Exemption for Churches

For a basic discussion of 501(c)(3) matters relating to churches, see IRS Publication 1828.

Declaration of Exemption

I.R.C. § 508(a)(1) provides that an organization will not be treated as a section 501(c)(3) organization unless it has given notice to the Secretary that it is applying for recognition (i.e., by filing Form 1023 or Form 1023-EZ). Pursuant to I.R.C. § 508(c)(1)(A), however, churches, their integrated auxiliaries, and conventions or associations of churches, are exempt from this application requirement.

Restrictions on Church Tax Inquiries and Examinations

I.R.C. § 7611 restricts church tax inquiries and church tax examinations.

For purposes of this section, a “church” includes any organization claiming to be a church and any convention or association of churches.

A “church tax inquiry” is any inquiry into a church (other than an examination) to serve as a basis for determining whether a church is actually exempt from tax under section 501(a) by reason of its status of a church, or whether it is carrying on an unrelated trade or business or otherwise is engaged in activities that may be subject to taxation.

A “church tax examination” is any examination for purposes of making a determination described as the focus of a church tax inquiry, including of church records at the request of the Internal Revenue Service or of the religious activities of any church.

A recent case decided by the U.S. Court of Appeals for the Tenth Circuit illustrates the extent of protection from inquiry into records. God’s Storehouse Topeka Church v. United States, No. 23-3063 (Apr. 9, 2024). In God’s Storehouse, the church operates a thrift store which sells donated items to the public, and a coffee shop that sells coffee to patrons at cost. The church’s tax returns indicate that the church as been withholding taxes from the wages of employees but not of the gross wages of the pastor. A church tax inquiry was commenced, resulting in a church tax examination, relating to the pastor’s use of the store name on campaign boards for the pastor’s candidacy to the Kansas State Senate. As part of the examination, the auditor requested copies of bank statements from the church. The church did not provide the bank statements. As a result, the IRS requested the bank records from the church’s bank. The holding in this case confirms that, based on the clear language of I.R.C. § 7611, a third-party summons under I.R.C. § 7609 is not considered a “church tax inquiry” or “church tax examination” because the inquiry is not directed “to a church” as would be required to receive protection under I.R.C. § 7611(h)(2).

“Purported Church Can’t Stop IRS Investigating Its Bank Records,” Tax Notes, March 28, 2023: “The limits on IRS church inquiries don’t apply to third-party bank summonses because that information isn’t church records, according to a federal district court” decision in God’s Storehouse Topeka Church v. United States.