent to see if it 

has a group ruling. If the parent holds a group ruling, then the IRS may already 

recognize the church as tax exempt. Under the group exemption process, the 

parent organization becomes the holder of a group ruling that identifies other 

affiliated churches or other affiliated organizations. A church is recognized as tax 

exempt if it is included in a list provided by the parent organization. If the church 

or other affiliated organization is included on the list, it doesn’t need to take further 

action to obtain recognition of tax-exempt status. 

An organization that isn’t covered under a group ruling should contact its parent 

organization to see if it’s eligible to be included in the parent’s application for 

the group ruling. For general information on the group exemption process, see 

Publication 4573, Group Exemptions, and Revenue Procedure 80-27, 1980-1 C.B. 677. 
3

Religious Organizations 

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. 

Applying for Tax-Exempt Status 

Employer Identification Number (EIN) 

Every tax-exempt organization, including a church, should have an employer identification number whether or not the organization has any employees. There are 

many instances in which an EIN is necessary. For example, a church needs an EIN 

when it opens a bank account, to be listed as a subordinate in a group ruling or if 

it files returns with the IRS (for example, Forms W-2, 1099, 990-T). 

An organization may obtain an EIN by filing Form SS-4, Application for Employer 

Identification Number, according to its instructions. If the organization is submitting 

IRS Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of 

the Internal Revenue Code, Form SS-4 should be included with the application. 

Application Form 

When applying for recognition as tax exempt under IRC Section 501(c)(3), 

churches and some religious organizations must use Form 1023. Smaller religious 

organizations may be eligible to use Form 1023-EZ, Streamlined Application for 

Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code

A religious organization generally must submit its application within 27 months 

from the end of the month in which the organization is formed to be considered tax 

exempt and qualified to receive deductible contributions as of the date the organization was formed. On the other hand, a church may obtain recognition of exemption from the date of its formation as a church, even though that date may be prior 

to 27 months from the end of the month in which its application is submitted. 

Cost of applying for exemption. The IRS is required to collect a non-refundable 

fee from any organization seeking a determination of tax-exempt status under IRC 

Section 501(c)(3). Although churches are not required by law to file an application 

for exemption, if they choose to do so voluntarily, they’re required to pay the fee for 

determination. 

The fee must be submitted with Form 1023; otherwise, the application will be 

returned to the submitter. Fees change periodically. The most recent user fee can 

be found at the Exempt Organizations (EO) website under the IRS Tax Exempt and 

Government Entities Division via www.irs.gov/eo (key word “user fee”) or by calling 

EO Customer Account Services toll-free at 877-829-5500. 
4

IRS Approval of Exemption Application 

If the application for tax-exempt status is approved, the IRS will notify the 

organization of its status, any requirement to file an annual information return and 

its eligibility to receive deductible contributions. The IRS does not assign a special 

number or other identification as evidence of an organization’s tax-exempt status. 

Public Listing of Tax-Exempt Organizations 

Exempt Organizations Select Check is an online search tool that allows users to 

search for organizations that are eligible to receive tax-deductible charitable 

contributions. Note that not every organization that is eligible to receive tax-deductible 

contributions is listed on Select Check. For example, churches that have not applied 

for recognition of tax-exempt status are not included in the publication. Only the parent 

organization in a group ruling is included by name on Select Check.

Select Check also allows users to search for organizations whose tax-exempt 

status has been automatically revoked because they have not met their annual 

filing requirement for three consecutive years. In addition, users may search Select 

Check for organizations that have filed a Form 990-N (e-Postcard) annual electronic 

notice.

If you have questions about listing an organization, correcting an erroneous entry 

or deleting a listing on Select Check, contact EO Customer Account Services 

toll-free at 877-829-5500.

Jeopardizing Tax-Exempt Status

All IRC Section 501(c)(3) organizations, including churches and religious 

organizations, must abide by certain rules: 

n their net earnings may not inure to any private shareholder or individual; 

n they must not provide a substantial benefit to private interests;

n they must not devote a substantial part of their activities to attempting to 

influence legislation; 

n they must not participate in, or intervene in, any political campaign on behalf of 

(or in opposition to) any candidate for public office; and 

n the organization’s purposes and activities may not be illegal or violate 

fundamental public policy. 
5

Inurement and Private Benefit 

Inurement to Insiders 

Churches and religious organizations, like all exempt organizations under IRC 

Section 501(c)(3), are prohibited from engaging in activities that result in inurement 

of the church’s or organization’s income or assets to insiders (such as persons 

having a personal and private interest in the activities of the organization). Insiders 

could include the minister, church board members, officers, and in certain circumstances, employees. Examples of prohibited inurement include the payment of 

dividends, the payment of unreasonable compensation to insiders and transferring 

property to insiders for less than fair market value. The prohibition against 

inurement to insiders is absolute; therefore, any amount of inurement is, potentially, grounds for loss of tax-exempt status. In addition, the insider involved may 

be subject to excise tax. See the following section on Excess benefit transactions. 

Note that prohibited inurement doesn’t include reasonable payments for services 

rendered, payments that further tax-exempt purposes or payments made for the 

fair market value of real or personal property. 

Excess benefit transactions. In cases where an IRC Section 501(c)(3) organization provides an excess economic benefit to an insider, both the organization and 

the insider have engaged in an excess benefit transaction. The IRS may impose an 

excise tax on any insider who improperly benefits from an excess benefit transaction, as well as on organization managers who participate in the transaction knowing that it’s improper. An insider who benefits from an excess benefit transaction 

must return the excess benefits to the organization. Detailed rules on excess 

benefit transactions are contained in the Code of Federal Regulations, Title 26, 

sections 53.4958-0 through 53.4958-8. 

Private Benefit 

An IRC Section 501(c)(3) organization’s activities must be directed exclusively 

toward charitable, educational, religious or other exempt purposes. The organization’s activities may not serve the private interests of any individual or organization. 

Rather, beneficiaries of an organization’s activities must be recognized objects of 

charity (such as the poor or the distressed) or the community at large (for example, through the conduct of religious services or the promotion of religion). Private 

benefit is different from inurement to insiders. Private benefit may occur even if 

the persons benefited are not insiders. Also, private benefit must be substantial to 

jeopardize tax-exempt status. 
6

Substantial Lobbying Activity 

In general, no organization, including a church, may qualify for IRC Section 

501(c)(3) status if a substantial part of its activities is attempting to influence legislation (commonly known as lobbying). An IRC Section 501(c)(3) organization may 

engage in some lobbying, but too much lobbying activity risks loss of tax-exempt 

status. 

Legislation includes action by Congress, any state legislature, any local council or 

similar governing body, with respect to acts, bills, resolutions or similar items (such 

as legislative confirmation of appointive offices), or by the public in a referendum, 

ballot initiative, constitutional amendment or similar procedure. It doesn’t include 

actions by executive, judicial or administrative bodies. 

A church or religious organization will be regarded as attempting to influence 

legislation if it contacts, or urges the public to contact, members or employees of 

a legislative body for the purpose of proposing, supporting or opposing legislation, 

or if the organization advocates the adoption or rejection of legislation. 

Churches and religious organizations may, however, involve themselves in issues 

of public policy without the activity being considered as lobbying. For example, 

churches may conduct educational meetings, prepare and distribute educational 

materials, or otherwise consider public policy issues in an educational manner 

without jeopardizing their tax-exempt status. 

Measuring Lobbying Activity 

Substantial part test. Whether a church’s or religious organization’s attempts to 

influence legislation constitute a substantial part of its overall activities is determined on the basis of all the pertinent facts and circumstances in each case. The 

IRS considers a variety of factors, including the time devoted (by both compensated and volunteer workers) and the expenditures devoted by the organization 

to the activity, when determining whether the lobbying activity is substantial. 

Churches must use the substantial part test since they aren’t eligible to use the 

expenditure test described in the next section. 

Under the substantial part test, a church or religious organization that conducts 

excessive lobbying activity in any taxable year may lose its tax-exempt status, 

resulting in all its income being subject to tax. In addition, a religious organization 

is subject to an excise tax equal to five percent of its lobbying expenditures for the 

year in which it ceases to qualify for exemption. Further, a tax equal to five percent 

of the lobbying expenditures for the year may be imposed against organization 

managers, jointly and severally, who agree to the making of such expenditures 

knowing that the expenditures would likely result in loss of tax-exempt status. 
7

Expenditure test. Although churches aren’t eligible, religious organizations may 

elect the expenditure test under IRC Section 501(h) as an alternative method for 

measuring lobbying activity. Under the expenditure test, the extent of an organization’s lobbying activity won’t jeopardize its tax-exempt status, provided its 

expenditures, related to the activity, do not normally exceed an amount specified 

in IRC Section 4911. This limit is generally based on the organization’s size and 

may not exceed $1,000,000. 

Religious organizations electing to use the expenditure test must file IRS Form 

5768, Election/Revocation of Election by an Eligible Section 501(c)(3) Organization To 

Make Expenditures To Influence Legislation, at any time during the tax year for which 

it is to be effective. The election remains in effect for succeeding years unless it’s 

revoked by the organization. Revocation of the election is effective beginning with 

the year following the year in which the revocation is filed. Religious organizations 

may wish to consult their tax advisors to determine their eligibility for, and the 

advisability of, electing the expenditure test. 

Under the expenditure test, a religious organization that engages in excessive 

lobbying activity over a four-year period may lose its tax-exempt status, making 

all its income for that period subject to tax. Should the organization exceed its lobbying expenditure dollar limit in a particular year, it must pay an excise tax equal to 

25 percent of the excess. 

Political Campaign Activity

Under the Internal Revenue Code, all IRC Section 501(c)(3) organizations, including churches and religious organizations, are absolutely prohibited from directly or 

indirectly participating in, or intervening in, any political campaign on behalf of (or 

in opposition to) any candidate for elective public office. Contributions to political 

campaign funds or public statements of position (verbal or written) made by or on 

behalf of the organization in favor of (or in opposition to) any candidate for public 

office clearly violate the prohibition against political campaign activity. Violation 

of this prohibition may result in denial or revocation of tax-exempt status and the 

imposition of excise tax.

Certain activities or expenditures may not be prohibited depending on the facts 

and circumstances. For example, certain voter education activities (including 

the presentation of public forums and the publication of voter education guides) 

conducted in a non-partisan manner do not constitute prohibited political 

campaign activity. In addition, other activities intended to encourage people to 

participate in the electoral process, such as voter registration and get-out-the-vote 

drives, would not constitute prohibited political campaign activity if conducted in a 

non-partisan manner. On the other hand, voter education or registration activities 

with evidence of bias that: (a) would favor one candidate over another; (b) oppose 

a candidate in some manner; or (c) have the effect of favoring a candidate or 

group of candidates, will constitute prohibited participation or intervention.
8

Individual Activity by Religious Leaders

The political campaign activity prohibition isn’t intended to restrict free expression 

on political matters by leaders of churches or religious organizations speaking for 

themselves, as individuals. Nor are leaders prohibited from speaking about important issues of public policy. However, for their organizations to remain tax exempt 

under IRC Section 501(c)(3), religious leaders can’t make partisan comments in 

official organization publications or at official church functions. To avoid potential 

attribution of their comments outside of church functions and publications, religious leaders who speak or write in their individual capacity are encouraged to 

clearly indicate that their comments are personal and not intended to represent 

the views of the organization. The following are examples of situations involving 

endorsements by religious leaders. 

EXAMPLE 1 

Minister A is the minister of Church J, a Section 501(c)(3) organization, and is well known in the community. With their permission, Candidate T publishes a full-page ad in the local newspaper listing five 

prominent ministers who have personally endorsed Candidate T, including Minister A. Minister A is 

identified in the ad as the minister of Church J. The ad states, “Titles and affiliations of each individual 

are provided for identification purposes only.” The ad is paid for by Candidate T’s campaign committee. 

Since the ad was not paid for by Church J, the ad is not otherwise in an official publication of Church 

J, and the endorsement is made by Minister A in a personal capacity, the ad doesn’t constitute political 

campaign intervention by Church J. 

EXAMPLE 2 

Minister B is the minister of Church K, a Section 501(c)(3) organization, and is well known in the community. Three weeks before the election, he attends a press conference at Candidate V’s campaign 

headquarters and states that Candidate V should be re-elected. Minister B doesn’t say he is speaking 

on behalf of Church K. His endorsement is reported on the front page of the local newspaper and he is 

identified in the article as the minister of Church K. Because Minister B didn’t make the endorsement at 

an official church function, in an official church publication or otherwise use the church’s assets, and 

did not state that he was speaking as a representative of Church K, his actions didn’t constitute political 

campaign intervention by Church K.

EXAMPLE 3 

Minister C is the minister of Church I, a Section 501(c)(3) organization. Church I publishes a monthly 

church newsletter that is distributed to all church members. In each issue, Minister C has a column titled 

“My Views.” The month before the election, Minister C states in the “My Views” column, “It is my personal opinion that Candidate U should be re-elected.” For that one issue, Minister C pays from his personal funds the portion of the cost of the newsletter attributable to the “My Views” column. Even though 

he paid part of the cost of the newsletter, the newsletter is an official publication of the church. Because 

the endorsement appeared in an official publication of Church I, it constitutes political campaign intervention by Church I.

EXAMPLE 4 

Minister D is the minister of Church M, a Section 501(c)(3) organization. During regular services of 

Church M shortly before the election, Minister D preached on a number of issues, including the importance of voting in the upcoming election, and concluded by stating, “It is important that you all do your 

duty in the election and vote for Candidate W.” Because Minister D’s remarks indicating support for 

Candidate W were made during an official church service, they constitute political campaign intervention 

by Church M. 
9

Issue Advocacy vs. Political Campaign Intervention 

Like other Section 501(c)(3) organizations, some churches and religious organizations take positions on public policy issues, including issues that divide candidates in an election for public office. However, 501(c)(3) organizations must avoid 

any issue advocacy that functions as political campaign intervention. Even if a 

statement does not expressly tell an audience to vote for or against a specific candidate, an organization delivering the statement is at risk of violating the political 

campaign intervention prohibition if there is any message favoring or opposing 

a candidate. A statement can identify a candidate not only by stating the candidate’s name but also by other means such as showing a picture of the candidate, 

referring to political party affiliations or other distinctive features of a candidate’s 

platform or biography. All the facts and circumstances need to be considered to 

determine if the advocacy is political campaign intervention. 

Key factors in determining whether a communication results in political campaign 

intervention include: 

■ whether the statement identifies one or more candidates for a given public office,

■ whether the statement expresses approval or disapproval for one or more 

candidates’ positions or actions, 

■ whether the statement is delivered close in time to the election, 

■ whether the statement makes reference to voting or an election, 

■ whether the issue addressed in the communication has been raised as an issue 

distinguishing candidates for a given office, 

■ whether the communication is part of an ongoing series of communications by 

the organization on the same issue that are made independent of the timing of any 

election, and 

■ whether the timing of the communication and identification of the candidate are 

related to a non-electoral event such as a scheduled vote on specific legislation by 

an officeholder who also happens to be a candidate for public office. 

A communication is particularly at risk of political campaign intervention when 

it makes reference to candidates or voting in a specific upcoming election. 

Nevertheless, the communication must still be considered in context before 

arriving at any conclusions. 
10

EXAMPLE 1 

Church O, a Section 501(c)(3) organization, prepares and finances a full-page newspaper advertisement 

that is published in several large circulation newspapers in State V shortly before an election in which 

Senator C is the incumbent candidate for nomination in a party primary. The advertisement states that 

a pending bill in the United States Senate would provide additional opportunities for State V residents 

to participate in faith-based programs by providing funding to such church-affiliated programs. The 

advertisement ends with the statement “Call or write Senator C to tell him to vote for this bill, despite his 

opposition in the past.” Funding for faith-based programs hasn’t been raised as an issue distinguishing 

Senator C from any opponent. The bill is scheduled for a vote before the election. The advertisement 

identifies Senator C’s position as contrary to O’s position. Church O has not violated the political campaign intervention prohibition. The advertisement doesn’t mention the election or the candidacy of 

Senator C or distinguish Senator C from any opponent. The timing of the advertising and the identification of Senator C are directly related to a vote on the identified legislation. The candidate identified, 

Senator C, is an officeholder who is in a position to vote on the legislation.

EXAMPLE 2 

Church R, a Section 501(c)(3) organization, prepares and finances a radio advertisement urging an 

increase in state funding for faith-based education in State X, which requires a legislative appropriation. 

Governor E is the governor of State X. The radio advertisement is first broadcast on several radio stations in State X beginning shortly before an election in which Governor E is a candidate for re-election. 

The advertisement is not part of an ongoing series of substantially similar advocacy communications 

by Church R on the same issue. The advertisement cites numerous statistics indicating that faith-based 

education in State X is under funded. Although the advertisement doesn’t say anything about Governor 

E’s position on funding for faith-based education, it ends with “Tell Governor E what you think about 

our under-funded schools.” In public appearances and campaign literature, Governor E’s opponent has 

made funding of faith-based education an issue in the campaign by focusing on Governor E’s veto of 

an income tax increase to increase funding for faith-based education. At the time the advertisement is 

broadcast, no legislative vote or other major legislative activity is scheduled in the State X legislature 

on state funding of faith-based education. Church R has violated the political campaign prohibition. The 

advertisement identifies Governor E, appears shortly before an election in which Governor E is a candidate, is not part of an ongoing series of substantially similar advocacy communications by Church R 

on the same issue, is not timed to coincide with a non-election event such as a legislative vote or other 

major legislative action on that issue, and takes a position on an issue that the opponent has used to 

distinguish himself from Governor E. 

EXAMPLE 3 

 Candidate A and Candidate B are candidates for the state senate in District W of State X. The issue of 

State X funding for a faith-based indigent hospital care in District W is a prominent issue in the campaign. Both candidates have spoken out on the issue. Candidate A supports funding the care; Candidate 

B opposes the project and supports increasing State X funding for public hospitals instead. P is the 

head of the board of elders at Church C, a Section 501(c)(3) organization located in District W. At C’s 

annual fundraising dinner in District W, which takes place in the month before the election, P gives a 

long speech about health care issues, including the issue of funding for faith-based programs. P doesn’t 

mention the name of any candidate or any political party. However, at the end of the speech, P states, 

“For those of you who care about quality of life in District W and the desire of our community for health 

care responsive to their faith, there is a very important choice coming up next month. We need more 

funding for health care. Increased public hospital funding won’t make a difference. You have the power 

to respond to the needs of this community. Use that power when you go to the polls and cast your vote 

in the election for your state senator.” C has violated the political campaign intervention prohibition 

as a result of P’s remarks at C’s official function shortly before the election, in which P referred to the 

upcoming election after stating a position on a prominent issue in a campaign that distinguishes the 

candidates.
11

Inviting a Candidate to Speak 

Depending on the facts and circumstances, a church or religious organization may 

invite political candidates to speak at its events without jeopardizing its tax-exempt 

status. Political candidates may be invited in their capacity as candidates, or individually (not as candidates). Candidates may also appear without an invitation at 

organization events that are open to the public. 

Speaking as a candidate. Like any other IRC Section 501(c)(3) organization, 

when a candidate is invited to speak at a church or religious organization event as 

a political candidate, factors in determining whether the organization participated 

or intervened in a political campaign include: 

n whether the church provides an equal opportunity to the political candidates 

seeking the same office, 

n whether the church indicates any support of or opposition to the candidate. This 

should be stated explicitly when the candidate is introduced and in communications concerning the candidate’s appearance, 

n whether any political fundraising occurs, 

n whether the individual is chosen to speak solely for reasons other than candidacy for public office, 

n whether the organization maintains a nonpartisan atmosphere on the premises 

or at the event where the candidate is present, and 

n whether the organization clearly indicates the capacity in which the candidate is 

appearing and does not mention the individual’s political candidacy or the upcoming election in the communications announcing the candidate’s attendance at 

the event. 

Equal opportunity to participate. Like any other Section 501(c)(3) organization, 

in determining whether candidates are given an equal opportunity to participate, a 

church or religious organization should consider the nature of the event to which 

each candidate is invited, in addition to the manner of presentation. For example, a church or religious organization that invites one candidate to speak at its 

well attended annual banquet, but invites the opposing candidate to speak at a 

sparsely attended general meeting, will likely be found to have violated the political 

campaign prohibition, even if the manner of presentation for both speakers is otherwise neutral. 

Public forum. Sometimes a church or religious organization invites several 

candidates to speak at a public forum. A public forum involving several candidates for public office may qualify as an exempt educational activity. However, if 

the forum is operated to show a bias for or against any candidate, then the forum 

would be prohibited campaign activity, as it would be considered intervention or 
12

participation in a political campaign. When an organization invites several candidates to speak at a forum, it should consider: 

n whether questions for the candidate are prepared and presented by an independent nonpartisan panel;

n whether the topics discussed by the candidates cover a broad range of issues 

that the candidates would address if elected to the office sought and are of interest 

to the public; 

n whether each candidate is given an equal opportunity to present his or her views 

on the issues discussed; 

n whether the candidates are asked to agree or disagree with positions, agendas, 

platforms or statements of the organization; and 

n whether a moderator comments on the questions or otherwise implies approval 

or disapproval of the candidates. 

A candidate may seek to reassure the organization that it’s permissible for the 

organization to do certain things in connection with the candidate’s appearance. 

An organization in this position should keep in mind that the candidate may not 

be familiar with the organization’s tax-exempt status and that the candidate may 

be focused on compliance with the election laws that apply to the candidate’s 

campaign rather than the federal tax law that applies to the organization. The organization will be in the best position to ensure compliance with the prohibition on 

political campaign intervention if it makes its own independent conclusion about 

its compliance with federal tax law. 

The following are examples of situations where a church or religious organization 

invites candidates to speak before the congregation.

EXAMPLE 1 

Minister E is the minister of Church N, a Section 501(c)(3) organization. In the month prior to the election, 

Minister E invited the three Congressional candidates for the district in which Church N is located to 

address the congregation, one each on three successive Sundays, as part of regular worship services. 

Each candidate was given an equal opportunity to address and field questions on a variety of topics 

from the congregation. Minister E’s introduction of each candidate included no comments on their qualifications or any indication of a preference for any candidate. The actions do not constitute political campaign intervention by Church N. 

EXAMPLE 2 

The facts are the same as in Example 1 except there are four candidates in the race rather than three, 

and one of the candidates declines the invitation to speak. In the publicity announcing the dates for each 

of the candidate’s speeches, Church N includes a statement that the order of the speakers was determined at random and the fourth candidate declined the church’s invitation to speak. Minister E makes 

the same statement in his opening remarks at each of the meetings where one of the candidates is 

speaking. Church N’s actions do not constitute political campaign intervention. 
13

EXAMPLE 3 

Minister F is the minister of Church O, a Section 501(c)(3) organization. The Sunday before the election, 

Minister F invited Senate Candidate X to preach to her congregation during worship services. During his 

remarks, Candidate X stated, “I am asking not only for your votes, but for your enthusiasm and dedication, for your willingness to go the extra mile to get a very large turnout on Tuesday.” Minister F invited 

no other candidate to address her congregation during the Senatorial campaign. Because these activities took place during official church services, they are by Church O. By selectively providing church 

facilities to allow Candidate X to speak in support of his campaign, Church O’s actions constitute political campaign intervention.

Speaking as a non-candidate. Like any other Section 501(c)(3) organization, a 

church or religious organization may invite political candidates (including church 

members) to speak in a non-candidate capacity. For instance, a political candidate 

may be a public figure because he or she: (a) currently holds, or formerly held, 

public office; (b) is considered an expert in a non-political field; or (c) is a celebrity 

or has led a distinguished military, legal or public service career. A candidate may 

choose to attend an event that is open to the public, such as a lecture, concert or 

worship service. The candidate’s presence at a church-sponsored event does not, 

by itself, cause the organization to be involved in political campaign intervention. 

However, if the candidate is publicly recognized by the organization, or if the candidate is invited to speak, factors in determining whether the candidate’s appearance results in political campaign intervention include:

n whether the individual speaks only in a non-candidate capacity, 

n whether either the individual or any representative of the church makes any mention of his or her candidacy or the election, 

n whether any campaign activity occurs in connection with the candidate’s attendance,

n whether the individual is chosen to speak solely for reasons other than candidacy for public office,

n whether the organization maintains a nonpartisan atmosphere on the premises 

or at the event where the candidate is present, and

n whether the organization clearly indicates the capacity in which the candidate is 

appearing and doesn’t mention the individual’s political candidacy or the upcoming election in the communications announcing the candidate’s attendance at the 

event.

In addition, the church or religious organization should clearly indicate the capacity in which the candidate is appearing and shouldn’t mention the individual’s political candidacy or the upcoming election in the communications announcing the 

candidate’s attendance at the event.

Below are examples of situations where a public official appears at a church or 

religious organization.
14

EXAMPLE 1 

Church P, a Section 501(c)(3) organization, is located in the state capital. Minister G customarily 

acknowledges the presence of any public officials present during services. During the state gubernatorial race, Lieutenant Governor Y, a candidate, attended a Wednesday evening prayer service in the 

church. Minister G acknowledged the Lieutenant Governor’s presence in his customary manner, saying, 

“We are happy to have worshiping with us this evening Lieutenant Governor Y.” Minister G made no reference in his welcome to the Lieutenant Governor’s candidacy or the election. Minister G’s actions do 

not constitute political campaign intervention by Church P.

EXAMPLE 2 

Minister H is the minister of Church Q, a Section 501(c)(3) organization. Church Q is building a community center. Minister H invites Congressman Z, the representative for the district containing Church Q, to 

attend the groundbreaking ceremony for the community center. Congressman Z is running for re-election at the time. Minister H makes no reference in her introduction to Congressman Z’s candidacy or the 

election. Congressman Z also makes no reference to his candidacy or the election and does not do any 

fundraising while at Church Q. Church Q has not intervened in a political campaign

EXAMPLE 3 

Church X is a Section 501(c)(3) organization. Church X regularly publishes a member newsletter. 

Individual church members are invited to send in updates about their activities, which are printed in each 

edition of the newsletter. After receiving an update letter from Member Q, Church X prints the following: 

“Member Q is running for city council in Metropolis.” The newsletter does not contain any reference to 

this election or to Member Q’s candidacy other than this statement. Church X has not intervened in a 

political campaign.

EXAMPLE 4 

Mayor G attends a concert performed by a choir of Church S, a Section 501(c)(3) organization, in City 

Park. The concert is free and open to the public. Mayor G is a candidate for re-election, and the concert 

takes place after the primary and before the general election. During the concert, Church S’s minister 

addresses the crowd and says, “I am pleased to see Mayor G here tonight. Without his support, these 

free concerts in City Park would not be possible. We will need his help if we want these concerts to 

continue next year so please support Mayor G in November as he has supported us.” As a result of these 

remarks, Church S has engaged in political campaign intervention.

Voter Education, Voter Registration and Get-Out-the-Vote Drives

Section 501(c)(3) organizations are permitted to conduct certain voter education 

activities (including the presentation of public forums and the publication of voter 

education guides) if they are carried out in a non-partisan manner. In addition, 

Section 501(c)(3) organizations may encourage people to participate in the electoral process through voter registration and get-out-the-vote drives, conducted in a 

non-partisan manner. On the other hand, voter education or registration activities 

conducted in a biased manner that favors (or opposes) one or more candidates is 

prohibited. 

Like other Section 501(c)(3) organizations, some churches and religious organizations undertake voter education activities by distributing voter guides. Voter 

guides, generally, are distributed during an election campaign and provide information on how all candidates stand on various issues. These guides may be dis-
15

tributed with the purpose of educating voters; however, they may not be used to 

attempt to favor or oppose candidates for public elected office. 

A careful review of the following facts and circumstances may help determine 

whether a church or religious organization’s publication or distribution of voter 

guides constitutes prohibited political campaign activity:

n whether the candidates’ positions are compared to the organization’s position,

n whether the guide includes a broad range of issues that the candidates would 

address if elected to the office sought,

n whether the description of issues is neutral,

n whether all candidates for an office are included, and

n whether the descriptions of candidates’ positions are either:

– the candidates’ own words in response to questions, or

– a neutral, unbiased and complete compilation of all candidates’ positions.

The following are examples of situations where churches distribute voter guides.

EXAMPLE 1 

Church R, a Section 501(c)(3) organization, distributes a voter guide prior to elections. The voter guide 

consists of a brief statement from the candidates on each issue made in response to a questionnaire 

sent to all candidates for governor of State I. The issues on the questionnaire cover a wide variety of 

topics and were selected by Church R based solely on their importance and interest to the electorate as 

a whole. Neither the questionnaire nor the voter guide, through their content or structure, indicate a bias 

or preference for any candidate or group of candidates. Church R is not participating or intervening in a 

political campaign.

EXAMPLE 2 

Church S, a Section 501(c)(3) organization, distributes a voter guide during an election campaign. The 

voter guide is prepared using the responses of candidates to a questionnaire sent to candidates for 

major public offices. Although the questionnaire covers a wide range of topics, the wording of the questions evidences a bias on certain issues. By using a questionnaire structured in this way, Church S is 

participating or intervening in a political campaign.

EXAMPLE 3 

Church T, a Section 501(c)(3) organization, sets up a booth at the state fair where citizens can register to 

vote. The signs and banners in and around the booth give only the name of the church, the date of the 

next upcoming statewide election and notice of the opportunity to register. No reference to any candidate or political party is made by volunteers staffing the booth or in the materials available in the booth, 

other than the official voter registration forms which allow registrants to select a party affiliation. Church 

T is not engaged in political campaign intervention when it operates this voter registration booth.

EXAMPLE 4 

Church C is a Section 501(c)(3) organization. Church C’s activities include educating its members on 

family issues involving moral values. Candidate G is running for state legislature and an important ele-
16

ment of her platform is challenging the incumbent’s position on family issues. Shortly before the election, Church C sets up a telephone bank to call registered voters in the district in which Candidate G is 

seeking election. In the phone conversations, Church C’s representative tells the voter about the moral 

importance of family issues and asks questions about the voter’s views on these issues. If the voter 

appears to agree with the incumbent’s position, Church C’s representative thanks the voter and ends the 

call. If the voter appears to agree with Candidate G’s position, Church C’s representative reminds the 

voter about the upcoming election, stresses the importance of voting in the election and offers to provide transportation to the polls. Church C is engaged in political campaign intervention when it conducts 

this get-out-the-vote drive.

Business Activity

The question of whether an activity constitutes participation or intervention in a 

political campaign may also arise in the context of a business activity of the church 

or religious organization, such as the selling or renting of mailing lists, the leasing 

of office space or the acceptance of paid political advertising. (The tax treatment 

of income from unrelated business activities follows.) In this context, some of the 

factors to be considered in determining whether the church or religious organization has engaged in prohibited political campaign activity include:

n whether the good, service or facility is available to the candidates equally;

n whether the good, service or facility is available only to candidates and not to the 

general public;

n whether the fees charged are at the organization’s customary and usual rates; 

and

n whether the activity is an ongoing activity of the organization or is conducted 

only for the candidate.

EXAMPLE 1 

Church K is a Section 501(c)(3) organization. It owns a building that has a large basement hall suitable 

for hosting dinners and receptions. For several years, Church K has made the hall available for rent to 

the public. It has standard fees for renting the hall based on the number of people in attendance. A number of different organizations have rented the hall. Church K rents the hall on a first come, first served 

basis. Candidate P’s campaign pays the standard fee for the dinner. Church K isn’t involved in political 

campaign intervention as a result of renting the hall to Candidate P for use as the site of a campaign 

fundraising dinner.

EXAMPLE 2 

Church L is a Section 501(c)(3) organization. It maintains a mailing list of all its members. Church L has 

never rented the mailing list to a third party. The campaign committee of Candidate A, who supports 

funding for faith-based programs, approaches Church L and offers to rent Church L’s mailing list for a 

fee that is comparable to fees charged by similar organizations. Church L rents the list to Candidate 

A’s campaign committee, but declines similar requests from campaign committees of other candidates. 

Church L has intervened in a political campaign.
17

Websites. The Internet has become a widely used communications tool. Section 

501(c)(3) organizations use their own websites to disseminate statements and 

information. They also routinely link their websites to websites maintained by other 

organizations as a way of providing additional information that the organizations 

believe is relevant to the public. 

A website is a form of communication. If an organization posts something on its 

website that favors or opposes a candidate for public office, the organization will 

be treated the same as if it distributed printed material, oral statements or broadcasts that favored or opposed a candidate. 

An organization has control over whether it establishes a link to another site. When 

an organization establishes a link to another website, the organization is responsible for the consequences of establishing and maintaining that link, even if the 

organization doesn’t have control over the content of the linked site. Because the 

linked content may change over time, an organization may reduce the risk of political campaign intervention by monitoring the linked content and adjusting the links 

accordingly. 

Links to candidate-related material, by themselves, do not necessarily constitute 

political campaign intervention. All the facts and circumstances must be taken into 

account when assessing whether a link produces that result. The facts and circumstances to be considered include, but are not limited to, the context for the link on 

the organization’s website, whether all candidates are represented, any exempt 

purpose served by offering the link and the directness of the links between the 

organization’s website and the Web page that contains material favoring or opposing a candidate for public office.

EXAMPLE 1 

Church P, a Section 501(c)(3) organization, maintains a website that includes biographies of its ministers, 

times of services, details of community outreach programs and activities of members of its congregation. B, a member of Church P’s congregation, is running for a seat on the town council. Shortly before 

the election, Church P posts the following message on its website, “Lend your support to B, your fellow 

parishioner, in Tuesday’s election for town council.” Church P has intervened in a political campaign.

EXAMPLE 2 

Church N, a Section 501(c)(3) organization, maintains a website that includes staff listings, directions 

to the church and descriptions of its community outreach programs, schedules of services and school 

activities. On one page of the website, Church N describes a particular type of treatment program for 

homeless veterans. This section includes a link to an article on the website of O, a major national newspaper, praising Church N’s treatment program for homeless veterans. The page containing the article 

on O’s website doesn’t refer to any candidate or election and has no direct links to candidate or election information. Elsewhere on O’s website, there is a page displaying editorials that O has published. 

Several of the editorials endorse candidates in an election that hasn’t yet occurred. Church N has not 

intervened in a political campaign by maintaining a link on O’s website because the link is provided for 

the exempt purpose of educating the public about its programs; the context for the link, the relationship between Church N and O and the arrangement of the links going from Church N’s website to the 

endorsement on O’s website don’t indicate that Church N was favoring or opposing any candidate.
18

EXAMPLE 3 

Church M, a Section 501(c)(3) organization, maintains a website and posts an unbiased, nonpartisan 

voter guide. For each candidate covered in the voter guide, Church M includes a link to that candidate’s 

official campaign website. The links to the candidate websites are presented on a consistent neutral 

basis for each candidate, with text saying “For more information on Candidate X, you may consult 

[URL].” Church M has not intervened in a political campaign because the links are provided for the 

exempt purpose of educating voters and are presented in a neutral, unbiased manner that includes all 

candidates for a particular office.

Consequences of Political Campaign Activity

When it participates in political campaign activity, a church or religious organization jeopardizes both its tax-exempt status under IRC Section 501(c)(3) and its 

eligibility to receive tax-deductible contributions. In addition, it may become subject to an excise tax on its political expenditures. This excise tax may be imposed 

in addition to revocation, or it may be imposed instead of revocation. Also, the 

church or religious organization should correct the violation.

Excise tax. An initial tax is imposed on an organization at the rate of 10 percent of 

the political expenditures. Also, a tax at the rate of 2.5 percent of the expenditures 

is imposed against the organization managers (jointly and severally) who, without 

reasonable cause, agreed to the expenditures knowing they were political expenditures. The tax on management may not exceed $5,000 with respect to any one 

expenditure.

In any case in which an initial tax is imposed against an organization, and the 

expenditures are not corrected within the period allowed by law, an additional tax 

equal to 100 percent of the expenditures is imposed against the organization. In 

that case, an additional tax is also imposed against the organization managers 

(jointly and severally) who refused to agree to make the correction. The additional tax on management is equal to 50 percent of the expenditures and may not 

exceed $10,000 with respect to any one expenditure.

Correction. Correction of a political expenditure requires the recovery of the 

expenditure, to the extent possible, and establishment of safeguards to prevent 

future political expenditures.

Please note that a church or religious organization that engages in any political 

campaign activity also needs to determine whether it complies with the appropriate federal, state or local election laws, as these may differ from the requirements 

under IRC Section 501(c)(3).
19

Unrelated Business Income Tax (UBIT)

Net Income Subject to the UBIT 

Churches and religious organizations, like other tax-exempt organizations, may 

engage in income-producing activities unrelated to their tax-exempt purposes, as 

long as the unrelated activities aren’t a substantial part of the organization’s activities. However, the net income from these activities will be subject to the UBIT if the 

following three conditions are met: 

n the activity constitutes a trade or business, 

n the trade or business is regularly carried on, and

n the trade or business is not substantially related to the organization’s exempt 

purpose. (The fact that the organization uses the income to further its charitable 

or religious purposes does not make the activity substantially related to its exempt 

purposes.)

Exceptions to UBIT

Even if an activity meets the above criteria, the income may not be subject to tax 

if it meets one of the following exceptions: (a) substantially all the work in operating the trade or business is performed by volunteers, (b) the activity is conducted 

by the organization primarily for the convenience of its members or (c) the trade 

or business involves the selling of merchandise substantially all of which was 

donated. 

In general, rents from real property, royalties, capital gains, and interest and dividends aren’t subject to the unrelated business income tax unless financed with 

borrowed money.

Examples of Unrelated Trade or Business Activities

Unrelated trade or business activities vary depending on types of activities.

Advertising 

Many tax-exempt organizations sell advertising in their publications or other forms 

of public communication. Generally, income from the sale of advertising is unrelated trade or business income. This may include the sale of advertising space 

in weekly bulletins, magazines or journals, or on church or religious organization 

websites.

Gaming 

Most forms of gaming, if regularly carried on, may be considered the conduct of 

an unrelated trade or business. This can include the sale of pull-tabs and raffles. 

Income derived from bingo games may be eligible for a special tax exception (in 

addition to the exception regarding uncompensated volunteer labor), if: (a) the 
20

bingo game is the traditional type of bingo (as opposed to instant bingo, a variation of pull-tabs), (b) the conduct of the bingo game is not an activity carried out 

by for-profit organizations in the local area and (c) the operation of the bingo game 

does not violate any state or local law.

Sale of merchandise and publications 

The sale of merchandise and publications (including the actual publication of 

materials) can be considered the conduct of an unrelated trade or business if the 

items involved do not have a substantial relationship to the exempt purposes of the 

organization.

Rental income 

Generally, income derived from the rental of real property and incidental personal 

property is excluded from unrelated business income. However, there are certain 

situations in which rental income may be unrelated business taxable income:

n if a church rents out property on which there is debt outstanding (for example, a 

mortgage note), the rental income may constitute unrelated debt-financed income 

subject to UBIT. (However, if a church or convention or association of churches 

acquires debt-financed land and intends to use it for exempt purposes within 15 

years of the time of acquisition, then income from the rental of the land may not 

constitute unrelated business income.)

n if personal services are rendered in connection with the rental, then the income 

may be unrelated business taxable income.

Parking lots 

If a church owns a parking lot that is used by church members and visitors while 

attending church services, any parking fee paid to the church would not be subject to UBIT. However, if a church operates a parking lot that is used by members 

of the general public, parking fees would be taxable, as this activity would not be 

substantially related to the church’s exempt purpose, and parking fees are not 

treated as rent from real property. If the church enters into a lease with a third 

party who operates the church’s parking lot and pays rent to the church, these 

payments would not be subject to tax, as they would constitute rent from real 

property.

Whether an income-producing activity is an unrelated trade or business activity depends on all the facts and circumstances. For more information, see IRS 

Publication 598, Tax on Unrelated Business Income of Exempt Organizations.

Tax on Income-Producing Activities 

If a church, or other exempt organization, has gross income of $1,000 or more 

for any taxable year from the conduct of any unrelated trade or business, it must 

file IRS Form 990-T, Exempt Organization Business Income Tax Return, for that year. 
21

If the church is part of a larger entity (such as a diocese), it must file a separate 

Form 990-T if it has a separate EIN. Form 990-T is due the l5th day of the 5th 

month following the end of the church’s tax year. (IRC Section 512(b)(12) provides 

a special rule for parishes and similar local units of a church. A specific deduction 

is provided, which is equal to the lower of $1,000 or the gross income derived from 

any unrelated trade or business regularly carried on by the parish or local unit of a 

church.) See Filing Requirements.

Employment Tax

Generally, churches and religious organizations are required to withhold, report 

and pay income and Federal Insurance Contributions Act (FICA) taxes for their 

employees. Employment tax includes income tax and FICA taxes withheld and 

paid for an employee. Substantial penalties may be imposed against an organization that fails to withhold and pay the proper employment tax. 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. If a church 

or a worker wants the IRS to determine whether the worker is an employee, the 

church or worker should file IRS Form SS-8, Determination of Worker Status for 

Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.

Social Security and Medicare Taxes — Federal Insurance 

Contributions Act (FICA)

FICA taxes consist of Social Security and Medicare taxes. Wages paid to employees of churches or religious organizations are subject to FICA taxes unless one of 

the following applies:

n 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; or

n a church that is opposed to the payment of Social Security and Medicare taxes 

for religious reasons files IRS Form 8274, Certification by Churches and Qualified 

Church-Controlled Organizations Electing Exemption From Employer Social Security 

and Medicare Taxes. Very specific timing rules apply to filing Form 8274. It must 

be filed before the first date on which the electing entity is required to file its first 

quarterly employment tax return. This election does not relieve the organization of 

its obligation to withhold income tax on wages paid to its employees. In addition, if 

an employee makes such an election and earns more than $108.28 in wages in a 

calendar year, he or she must pay Self-Employment Contributions Act (SECA) tax. 

For more information, see Publication 517, Social Security and Other Information for 

Members of the Clergy and Religious Workers.
22

Withheld employee income tax and FICA taxes are reported on IRS Form 941, 

Employer’s Quarterly Federal Tax Return. Some small employers are eligible to file an 

annual Form 944 instead of quarterly returns. For more information about employment tax, see;

n Publication 15, Circular E, Employer’s Tax Guide

n Publication 15-A, Employer’s Supplemental Tax Guide

n Publication 517, Social Security and Other Information for Members of the Clergy and 

Religious Workers

n Form 944 Instructions

Federal Unemployment Tax Act (FUTA)

Churches and religious organizations are not liable for FUTA tax. For further 

information on FUTA, see IRS Publication 15, Circular E, Employer’s Tax Guide, 

IRS Publication 15-A, Employer’s Supplemental Tax Guide, and IRS Publication 

517, Social Security and Other Information for Members of the Clergy and Religious 

Workers.

Special Rules for Compensation of Ministers

Withholding Income Tax for Ministers

Unlike other exempt organizations or businesses, a church isn’t required to withhold income tax from the compensation it pays to its duly ordained, commissioned 

or licensed ministers for performing services in the exercise of their ministry. An 

employee minister may, however, enter into a voluntary withholding agreement 

with the church by completing IRS Form W-4, Employee’s Withholding Allowance 

Certificate. A church should report compensation paid to a minister on Form W-2,

Wage and Tax Statement, if the minister is an employee, or on IRS Form 1099-MISC,

Miscellaneous Income, if the minister is an independent contractor.

Parsonage or Housing Allowances

Generally, a minister’s gross income does not include the fair rental value of a 

home (parsonage) provided, or a housing allowance paid, as part of the minister’s 

compensation for services performed that are ordinarily the duties of a minister.

A minister who is furnished a parsonage may exclude from income the fair rental 

value of the parsonage, including utilities. However, the amount excluded can’t be 

more than the reasonable pay for the minister’s services.
23

A minister who receives a housing allowance may exclude the allowance from 

gross income to the extent it’s used to pay expenses in providing a home. 

Generally, those expenses include rent, mortgage payments, utilities, repairs and 

other expenses directly relating to providing a home. If a minister owns a home, 

the amount excluded from the minister’s gross income as a housing allowance 

is limited to the least of: (a) the amount actually used to provide a home, (b) the 

amount officially designated as a housing allowance or (c) the fair rental value of 

the home. The minister’s church or other qualified organization must designate the 

housing allowance by official action taken in advance of the payment. If a minister 

is employed and paid by a local congregation, a designation by a national church 

agency won’t be effective. The local congregation must make the designation. A 

national church agency may make an effective designation for ministers it directly 

employs. If none of the minister’s salary has been officially designated as a housing allowance, the full salary must be included in gross income.

The fair rental value of a parsonage or housing allowance is excludable from 

income only for income tax purposes. These amounts are not excluded in determining the minister’s net earnings from self-employment for Self-Employment 

Contributions Act (SECA) tax purposes. Retired ministers who receive either a parsonage or housing allowance aren’t required to include the amounts for SECA tax 

purposes.

As mentioned above, a minister who receives a parsonage or rental allowance 

excludes that amount from his income. The portion of expenses allocable to the 

excludable amount is not deductible. This limitation, however, does not apply to 

interest on a home mortgage or real estate taxes, nor to the calculation of net 

earnings from self-employment for SECA tax purposes.

IRS Publication 517, Social Security and Other Information for Members of the Clergy 

and Religious Workers, has a detailed example of the tax treatment for a housing 

allowance and the related limitations on deductions. IRS Publication 525, Taxable 

and Nontaxable Income, has information on particular types of income for ministers.

Social Security and Medicare Taxes — Federal Insurance 

Contributions Act (FICA) vs. Self-Employment Contributions Act 

(SECA)

The compensation that a church or religious organization pays to its ministers 

for performing services in the exercise of ministry is not subject to FICA taxes. 

However, income that a minister earns in performing services in the exercise of 

his ministry is subject to SECA tax, unless the minister has timely applied for and 

received an exemption from SECA tax. 
24

Payment of Employee Business Expenses

A church or religious organization is treated like any other employer as far as 

the tax rules on employee business expenses. The rules differ depending upon 

whether the expenses are paid through an accountable or non-accountable plan, 

and these plans determine whether the payment for these expenses is included in 

the employee’s income.

Accountable Reimbursement Plan

An arrangement that an employer establishes to reimburse or advance employee 

business expenses will be an accountable plan if it: (1) involves a business connection, (2) requires the employee to substantiate expenses incurred and (3) 

requires the employee to return any excess amounts. 

Employees must provide the organization with sufficient information to identify the 

specific business nature of each expense and to substantiate each element of an 

expenditure. It isn’t sufficient for an employee to aggregate expenses into broad 

categories such as travel or to report expenses through the use of non-descriptive 

terms such as miscellaneous business expenses. Both the substantiation and the 

return of excess amounts must occur within a reasonable time.

Employee business expenses reimbursed under an accountable plan are: (a) 

excluded from an employee’s gross income, (b) not required to be reported on the 

employee’s IRS Form W-2, Wage and Tax Statement, and (c) exempt from the withholding and payment of wages subject to FICA taxes and income tax withholdings.

Non-accountable Reimbursement Plan

If the church or religious organization reimburses or advances the employee for 

business expenses, but the arrangement does not satisfy the three requirements 

of an accountable plan, the amounts paid to the employees are considered 

wages subject to FICA taxes and income tax withholding, if applicable, and are 

reportable on Form W-2. (Amounts paid to employee ministers are treated as 

wages reportable on Form W-2, but are not subject to FICA taxes or income tax 

withholding.)

For example, if a church or religious organization pays its secretary a $200 per 

month allowance to reimburse monthly business expenses the secretary incurs 

while conducting church or religious organization business, and the secretary is 

not required to substantiate the expenses or return any excess, then the entire 

$200 must be reported on Form W-2 as wages subject to FICA taxes and income 

tax withholding. In the same situation involving an employee-minister, the allowance must be reported on the minister’s Form W-2, but no FICA or income tax 

withholding is required. For further information see IRS Publication 463, Travel, 

Entertainment, Gift, and Car Expenses.
25

One common business expense reimbursement is for automobile mileage. If a 

church or religious organization pays a mileage allowance at a rate that is less 

than or equal to the federal standard rate, the amount of the expense is deemed 

substantiated. (Each year, the federal government establishes a standard mileage 

reimbursement rate.) There are no income or employment tax consequences to 

the reimbursed individual provided that the employee substantiates the time, place 

and business purposes of the automobile mileage for which reimbursement is 

sought. Of course, reimbursement for automobile mileage incurred for personal 

purposes is includible in the individual’s income.

If a church or religious organization reimburses automobile mileage at a rate 

exceeding the standard mileage rate, the excess is treated as paid under a nonaccountable plan. This means that the excess is includible in the individual’s 

income and is subject to the withholding and payment of income and employment 

taxes, if applicable. 

In addition, any mileage reimbursement that is paid without requiring the individual 

to substantiate the time, place and business purposes of each trip is included in 

the individual’s income, regardless of the rate of reimbursement.

No income is attributed to an employee or a volunteer who uses an automobile 

owned by the church or religious organization to perform church-related work.

Recordkeeping Requirements

Books of Accounting and Other Types of Records

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. See Special Rules Limiting 

IRS Authority to Audit a Church. Tax-exempt organizations are also required to 

maintain books and records that are necessary to accurately file any federal tax 

and information returns that may be required. 

There is no specific format for keeping records. However, the types of required 

records frequently include organizing documents (charter, constitution, articles 

of incorporation) and bylaws, minute books, property records, general ledgers, 

receipts and disbursements journals, payroll records, banking records and 

invoices. The extent of the records necessary generally varies according to the 

type, size and complexity of the organization’s activities.
26

Length of Time to Retain Records

The law does not specify a length of time that records must be retained; however, 

the following guidelines should be applied in the event that the records may be 

material to the administration of any federal tax law.

TYPE OF RECORD LENGTH OF TIME TO RETAIN

Records of revenue Retain for at least four 

and expenses, years after filing the 

including payroll returns to which they 

records. relate.

Records relating to Retain for at least four

acquisition and years after the filing of

disposition of property the return for the year 

(real and personal, in which disposition 

including investments). occurs.
27

Information and Tax Returns — Forms to File and Due Dates

Churches or religious organizations may be required to report certain payments 

or information to the IRS. The following is a list of the most frequently required 

returns, who should use them, how they are used and when they should be filed.

Filing Requirements 

Forms

Form W-2

Wage and Tax Statement

Form W-3 

Transmittal of Wage 

and Tax Statement 

Form W-2G

Certain Gaming Winnings 

Form 941 

Employer’s Quarterly 

Federal Tax Return 

or

Form 944 

Employer’s Annual 

Federal Tax Return

Form 945 

Annual Return of 

Withheld Federal 

Income Tax 

Form 990 

Return of Organization 

Exempt From Income Tax

Form 990-EZ 

Short Form Return of 

Organization Exempt 

From Income Tax

Form 990-N (e-Postcard)

Electronic Notice for 

Tax-Exempt Organizations 

Not Required to File

Form 990 or 990-EZ

When to File

Furnish each employee with a 

completed Form W-2 by January 31; 

and file all Forms W-2 and Form W-3 

with the Social Security Administration 

(SSA) by the last day of February.

For each winner meeting the 

filing requirement, the church 

or religious organization must furnish 

Form W-2G by January 31; and file 

Copy A of Form W-2G with the IRS 

by February 28.

See form instructions for due dates.

File Form 945 by January 31. This 

form is not required for those years 

in which there is no non-payroll tax 

liability. 

Form 990, 990-EZ or 990-N must be 

filed on or before the 15th day of the 

5th month following the end of the 

organization’s tax year.

For 990-N must be electronically filed.

For more information on reporting 

requirements for gaming activities, 

see IRS Publication 3079, TaxExempt Organizations and Gaming.

Who Should Use Them

Organizations with employees.

Any charitable or religious organization, including a church, that 

sponsors a gaming event (raffles, 

bingo) must file Form W-2G when 

a participant wins a prize over a 

specific value amount. 

Small employers that have been 

notified by the IRS to file Form 

944 (see form instructions) may 

use that form; other employers 

required to file must use Form 941.

Generally, all religious organizations (see exceptions to file Form 

990 below) must file Form 990, 

Form 990-EZ or Form 990-N.

Exceptions to file Form 990, 990-EZ and 990-N

The following is a list of some of the organizations that are not required to file 

Form 990, 990-EZ, or 990-N.

n Churches (as opposed to “religious organizations,” defined earlier)

n Inter-church organizations of local units of a church

n Mission societies sponsored by or affiliated with one or more churches or church 

denomination, if more than half of the activities are conducted in, or directed at, 

persons in foreign countries

n An exclusively religious activity of any religious order

See the form instructions for a list of other organizations that are not required to file.

How They are Used

Use Form W-2 to report employee 

wages and the taxes withheld from 

them. Use Form W-3 to transmit 

Forms W-2 to the Social Security 

Administration.

The requirements for reporting and 

withholding depend on the type of 

gaming, the amount of winnings and 

the ratio of winnings to the wager.

Use Form 941 or 944 to report Social 

Security and Medicare taxes and income 

taxes withheld by the organization, and 

Social Security and Medicare taxes paid 

by the organization.

If a church or religious organization 

withholds income tax, including backup 

withholding, from non-payroll payments, 

it must file Form 945. 

The thresholds for determining which 

form to file, Form 990. 990-EZ or 990-N 

are found at www.irs.gov/charities. 
28

Forms 

Form 990-T

Exempt Organization 

Business Income Tax Return 

Form 990-W

Estimated Tax on Unrelated 

Business Taxable Income for 

Tax-Exempt Organizations 

Form 1096

Annual Summary and 

Transmittal of U.S. 

Information Returns

Form 1099-MISC

Miscellaneous Income

Form 5578

Annual Certification of 

Racial Nondiscrimination 

for a Private School Exempt 

from Federal Income Tax

Form 8282

Donee Information Return 

Treasury Form 90.22.1,

Report of Foreign Bank

and Financial Accounts

Who Should Use Them

Churches and religious organizations.

Churches and religious organizations.

Churches and religious organizations.

Churches and religious organizations.

A church or religious organization 

that operates a private school, whether 

separately incorporated or operated 

as part of its overall operations, that 

teaches secular subjects and generally 

complies with state law requirements 

for public education.

Churches and religious organizations.

See form instructions

How They are Used

Churches and religious organizations 

must file Form 990-T if they generate 

gross income from an unrelated business of $1,000 or more for a taxable 

year.

If the tax on unrelated business income 

is expected to be $500 or more, the 

church or religious organization must 

make estimated tax payments. 

Use Form 990-W to compute the 

estimated tax liability.

Use Form 1096 to transmit Forms 

1099-MISC, W-2G and certain other 

forms to the IRS.

A church or religious organization 

must use Form 1099-MISC if it pays an 

unincorporated individual or an entity 

$600 or more in any calendar year for 

gross rents; commissions, fees or other 

compensation paid to non-employees; 

prizes and awards; or other fixed and 

determinable income. 

File Form 5578 to certify that the 

school does not discriminate based 

on race or ethnic origin. 

A church or religious organization must 

file Form 8282 if it sells, exchanges, 

transfers or otherwise disposes of certain non-cash donated property within 

three years of the date it originally 

received the donation. This applies 

to non-cash property that had an 

appraised value of more than $5,000 

at time of donation.

See form instructions

For more information on unrelated 

business income, see Unrelated 

Business Income Tax (UBIT).

When to File

Form 990-T must be filed by the 15th 

day of the 5th month after the organization’s accounting period ends (May 15 

for a calendar year accounting period).

Form 990-W is for computation 

purposes only and does not need 

to be filed.

Form 1096 must be filed by February 

28 in the year following the calendar 

year in which the payments were 

made.

Churches or religious organizations 

must furnish each payee with a copy 

of Form 1099-MISC by January 31; 

and file Copy A of Form 1099-MISC 

with the IRS by February 28.

Form 5578 must be filed on or 

before the 15th day of the 5th month 

following the end of the organization’s 

taxable year (May 15 for a calendar 

year). 

If an organization files Form 990 or 

Form 990-EZ, the certification must 

be made on Schedule A (Form 990 

or Form 990-EZ).

The church or religious organization 

must file Form 8282 with the IRS within 

125 days of date of disposition of 

the property; and furnish the original 

donor with a copy of the form.

See form instructions

See the Instructions for 

Form 1099-MISC for details.

For information on racial and ethnic 

nondiscriminatory policies, see 

Revenue Procedure 75-50, 1975-2 

C.B. 587 at www.irs.gov. Note: It is not considered racially discriminatory for a parochial school to select students on 

the basis of membership in a religious denomination if membership in the denomination is open 

to all on a racially nondiscriminatory basis. Further, a seminary, or other purely religious school, 

that primarily teaches religious subjects usually with the purpose of training students for the 

ministry, is not subject to the racially nondiscriminatory requirements because it is considered 

to be a religious rather than an educational organization.
29

Charitable Contributions— Substantiation and Disclosure Rules

Recordkeeping

A church or religious organization should be aware of the recordkeeping and substantiation rules imposed on donors of charities that receive certain quid pro quo 

contributions.

Recordkeeping Rules

A donor cannot claim a tax deduction for any contribution of cash, a check or 

other monetary gift made on or after January 1, 2007, unless the donor maintains a 

record of the contribution in the form of either a bank record (such as a cancelled 

check) or a written communication from the charity (such as a receipt or a letter) 

showing the name of the charity, the date of the contribution and the amount of the 

contribution.

Substantiation Rules

A donor can’t 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 doesn’t acknowledge a contribution incurs no penalty; but without a written acknowledgment, the donor can’t claim a tax deduction. Although it’s 

a donor’s responsibility to obtain a written acknowledgment, a church or religious 

organization can assist the donor by providing a timely, written statement containing:

n name of the church or religious organization,

n date of the contribution,

n amount of any cash contribution, and

n description (but not the value) of non-cash contributions.

In addition, the timely, written statement must contain one of the following:

n statement that no goods or services were provided by the church or religious 

organization in return for the contribution, 

n statement that goods or services that a church or religious organization provided 

in return for the contribution consisted entirely of intangible religious benefits, or

n 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.
30

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 

aren’t aggregated for purposes of measuring the $250 threshold.

Disclosure Rules that Apply to Quid Pro Quo Contributions

A contribution made by a donor in exchange for goods or services is known as a 

quid pro quo contribution. A donor may only take a contribution deduction to the 

extent that his or her contribution exceeds the fair market value of the goods and 

services the donor receives in return for the contribution. Therefore, donors need 

to know the value of the goods or services. A church or religious organization must 

provide a written statement to a donor who makes a payment exceeding $75 partly 

as a contribution and partly for goods and services provided by the organization. 

EXAMPLE 1 

If a donor gives a church a payment of $100 and, in return, receives a ticket to an event valued at $40, 

this is a contribution, and only $60 is deductible by the donor ($100 - $40 = $60). Even though the 

deductible amount does not exceed $75, since the contribution the church received is in excess of $75, 

the church must provide the donor with a written disclosure statement. The statement must: (1) inform 

the donor that the amount of the contribution that is deductible for federal income tax purposes is limited 

to the excess of money (and the fair market value of any property other than money) contributed by the 

donor over the value of goods or services provided by the church or religious organization; and (2) provide the donor with a good-faith estimate of the value of the goods or services.

The church or religious organization must provide the written disclosure statement 

with either the solicitation or the receipt of the contribution and in a manner that is 

likely to come to the attention of the donor. For example, a disclosure in small print 

within a larger document may not meet this requirement. 

Exceptions to Disclosure Statement

A church or religious organization isn’t required to provide a disclosure statement 

for quid pro quo contributions when: (a) the goods or services meet the standards 

for insubstantial value or (b) the only benefit received by the donor is an intangible religious benefit. Additionally, if the goods or services the church or religious 

organization provides are intangible religious benefits (examples follow), the 

acknowledgment for contributions of $250 or more doesn’t need to describe those 

benefits.

Generally, intangible religious benefits are benefits provided by a church or religious organization that are not usually sold in commercial transactions outside a 

donative (gift) context.

Intangible religious benefits include:

n admission to a religious ceremony

n de minimis tangible benefits, such as wine used in religious ceremony
31

Benefits that are not intangible religious benefits include:

n tuition for education leading to a recognized degree

n travel services

n consumer goods 

IRS Publication 1771, Charitable Contributions: Substantiation and Disclosure 

Requirements, provides more information on substantiation and disclosure rules.

Special Rules Limiting IRS Authority to Audit a Church

Tax Inquiries and Examinations of Churches

Congress has imposed special limitations, found in IRC Section 7611, on how 

and when the IRS may conduct civil tax inquiries and examinations of churches. 

The IRS may only initiate a church tax inquiry if an appropriate high-level Treasury 

Department official reasonably believes, based on a written statement of the facts 

and circumstances, that the organization: (a) may not qualify for the exemption or 

(b) may not be paying tax on an unrelated business or other taxable activity. 

Restrictions on Church Inquiries and Examinations

Restrictions on church inquiries and examinations apply only to churches (including organizations claiming to be churches if such status has not been recognized by the IRS) and conventions or associations of churches. They don’t apply 

to related persons or organizations. Thus, for example, the rules don’t apply to 

schools that, although operated by a church, are organized as separate legal entities. Similarly, the rules don’t apply to integrated auxiliaries of a church.

Restrictions on church inquiries and examinations do not apply to all church inquiries by the IRS. The most common exception relates to routine requests for information. For example, IRS requests for information from churches about filing of 

returns, compliance with income or Social Security and Medicare tax withholding 

requirements, supplemental information needed to process returns or applications 

and other similar inquiries are not covered by the special church audit rules.

Restrictions on church inquiries and examinations don’t apply to criminal investigations or to investigations of the tax liability of any person connected with the 

church, such as a contributor or minister.

The procedures of IRC Section 7611 will be used in initiating and conducting any 

inquiry or examination into whether an excess benefit transaction (as that term is 

used in IRC Section 4958) has occurred between a church and an insider.
32

Audit Process

The sequence of the audit process is:

1. If the reasonable belief requirement is met, the IRS must begin an inquiry by 

providing a church with written notice containing an explanation of its concerns.

2. The church is allowed a reasonable period in which to respond by furnishing a 

written explanation to alleviate IRS concerns.

3. If the church fails to respond within the required time, or if its response is not 

sufficient to alleviate IRS concerns, the IRS may, generally within 90 days, issue a 

second notice, informing the church of the need to examine its books and records.

4. After issuance of a second notice, but before commencement of an examination 

of its books and records, the church may request a conference with an IRS official 

to discuss IRS concerns. The second notice will contain a copy of all documents 

collected or prepared by the IRS for use in the examination and subject to disclosure under the Freedom of Information Act, as supplemented by IRC Section 6103 

relating to disclosure and confidentiality of tax return information.

5. Generally, examination of a church’s books and records must be completed 

within two years from the date of the second notice from the IRS.

If at any time during the inquiry process the church supplies information sufficient 

to alleviate the concerns of the IRS, the matter will be closed without examination 

of the church’s books and records. There are additional safeguards for the protection of churches under IRC Section 7611. For example, the IRS can’t begin a subsequent examination of a church for a five-year period unless the previous examination resulted in a revocation, notice of deficiency or assessment or a request 

for a significant change in church operations, including a significant change in 

accounting practices.
33

Glossary

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: 

n distinct legal existence; 

n recognized creed and form of worship; 

n definite and distinct ecclesiastical government; 

n formal code of doctrine and discipline; 

n distinct religious history; 

n membership not associated with any other church or denomination; 

n organization of ordained ministers; 

n ordained ministers selected after completing prescribed courses of study; 

n literature of its own; 

n established places of worship; 

n regular congregations; 

n regular religious services; 

n Sunday schools for the religious instruction of the young; and

n schools for the preparation of its ministers. 

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.

The IRS makes no attempt to evaluate the content of whatever doctrine a particular 

organization claims is religious, provided the particular beliefs of the organization 

are truly and sincerely held by those professing them and the practices and rites 

associated with the organization’s belief or creed are not illegal or contrary to 

clearly defined public policy.

Integrated Auxiliary of a Church. The term integrated auxiliary of a church refers 

to a class of organizations that are related to a church or convention or association 

of churches, but are not such organizations themselves. In general, the IRS will 

treat an organization that meets the following three requirements as an integrated 

auxiliary of a church. The organization must:

n be described both as an IRC Section 501(c)(3) charitable organization and as a 

public charity under IRC Sections 509(a)(1), (2) or (3); 
34

n be affiliated with a church or convention or association of churches; and 

n receive financial support primarily from internal church sources as opposed to 

public or governmental sources. 

Men’s and women’s organizations, seminaries, mission societies and youth groups 

that satisfy the first two requirements above are considered integrated auxiliaries 

whether or not they meet the internal support requirements. More guidance as to 

the types of organizations the IRS will treat as integrated auxiliaries can be found 

in the Code of Regulations, 26 CFR Section 1.6033-2(h). 

The same rules that apply to a church apply to the integrated auxiliary of a church, 

with the exception of those rules that apply to the audit of a church. See Special 

Rules Limiting IRS Authority to Audit a Church.

Minister. The term minister is not used by all faiths; however, as used in this booklet, the term minister denotes members of clergy of all religions and denominations 

and includes priests, rabbis, imams and similar members of the clergy.

IRC Section 501(c)(3). IRC section 501(c)(3) describes charitable organizations, 

including churches and religious organizations, which qualify for exemption from 

federal income tax and generally are eligible to receive tax-deductible contributions. This section provides that:

n an organization must be organized and operated exclusively for religious or other 

charitable purposes, 

n net earnings may not inure to the benefit of any private individual or shareholder, 

n no substantial part of its activity may be attempting to influence legislation, 

n the organization may not intervene in political campaigns, and

n the organization’s purposes and activities may not be illegal or violate fundamental public policy. 
35

IRS Tax Publications 

The IRS provides free tax publications and forms. Download publications and 

forms from the IRS website at www.irs.gov. The following publications may provide 

further information for churches and other religious organizations:

Help From The IRS

Publication 1 Your Rights as a Taxpayer

Publication 15 Circular E, Employer’s Tax Guide

Publication 15-A Employer’s Supplemental Tax Guide

Publication 334 Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ)

Publication 463 Travel, Entertainment, Gift, and Car Expenses

Publication 517 Social Security and Other Information for Members of the Clergy and 

Religious Workers

Publication 525 Taxable and Nontaxable Income

Publication 526 Charitable Contributions

Publication 557 Tax-Exempt Status for Your Organization

Publication 561 Determining the Value of Donated Property

Publication 571 Tax-Sheltered Annuity Plans (403(b) Plans) for Employees of Public Schools 

and Certain Tax-Exempt Organizations

Publication 598 Tax on Unrelated Business Income of Exempt Organizations

Publication 910 Guide to Free Tax Services 

Publication 1771 Charitable Contributions: Substantiation and Disclosure Requirements

Publication 3079 Tax-Exempt Organizations and Gaming

Publication 4221-PC Compliance Guide for 501(c)(3) Public Charities

Publication 4573 Group Exemptions

Publication 4630 The Exempt Organizations Product and Services Catalog
36

IRS Customer Service 

Telephone assistance for general tax information is available by calling: 

IRS Customer Service toll-free at 800-829-1040.

EO Customer Service

Telephone assistance specific to exempt organizations is available by calling: 

IRS Exempt Organizations Customer Account Services toll-free at 877-829-5500.

EO Website

Visit the IRS Exempt Organizations website at www.irs.gov/eo.

StayExempt —Tax Basics for Exempt Organizations — online courses available at 

www.stayexempt.irs.gov.

EO Update

To receive IRS EO Update, a periodic newsletter with information for tax-exempt 

organizations and tax practitioners who represent them, visit www.irs.gov/eo and 

click on “Free e-Newsletter.”