After receiving a Ministry from the Church of Natural Grace's seminary school Psychic Horizons, based in San Francisco, California, United States of America in 2022, I decided to follow in the footsteps of my teacher, Laura Hopper, and form my own church to grow and practice my ministry under. You can learn more about my healing services listed on my website.
In this article I am going to share the most important lessons I learned, at a high level, when it comes to starting a church in the United States of America.
I share this information with the aim of supporting spiritual leaders, like myself, to be able to utilize structures that support them and their congregation. Churches are very different than businesses and non-profits.
As an entrepreneur who has started businesses and non-profits in the past, I wrote this article with the intent of helping people understand how to approach and engage with the Church structure and point to the major differences and some nuances between them.
If you would like me to consult you further, please fill out the Book a Consultation Form I am available for consultation, additional support, and education.
To be very clear I am not a lawyer, and this is not legal advice. This is information I have gathered and reflected as I understand it as a practicing Minister in the United States of America.
Let's dive in.
When I speak with people about starting a church in the USA, I break down the important learnings into these 3 major points:
To File or Not to File, ... well it depends
It is important to note that according to the IRS, Churches are automatically tax-exempt and not required to file with the IRS for this designated status.
All of this is available in the latest IRS Publication.
Churches (including integrated auxiliaries and conventions or associations of churches) that meet the requirements of section 501(c)(3) of the Internal Revenue Code are automatically considered tax exempt and are not required to apply for and obtain recognition of exempt status from the IRS. Donors are allowed to claim a charitable deduction for donations to a church that meets the section 501(c)(3) requirements even though the church has neither sought nor received IRS recognition that it is tax exempt. In addition, because churches and certain other religious organizations are not required to file an annual return or notice with the IRS, they are not subject to automatic revocation of exemption for failure to file.
If you are a business, or a non-profit, it is typical to first hire a lawyer and file before launching operationally. It is the opposite with churches, because you are not required to file, it is most typical that churches are launched and operate for a period of time as it grows and develops before any filings may occur.
As long as you are following the IRS guidelines for how a church is to operate, you are considered a church by the IRS without filing.
Before diving into why people file and how to file, it is important to note that you cannot just “hire a lawyer to do it” as the filing is long, arduous, and based on your behaviors and beliefs as a spiritual leader and congregation, which a lawyer cannot contrive or comprehensively do for you. I have yet to meet a lawyer who actually knew how to comprehensively file a church entity correctly (and I looked everywhere).
Please do not make the same mistake I did and waste thousands of dollars on lawyers and paralegals who cannot actually help you and end up making costly mistakes (even though they say they are able and will happily charge you lots of money).
If you know a lawyer or paralegal, who is telling you that you can "hire them to make you a church" please note that the veracity of that statement is extremely questionable. I made the mistake of hiring lawyers and paralegals who led me astray and led to expensive and incorrect filings and mistakes. If you have further questions about this, I am happy to chat.
So, back to it - if you started a church (according to the IRS standards below), your organization is by default a tax-exempt organization without filing.
So why do people file then?
Without filing you will not be able to get an EIN, which (1) allows you to prove tax-exempt status with your local county, in order to not pay or reduce taxes on your owned and rented properties, and (2) to provide receipts to your donors so that they may ‘write-off’ their donations (over $250) to your church as tax-deductible when they go to file their income taxes.
If you do not file, you are still tax-exempt on the monies donated to the church from the congregation, but it will not be deductible by the donor.
Please note that different states, counties, and municipalities have different rules about filing with them. The information provided in this article is regarding the federal government, and specifically the IRS, which is the primary governing body that determines if an organization is a church or not in the eyes of the federal government. You will most likely need to file as a 501c3 religious organization in your state, as I did in California.
The federal government, specifically the IRS, has clear definitions and guidelines about how a church is defined and should ‘act’. All of this information is available through the IRS and in their latest publication: IRS Publication.
The top important points of this publication regarding being a church:
The IRS states that: “To qualify for tax-exempt status, the organization must meet the following requirements (covered in greater detail throughout the publication):
the organization must be organized and operated exclusively for religious, educational, scientific or other charitable purposes;
net earnings may not inure to the benefit of any private individual or shareholder;
no substantial part of its activity may be attempting to influence legislation;
the organization may not intervene in political campaigns; and
the organization’s purposes and activities may not be illegal or violate fundamental public policy.”
Additionally, a church must be started and operated by three founders who are not related by blood or marriage according to federal guidelines. State guidelines may be different although typically are the same or less stringent than IRS guidelines.
The IRS specifies what they are looking for in order to agree your organization is, in fact, a 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:
distinct legal existence;
recognized creed and form of worship;
definite and distinct ecclesiastical government;
formal code of doctrine and discipline;
distinct religious history;
membership not associated with any other church or denomination;
organization of ordained ministers;
ordained ministers selected after completing prescribed courses of study;
literature of its own;
established places of worship;
regular congregations;
regular religious services;
Sunday schools for the religious instruction of the young; and
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.”
What faith you say you are is considered nominal information - they seek to not discriminate based on your beliefs, rather they look specifically that you have beliefs defined and that they are practiced in a group consistently over time.
If you do decide to file, there is a time in which the filing must be completed (27 months). It took me a year and a half of tremendous work and expediting my application as well. I was told that they are about a year behind processing if the application is not expedited.
Many folks may decide to file in order to receive the benefits of reduced taxes on their leased and owned ceremonial properties, and/or because they want their donors to receive the tax-exemption status with their donations.
If you decide to file, please note that there is a difference between a "church" and "charitable organization." I filed a 1023 form (not the EZ), which is quite a substantial undertaking, in addition to all the state filings. There are fees involved with filing both at the State and Federal level. I paid around $1,000 for all the filings.
It is also important to note that any payment of monies given to clergy of the church is still considered taxable income for the clergy member unless it is reimbursement for an expense cost of the church. Individuals are not exempt from paying taxes on the payments given to them from a church. Additionally, see the section below to understand that if a church makes revenue like a business, that revenue is considered taxable by the IRS.
NOTE: if you are exploring filing with the DEA for an exemption for use of controlled substances for religious purposes, please note that there is currently no connection between the IRS and DEA and the IRS has denied applications that did not have DEA approval, even though there is currently no communication between the IRS and DEA on the issue of religious exemptions for controlled substances.
Locality Matters: Who is Enforcing What?
In historical cases in the USA, it has been local law enforcement that has intervened rather than the federal government on issues involving churches.
It is to my knowledge that the federal government still surveils for illegal activities and will hand over any evidence and plenty of resources to local jurisdictions to prosecute, but will not necessarily prosecute themself.
Because of the federally governing Constitution of the United States and the "right to religious freedom," the federal government does not want to intervene on issues of religion unless absolutely required to do so. With that said, local municipalities do not place as much weight, if any, on this and will happily enforce local laws on any organization - religious or otherwise - if laws are breached.
What I am pointing to is that in issues of 'business' and 'non-profit,' one needs to pay attention to the federal, state, and local, rules in order to ensure rules are followed and consequently no negative enforcement occurs. When it comes to issues of religion, enforcement typically occurs in the inverse: local, state, federal.
Local municipalities can and do shut down churches and/or enforce modifications of their operations (for example by using building code).
People of color communities understand selective enforcement of laws and policies. This is the basis for the "war on drugs" and is still deeply relevant today. It is also typically the local laws that unabashedly anchor discriminative policies on communities of color (red lining, stop and frisk, etc).
It is important to note that filing with the IRS, thus having a sense of ‘verification’ from the federal government does not necessarily mean that you are ‘protected’ from a form of enforcement if you are doing something considered breaching of the local and state laws.
For people working with Entheogens, this is why the locally-focused Decriminalize Nature movement has a big impact for folks working with controlled substances that grow naturally in nature while practicing their spiritual rituals.
If you are working with Plant Medicines, I recommend checking out all of the Chacruna Institutes thorough and comprehensive resources, especially Guide to RFRA and Best Practices for Psychedelic Plant Medicine Churches. San Francisco, CA: Chacruna Institute for Psychedelic Plant Medicines.
Churches have "Beliefs" and "Donations"
If you are a "church," and not a "non-profit" or "charitable organization," different rules apply to you. These are all different legal classifications that have different rules, policies, and procedures.
It is important if you are a duck, to quack like a duck, so everyone knows you are a duck and not a goose.
It is important to use the correct language in your operations and communications to ensure the government is not misunderstanding what you are doing.
Businesses and non-profits have Mission Statements and bring in Revenues, Churches have Belief Statements and receive Donations. Make sure you are operationalizing according to the IRS guidelines, using correlative language, so you can be understood in your intent.
IMPORTANT: If your church is viewed as doing ‘business’ with ‘transactions’ rather than having a 'congregation' that gives 'donations,' that money is viewed as taxable and is considered business activities and falls under the jurisdiction of commerce, not religious practice, and you are expected to pay taxes on 'revenue,' even if you are a church.
Examples include: renting your parking lot on days it is not used by your congregation, or setting up a coffee shop in your church, or selling books and materials, or having a ‘marketplace.’ These are considered taxable incomes according to the IRS.
Review the standards above from the IRS to understand the definition of a church.
Conclusion
It's important to understand and shape your church according to what will be expected to file, even if you do not file. It is important to know your local laws and enforcement patterns, and to use the correct language in your communications to ensure clarity.
If you would like me to consult you further, please fill out the Book a Consultation Form I am available for consultation, additional support, and education.
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