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What is the difference between 501(c)(3) and 508(c)(1)(A)?

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What is the difference between 501(c)(3) and 508(c)(1)(A)?

What is the difference between 501(c)(3) and 508(c)(1)(A)?

Section 501(c)(3) of the Tax Code is the section that describes charitable organizations that are exempt from paying federal income tax, including churches.  Section 508 of the Code, which is entitled "Special rules with respect to section 501(c)(3) organizations," requires any organization created after October 9, 1969 that seeks 501(c)(3) charitable exemption to notify the Internal Revenue Service and apply to obtain an official recognition, but exempts those organizations described in Section 508(c) from the filing requirement. 

Section 508(c)(1)(A) exempts churches, their integrated auxiliaries, and conventions or associations of churches, while subsection (B) exempts charities that are not private foundations and normally have gross receipts of not more than $5000 a year.  Basically everybody who wants 501(c)(3) status, except churches, has to file a Form 1023 or 1023-EZ to be recognized as a 501(c)(3) charity by the IRS.

The religious organizations mentioned in (A) are also exempt from filing an annual Form 990 series tax information return.  The small nonprofits that don’t have to file for recognition of exemption under 508(c)(1)(B) nevertheless have to file a tax information return, normally the Form 990-N electronic postcard.  They will automatically lose their exempt status (even though the IRS may not know that they exist) if they fail to file for three consecutive years.

Tuesday, February 2, 2021


I have been looking into options that churches have in maintaining a tax exempt status other than 501(c)(3). I read that a church can file under 508(c)(1)(A), but am not able to find any information about it on the IRS website. I am looking for something with less governmental control. 

     There is no exempt status for a church other than section 501(c)(3).  As pointed out in the answer to the original question, churches are exempt under section 501(c)(3).  Section 508 does not grant exempt status.  It merely says that organizations that qualify as churches under section 501(c)(3) don't have to file with the IRS to obtain that status.    —Don Kramer


Thank you for your service.

Most of us are not lawyers, and certainly not tax lawyers. While the text above talks about 501(c)(3) and 508(c)(1)(A) differences, it does not seem to clarify the situation. There are websites out there, and purported churches and ministries, which declare themselves as a 508(c)(1)(A) nonprofits, and enable others to become one as well. The legality of a 508 church claiming nonprofit status while not seeking a 501(c)(3) to obtain official status appears at best murky and at worst illegal or shady. Are donations to a 508(c)(1)(A) church legally recognized as tax-deductible by donors the same as they would be for a 501(c)(3) church? If yes, it seems there is also a condition that the 508(c)(1)(A) church fulfills all the requirements of a 501(c)(3) church organization, even if not apply for that status. Why form under a 501(c)(3) church exempt status if you get all the benefits and less headaches (filing requirements) with a 508(c)(1)(A) church organization?

     You have put your finger on one of the things that I believe those selling the idea of 508(c)(1)(A) churches generally fail to point out.  To qualify to use 508(c)(1)(A), you have to be meet the requirements of 501(c)(3), just as any other charity.   The entity must meet the IRS definition of a church, must be both organized and operated exclsively for religious purposes, there can be no private benefit or inurement to the insiders, it may not participate in election campaigns and it may not do more than an insubstantial amount of lobbying.  Section 508(c) removes the requirement to file to obtain exemption, but not the requirements to meet the definition of a church and function like every other 501(c)(3).  If the IRS investigates and finds that the organization does not meet the 501(c)(3) standards, it can deny the tax exempt status, including retroactive denial.

For a donor, contributions would ordinarily be deductible so long as the donor doesn't have reason to know that the recipient does not qualify under 501(c)(3). But an IRS auditor of a personal tax return might not readily grant a deduction to an organization that is not listed as a church with the IRS.  The auditor could ask the donor to prove that the organization qualifies as a church.  Since most taxpayers don't itemize the charitable contributions these days and since there aren't many audits of those who do, this may not be a serious problem, but the deduction would be more problematic than one to a reognized organization.    —Don Kramer

So I have done a ton of research and work in this area. Point blank, all churches/religious organizations are automatically tax exempt under the tax code 501(c)(3) without having to file a 1023. Even the IRS recognizes this on their website. Section 508(c)(1)(a) merely codifies the right of religious orgs/churches not to have to file a 1023 but still be tax exempt under 501(c)(3). It doesn't create any new type of entity as suggested by many. It merely codifies the right of churches to be automatically tax exempt, under 501(c)(3). As such, all religious orgs, once filed with the state of domicile, are 501(c)(3) tax exempt organizations. At that point, the only thing needed to do is to notify the IRS, per the EIN filing, that you are claiming to be a tax exempt religious organization. At that point, donors use the EIN to reference tax write offs. Many may ask, well how is it that Churches are automatically tax exempt under the Code? Well it's because the right of religious practitioners and churches to collect tax free donations and tithes is so closely married to the right to free exercise, that interjecting an executive branch agency like the IRS between religious practitioners/churches and their ability to collect tax free tithes and donations would constitute an impermissible prior restraint on First Amendment (free exercise) rights. In this country, the Courts are the arbiters of religious freedom, not the IRS, or any other executive governmental agency not specifically granted such authority, and per the Johnson Amendment to the tax code (i.e. 508(c)(1)(a)), the IRS has been robbed of any discretion over the tax exempt status of religious practitioners. Now it must be noted that the IRS's position, with which some federal circuits agree, that even though you don't have to file a 501(c)(3) application, they otherwise have to "comply with the provisions of 501(c)(3)." Exactly what is meant by this is not well defined. I always recommend that Churches put the correct 501(c)(3) language in their state filing (purpose, no political activity, distribution of assets, etc.) and also to have a good conflict of interest provision in their bylaws. In my view, that is, at the most, all that is needed to "otherwise comply with 501(c)(3)." As it relates to the way that the IRS determines whether an entity is "religious" or a "church," I don't think that could constitutionally be included in the "otherwise comply" analysis. The IRS's definition of religion or church is much different that the Court's definition. As such, to the extent that the IRS definition limits the definition, it is unconstitutional. Again, the right to collect tax free donations and tithes is commensurate with the right to free exercise. At the end of the day folks, if you are a Church or a religion, you always have the federal Religious Freedom and Restoration Act which states that the government has to show a "compelling interest" in order to substantially burden a sincere religious exercise (like collecting tax free tithes and donations). To the extent that the IRS, by and through its ultra strict religion analysis, substantially burdens a practitioners sincere religious (as defined by the Courts) exercise, then those claimants would be exempt from such requirements of the tax code (meaning you don't have to meet the ultra-strict) religion test as espoused by the IRS, and would be declared tax exempt by the Court. Moreover, such a claimant could personally sue any IRS agents involved, personally, for money damages, per the U.S. Supreme Court's decision in Tanzin. Lastly, and I don't have the citation here, I will supplement when I find if I can, there is a specific federal law on point which protects, to a large degree anyways, churches and religious orgs from IRS audit and/or inquiry. They are able to conduct them, but under this law, they have to undergo a very arduous procedure and the statute only leaves the authority to initiate these proceedings with only a handful of top IRS agents in the country. So always keep this in mind and always assert your rights, at all times. I hope this lengthy response helps someone. I'm an attorney who has been working with entheogen-based religious groups for over three years now so this has been something I've had to dig deep on. But if I could stress a few things it would be that churches/religious orgs are automatically tax exempt under 501(c)(3), 508(c)(1)(a) doesn't create any new type of entity, tax exempt status UNDER 501(c)(3) is a constitutional right for all religious orgs/churches, best practice is to include the proper 501(c)(3) provisions in formation docs and always include a conflict of interest provision in any bylaws, and there are strong federal statutes such as RFRA that protect religious practitioners from being substantially burdened. Much Love!!!!!

Thanks for this thoughtful and comprehensive discussion of the issues.  I fully agree that section 508(c)(1)(A) does not create a new type of entity and merely confirms that a 501(c)(3) "church" does not have to file for official recognition of its status from the IRS.

I would caution readers, however, from thinking this applies to a broad base of "religious organizations."  The statute says it applies only to "churches, their integrated auxiliaries and conventions or associations of churches," a set of entities that is substantially narrower than "religious organizations."  It clearly does not apply to faith-based social service organizations, for example, if they are not an integral part of the church religious structure.

The comment questions what type of 501(c)(3) restrictions will still be applied to churches.  The excess benefit tax provisions were enacted in large part because of the perception of excessive compensation of some of the "televangelists" of the 1970s and 1980s, so the IRS would have an interest in excessive compensation of church officials today as an excess benefit subject to excess benefit taxes.  It clearly takes the posiiton that churches may not engage in electioneering and has frequently revoked exempt status for churches who have supported or opposed candidates for office.  It would also seek to tax unrelated business taxable income if it knew a church was engaged in unrelated business activity.

The writer says he has been working with entheogen-based religious groups that have a constitutional right to church exemption.  The IRS has certainly disagreed with the classification for some churches that have based their religious practices on use of illegal drugs in their religious practices.  The Constitutional rights and protections under the Religious Freedom Restoration Act for such organizations may not be as clear as the writer suggests.  —Don Kramer


It seems to me the marketing of the 508(c)(1)(A) as a less restrictive status as a non-profit, specifically a church, is just that, "marketing" to allow someone to set up your FBO under that IRC section. Though, I have not found a method to register a nonprofit under IRC 508(c)(1)(A). Is it even possible?

There is no way to register under section 508(c)(1)(A).  As we have said, it is only a section that says a 501(c)(3) church does not have to register.  I agree that a lot of the literature is just marketing and not substantively correct.  —Don Kramer

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