Every non-religious, non-profit organization must file Form 1023 with the IRS. It is the application to be a non-profit. Non-religious non-profits must also do an annual tax return, Form 990.
The church is not required by law to be a legal entity. It does not have to file Form 1023 or Form 990. Under IRS Section 501(c)(3) churches are automatically tax-exempt as long as they meet both the organizational and operational tests found in Section 501(c)(3).
(Keep in mind that churches must be “organized and operated exclusively for religious purposes” and this “purpose” must be stated in the church’s Articles of Incorporation.)
Despite the fact that churches are automatically tax-exempt, the only recognition from the IRS of non-profit standing comes from the Determination Letter (also known as the 501(c)(3) Exemption Ruling Letter or simply your tax letter). And this letter can only be obtained by filing Form 1023.
Many churches are filing Form 1023 because the Determination Letter is needed to receive various benefits including:
- A non-profit, bulk-mailing discount from the post office.
- Some tax exemptions from state governments.
- The ability to set up 403(b) retirement plans.
By far the biggest benefit of filing Form 1023 is legal protection. It separates the pastor and elders from the entity of the church and requires the church to have a constitution, bylaws, minutes, etc.
Churches that have completed Form 1023 are NOT required to complete Form 990. We recommend that you do not submit Form 990. Form 990 becomes easily accessible public information, and we believe the financial operations of the church and officer salaries should remain private.
Form 1023 does request officer compensation amounts, and this information is made public. However, Form 1023 is not nearly as accessible as Form 990.
If you are ever challenged to file Form 990, then refer to IRC 6033(a)(3)(A)(i) and Reg. 1.6033-2(g)(1)(i), which expressly exempt churches from filing Form 990 and continue to apply even if the church files Form 1023.