Category Archives: Exemptions

What is Religious Exemption?

There is an old joke about an IRS auditor who calls a clergyman to confirm a large donation from a parishioner and asks, “Did Mr. Thompson donate $10,000?” The clergyman thinks a moment and replies with a smile, “He certainly will!”

The interesting thing is that while that donation is tax-deductible for Mr. Thompson, like other nonprofit organizations, the church doesn’t have to pay taxes on it, but unlike other charities, it has even less responsibility for reporting it.

So, what is religious exemption? For charities this is a big question because exemption can mean tax exemption, exemption from financial reporting, and exemption from state charitable solicitation registration in many cases.

Let’s talk about tax exemption and exemption from financial reporting to break it all up. Later we will get into religious exemption from charity registration.

Why is there a special classification for religion?

Churches are protected from government interference by the First Amendment to the Constitution. Therefore, the degree to which an organization is associated with the direct practice of religion determines their level of accountability (reporting) to the IRS and subsequently to the states.

The IRS categorizes religious charities accordingly: churches, their integrated auxiliaries, religious organizations, and other. Each type as defined by the IRS determines what level of reporting they need to do. In general, churches and their integrated auxiliaries (per the IRS) are treated differently from “religious organizations” as follows:

  1. “Church” (used as an overarching term to indicate any similar place of worship, such as a synagogue or mosque) – The IRS gives 14 attributes of a church, primarily among which is being a legally recognized organization and having a congregation and an ordained clergy (see the IRS Tax Guide for Religious Organizations Glossary);
  2. “Integrated auxiliary” is a 501(c)(3) nonprofit and public charity that is associated with a church or denomination and is internally funded, though missionary groups and youth groups do not usually need to meet this last criteria. Churches and Integrated Auxiliaries (including the definition of a missionary group) are further defined in the Code of Federal Regulations, 26 CFR Section 1.6033-2(g) & 2(h);
  3. “Religious organizations” — according to the IRS, these can include nondenominational ministries, interdenominational and ecumenical (encompassing multiple Christian faiths) organizations, and groups whose purpose is for the study or advancement of religion; and
  4. Other — If the activity of the organization is primarily secular in function when performed by other groups, the charity may not fit in the religious exemption. 7.26.2.2.1 (03-30-1999)

The biggest difference is that because of the need for the separation between church and state, churches and their integrated auxiliaries don’t have to file a Form 990, while religious organizations do. The other end of that separation is that religious organizations can do some, not substantial, issue based lobbying while churches cannot. Page 10 of the IRS Webinar on Churches and Religious Organizations: Do’s and Don’ts has a chart to help you see where you might fit by what is required of you.

It is important to know where your organization falls on this spectrum to know what is required of you at the federal level. Next, we will delve into how it affects state compliance.

This information is not intended as legal advice or instruction.

State Charity Registration Exemptions

You have started your nonprofit and you have applied to the IRS for a federal exemption, but wait, that does not mean you are exempt from filing state taxes, paying local sales taxes or registering your charity in each state.  Approximately 40 states require you to file a state charity registration application, several require you to apply for a corporate license and some you will need state tax exemptions.

These application processes are completely different than Federal tax exemption.  The state charity registration is your organization notifying the state that you will be soliciting its residents for donations.  The application that you provide to them is there way of assuring transparency to their citizens.   Looking for an exemption from filing a state charity registration application? Well, good luck!!  Those laws have more loop holes than an amusement park.

One hundred percent of all states offer some type of exemption but qualifying for that exemption and keeping it is a different story. Each state law has its own definitions and requirements for those exemptions. Some states only require an initial letter notifying them that your organization believes it is exempt while others require you to file an application for approval to the state charity office and a few require annual notifications.  In those states the fees are reduced for the exemption not the required paperwork.

Here are some common state exemptions:

Revenue <$25,000 (can vary from $5,000 to $50,000)

Religious Organizations or their affiliated groups

Educational Institutions or their supporting groups

Membership Organizations – Fraternal, Social, alumni, or professional

Veteran’s Organizations including Police, Fire and Rescue Groups

Political Party or Candidates for Office

Donations for a Specified Individual

Hospitals

Some other not so common state exemptions:

Childcare Providers

Adoption Agencies

Clinics

Boys and Girls Clubs

Less than 10, 35 or 100 Donors per Year

As noted before, and will be discussed in our next post on the common exemptions, each of these exemptions have their own requirements designated by the state where you are soliciting donations.  They are not only determined by the state where you are physically located but in each state where you are soliciting donations.  You may be exempt in your home state but not in others; as well as your organization could be exempt in foreign states but not your state of origination.

If you have any comments, questions or concerns, please contact us at 800-780-6027 or support@simplecharityregistration.com for more detailed answers.

 

Religious Exemption from Charity Registration – Do You Qualify?

What Does Religious Exemption Mean Regarding State Compliance?

Our blog on religious exemption at the federal level started with a joke, so here we go again (sort of).

A few years ago, the show How I Met Your Mother had a running gag that Canadians were afraid of the dark. After the lights go out in a Canadian expat bar in New York and everyone complains, the exasperated and defeated Canadian on the show asserted, “Nobody likes the dark.”

And so it goes with state compliance for charities. It is fair to say that, “Nobody likes state charitable solicitation registration.” Those who have the slightest inclination that they might be exempt are eager to find that they are, but some exemption criteria are hard to understand from state to state. Religious exemption is primary among those because state definitions vary.

So, how do you tell if you’re exempt from state charitable solicitation registration?

  1. Churches and their integrated auxiliaries – In nearly every state, if not all, churches and their integrated auxiliaries are exempted from charitable solicitation registration, either by:
    1. not being included in the definition for charitable organization
      1. (ex. Mississippi for churches; Pennsylvania), or
    2. by being given a direct exemption because no 990 is required by IRS
      1. (ex. Alaska, Colorado, Minnesota)
  2. Religious organizations required to file a 990 will need to
    1. file in some states
      1. (ex. Alaska, Virginia, West Virginia); and
    2. will be exempt in others
      1. (ex. Connecticut, Rhode Island, Utah).

You may find the summary of religious exemptions provided by the National Council of Nonprofits to be helpful for you.

In addition, if you open a free, no-obligation account on Simple Charity Registration, you will find the exact wording of the state exemption questions and links to where you can find the legal definitions to assist you. Plus, if you determine that you must register or that you need to apply for exemption, or write to the state to get confirmation that you are exempt, you can proceed to do so using our 4 Simple Steps to Compliance.

We can show you that you no longer need to be afraid of the dark!

Please contact us with any comments, questions or concerns at (800)780-6027 or support@SimpleCharityRegstration.com.

This information is not intended as legal advice or instruction.