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The contents of this document and the comments of the author are of no legal bearing, real or imagined. This information is provided as a guide into the formation of a religious organization.

First Amendment Church or Religious Organization:

This is actually the oldest form of Faith Based Organizations (FBO) during the early years of our country. As of the approval of the First Amendment, the basic rights of all Faith Based Organizations was set forth:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech…..

The general context of operation for this form of organization is simple:

1. Individuals gathered together to practice similar religious beliefs. There is absolute separation of church and state (federal). At the federal level, this is considered a non taxable religious body.

2. A First Amendment church cannot have employees as defined by American law. If a church has employees, it is a religious organization. (501 or 508)

3. (First Amendment) churches are not legal entities, so they cannot and do not receive income.

4. Church members give tithes and offerings to God and which are used for certain purposes and ministries approved by God; for providing for their pastor; for providing for a place to meet; for helping the poor; and for any other purpose consistent with Biblical principle. While not required by law, it would be advisable that tithes be tracked and recorded in an accounting ledger as to the disbursement. This is for the members benefit.

5. If tithes are used to support the clergy, self employment tax may apply. This would be considered a source of personal income.

A 1099 should be generated against the clergies Social Security Number. (an Employee Identification Number does not apply in this instance). Filing the 1099 is protection against “falsified” wage claims.

6. The organization itself should see a net “income” of zero, as all monies should be used for items (or like items) stated in section 4 above.

7. The organization may rent or own property (church). The purchased property should be registered as any general purpose personal property, under the specific name of the private owning individual, and should not be exempt from State Property taxes.

8. A single member Faith Based Organization (FBO), similar to a “priest” who will operate a Marital Ministry, will be considered self employed.

Any tithes given in the name of the clergy must be claimed as personal income. This is in accordance with all laws regarding self employment.

In the event the clergy is ordained in an organization, but the clergy is operating as a First Amendment entity, and is not operating as a 501c3 or 508c1a registered entity, therefore is considered self employed and subject to self employment taxation. First Amendment clergy do not receive any of the exemptions which may exist for a registered 501c3 or 508c1a.

9. If clergy is operating as a First Amendment FBO, and also has a secular job, the self employment taxes may be limited by the income of the secular job.

10. There are no legal protections from personal liability in the operation of a First Amendment Church or FBO. In the event of legal issues within the operation of said entity, personal assets of all parties may be exposed.

11. While it is acceptable to start a First Amendment FBO on your own, (there is no filings or formation with state or federal) if there are questions as to legal issues of operation (income) it would be recommended to seek out assistance from a Tax Consultant or Tax Attorney. Of course, this will be a “pay for service” so be aware of those costs.

12. If you form a First Amendment Church, and have a group meeting regularly, remember that tithes to a First Amendment church are not tax deductible.

Keep in mind, that the concept of the First Amendment Faith Based Organization is to be separated from the state, and operate under the laws of the New Testament. This does not mean a First Amendment FBO is above secular law. Simple example: (just for fun)

Your FBO collects tithes, and give 50% to a specific charity. You wish to reward the fellowship with a trip to Atlantic City to gamble. This will raise the ire of State and Federal government and will be dealt with swiftly and severely.

 


  

The contents of this document and the comments of the author are of no legal bearing, real or imagined. This information is provided as a guide into the formation of a religious organization.

This document is intended to cover some generic detail of the formation of a church only.

For all internet hyperlinks in this file, please do a “right button click” which will allow you to do an “Open in New Tab”.

508c1a Faith Based Organization (FBO):

The 508(c)(1)(a) Faith Based Organization (FBO) is a religious, non-profit, tax exempt organization. The 508(c)(1)(a) FBO is separate and distinct from a 501(c)(3) charity and unincorporated FBO’s.

An unincorporated FBO by definition is a First Amendment Church/Organization.

The 508(c)(1)(a) is recognized by the Federal Government, by all 50 states and recognized internationally under the Hague Convention of the United Nations Charter.

Since its inception in 1954 with the Johnson Amendment, the 501(c)(3) has been promoted and advertised by many as the only option to organizing a FBO. This is incorrect. Federal law, IRS publications, and court cases all confirm and establish the rights and protection of the 508(c)(1)(a) FBO.

The 508(c)(1)(a) FBO enjoys a “mandatory exemption” from all the restrictions a 501(c)(3) FBO has including free speech restrictions, IRS reporting requirements, rules and regulations that the IRS may from time to time prescribe and providing testimony under oath.

With that being said, a 508c1a is a registered state entity just as a 501c3 is a State and Federal sanctioned entity. Keep this in mind as we proceed further in this document. A 508c1a is a 501c3 with special exemptions.

A 508c1a Faith Based Organization is a not-for-profit in the same context as a 501c3. The general context of operation for this form of organization is as follows:

1. The 508c1a is registered at the state level only. It is exempt from all Federal filing requirements of the 501c3, including tax returns for the church itself. This is United States Code 26 508 and United States Code 26 6033.

2. The 508c1a FBO enjoys a “mandatory exception” from all the restrictions a 501c3 FBO has including free speech restrictions, IRS reporting requirements, rules and regulations that the IRS may from time to time prescribe and providing testimony under oath.

3. The 508c1a is registered as a not-for-profit with the state, and hence provides for limited liability. While not perfect, and no law is, you do have some private asset protection. Under Federal law a 508c1a is automatically tax exempt at the Federal level.

4. Can give tax deductible receipts for donations.

4. Freedom of Speech, as indicated in item 2 above, including, but not limited to, politics, referendums, initiatives, and candidates.

6. Can ordain and license it’s own leaders.

7. With proper filing with the state, it may receive a sales tax exemption certificate. NOTE: Not all states will allow a 508 to be sales tax exempt. Contact your Dept. of Revenue for details.

8. Providing the state certificate of organization and state exemption of sales tax can be proof of exemption from property tax on a church related structure. This is true for only a single property.

9. The 508c1a operating as a church, may or may not have paid employees or clergy. Best case is to not have payed employees. It is best case to have clergy who have a secular job to secure their private income. (exception is listed in Note 9a)

 

Note 9a: There is an exception to having clergy or persons in the capacity of paid employees. It is possible to have clergy or employees as “private contractors”. The benefit is they are not employees, and the only paperwork required of the church is to file a 1099 Misc Income Statement. This will still require filing for an Employer Identification Number (EIN). This is the recommended way to distribute compensation.

In the case where there is a need for a paid employee, the rules of Employment Tax in IRS publication 1828 must be met (starting on page 21)(https://www.irs.gov/pub/irs-pdf/p1828.pdf). This is not the recommended procedure, see Note 9a.

In the instance of a paid clergy, the Special Rules for Ministers must be met (starting on page 22)(https://www.irs.gov/pub/irs-pdf/p1828.pdf). This is not the recommended procedure, see Note 9a.

In either case, this would REQUIRE the 508c1a church to file the SS4 Federal form to obtain an Employer Identification Number (EIN). This is a free filing and can be done online.

10. It is highly recommended that all who wish to form a 508c1a church and have paid staff or priest (rather than private contractors) that they should read IRS Publication 1828 in it’s entirety.

11. It is highly recommended that the clergy, if they perform any counseling or confession tasks, to take it upon themselves to obtain personal liability insurance. This is not overly expensive, and is simply good practice. None the less, it is a personal decision.

How to form a 508c1a:

These are general guidelines of the process. It may vary from state to state. Most of the information required, including forms, may be obtained from the Secretary of State in your state of residence. We will show examples later in this document from the State of Missouri.

1. Verify the names of a minimum of three (3) members who will be listed as the Board Of Directors or whatever you may wish to name that board. Some states may require more.

2. You may or may not write an Affidavit of Intent to create your church. It can be signed by the board and two or more church members. This can then be notarized as a legal document. There is much controversy as to whether this is required (especially for a 508 church).

3. Write your Charter of Operation and Bylaws. Make sure to indicate if the board is “clergy” led or “board led”. In clergy led, the clergy uses the board ONLY as advisers. This is not unusual for many smaller church groups. Assign one of the members as the Secretary/Treasurer. The clergy member, who is on the board, along with the Secretary/Treasurer must sign and co-sign this document. Make sure to state that you are operating as a 508c1a.

4. Obtain the Statement of Resignation of Registered Agent By a Foreign or Domestic For Profit / Non Profit Corporation from your State Attorney Generals office or the state website. This person should be someone who will be with the church for an extended period, and the priest or a board member may be the best option. There may be a small fee to file this document.

5. Obtain the Articles of Incorporation of a Nonprofit Corporation from your State Attorney Generals office or the state website. This form MUST be filled out exact with no errors. If you do create an error, you will be required to submit a special change form. This form should be signed by the incorporator, in this case the registered agent. This form may require a filing fee. Be sure that on the form, it asked for your primary purpose of operation, you will indicate you are operating as a 508c1a. See Note 1 at the end of this document.

6. Make your own copies and send the signed originals of Statement of Resignation of Registered Agent By a Foreign or Domestic For Profit / Non Profit Corporation, Articles of Incorporation of a Nonprofit Corporation and your Charter and Bylaws to your State Attorney Generals Office.

7. If you desire to have Sales Tax Exemption locate the Sales Tax Exemption document. The Dept. of Revenue may or may not require you send in a 1 year financial projection of income. There may or may not be a filing fee on this document. NOTE: Not all states will allow a 508 to be sales tax exempt. Contact your Dept. of Revenue for details.

8. Make a determination if you need an Employer Identification Number (EIN) from the Federal Government. It is possible to file the SS4 online with the Federal Government, and is free. You will only need an EIN if:

1. You pay any employees or clergy.

2. Your bank requires it to open a business account.

2a. DO NOT tell you bank you are a 508c1a, they do not understand in many cases what that is. Simply hand them the EIN Number and you Charter/Bylaws. They do not, and are not required, to understand the IRS 26 (501/508) “exceptions”.

There are some that indicate that having the EIN gives more credibility to the formation and validity of your church. While this may seem appropriate, the idea of a 508c1a is to attempt to be removed from the Federal Government as much as possible.

9. Do NOT, unless specified by your Secretary of state, fill out a form for a fictitious name. This is usually reserved for a sole proprietor business.

If in the event you choose to have paid clergy or payed employees, make sure to read the entire IRS publication 1828 (especially pages 21-22)(https://www.irs.gov/pub/irs-pdf/p1828.pdf). You may also wish to visit with a Tax Consultant (CPA) for details.

Please locate the Secretary of State website, or contact their office to determine exactly what forms they require. They are very helpful once you explain this is a not-for-profit church filing.

Fees will vary, but expect $45-$100.

Sample files from the State of Missouri: (do not use! They are only examples).

corp52.pdf

corp59b.pdf

dor1746.pdf

church-constitutions.pdf

p1828.pdf

 

In ending, what are the pros and cons of a 508c1a church versus a First Amendment church:

** The 508c1a FBO is the best option for a church startup that will have a physical congregation.

The 508c1a FBO is NOT a candidate for a sole proprietorship, as in a priest who performs only weddings. By definition the 508c1a should be used for a church with congregation.

The First Amendment FBO is best best for a sole proprietorship, using the example of a priest performing only weddings.

The First amendment church does work well with a small group, with no intent on any paid staff, and have no concerns about tithes not being tax deductible.

The 508 lends itself to a higher level of personal protection regarding liability.

The 508 will allow for sales tax exemption. NOTE: Not all states will allow a 508 to be sales tax exempt. Contact your Dept. of Revenue for details.

The 508 will allow for property tax exemption (on the first property). If your church has a second property or possible support a subordinate “collection” of churches, filing a 501c3 is recommended. NOTE: Not all states will allow a 508 to be property tax exempt. Contact your Dept. of Revenue for details.

The First Amendment Church allows for total and complete separation from any state or federal influence

The First Amendment Church has no protection against personal liability.

The 508 makes a legally clean path in case of paid employees.

The 508 will allow for non church income in some cases, for example, church related clothing sales, church related bake sales, etc. This is also spelled out in IRS Publication 1828.

The 508c1a establishes the church as a not-for-profit entity, and protects the church itself from government reporting and taxation. None the less, it does not protect against the requirement to report income paid to clergy or employees.

Note1:

All 50 states allow you to register as a 508c1a Faith Based Organization or Church. Here is how it works:

1. There is no such thing as a separate law to form a 508c1a. A 508c1a is actually a 501c3 REGISTERED WITH THE STATE ONLY. You go to their website, and I assume all allow online filings, and you will go to the link to create a nonprofit or not-for-profit.

To you, it will appear you are filing for a 501c3.

2. On the Articles of incorporation, you will fill it out as if you were a 501c3 with your organization name. They will ask on the form what your primary purpose is, simply enter “We are operating as a 508c1a”. Poof, you organization is now a 508c1a. So specify this in your charter/bylaws also.

3. That is it, you do not need to file for any status to the Federal Government. The exception is if you have a paid priest or employees, and that was discussed in detail earlier in this document.

4. Now you have the right to file for sales tax exemption and possibly property tax exemption if you decide to own a physical building. NOTE: Not all states will allow a 508 to be sales tax exempt. Contact your Dept. of Revenue for details.

 


 

The contents of this document and the comments of the author are of no legal bearing, real or imagined. This information is provided as a guide into the formation of a religious organization.

This document is intended to cover some generic detail of the formation of a church only.

501c3 Government Sanctioned Church:

This document will list only pro/con statements regarding formation of a church.

Pros of a 501c3:

1. Ability to file for government and private grants.

2. Applicable if the church owns multiple properties.

3. Applicable is the church is large, with paid employees under IRS 1828 regulations.

Cons of a 501c3:

1. The church is sanctioned by the government, and under total control of the IRS. The church has waived it’s rights of the First Amendment, and any changes to the IRS code the church must accept without question or recourse.

2. The church gives up it’s right to free speech.

3. You must file all required paperwork as with the IRS, more than simply filing income tax forms.

 

The church may be required to file any and all documents requested by the IRS, even if they are non-tax related. This may include separate financial reports, or almost anything they require.

The church must by law maintain a “membership” list with names, addresses, and other contact information. This is required by all registered 501 entities. This document is considered PUBLIC, and may be requested for review not only by the IRS, but also by the general public. This is a major privacy issue the church must consider.

4. Many believe filing for a 501c3 is the only “protection” against certain issues, one being protection of private assets. Remember, a 508c1a is actually a 501c3 with exemptions. The 508c1a give exactly the same protections as a 501c3 under IRS Code 26 501(508).

5. Many churches fall into the proverbial rabbit hole by failing to comply, even by a single week or day, to provide all the filings the IRS may request. All filings are not manually controlled by a human IRS agent. Most of the processing is automatic, computer generated and monitored. If the computers at the IRS flag or determine that a church missed a filing, miss filled, has other filing errors or any number of other issues, the computer will automatically suspend the church 501c3 status. Because of the under staffing of the IRS, it may take two to twelve (2-12) MONTHS to set up appointments, re-file and bring your 501c3 back to legal status.