As an IRS e-File provider, every day we see nonprofits try to submit their Form 990-N, only to realize they have already lost their tax exempt status for failure to file for the past three years. We partnered with Foundation Group because we want to provide them with a trusted option that will help them continue achieving their mission. Foundation Group has successfully assisted hundred of nonprofits in regaining their tax-exempt status since the IRS started posting automatically revoked organizations in June of 2011.

The IRS states that since 2011, more than 450,000 nonprofits have lost their tax-exempt status due to failure to file a Form 990 for three consecutive years, but only about 30,000 have reinstated their tax-exempt status. The deadline to request reinstatement is 15 months after the issue of the IRS revocation letter and posting the organization’s name on the revocation list on the IRS website. This process can be complex, so it often requires the help of an experienced professional. Nonprofits may check to see if they have been automatically revoked by using the Select Check tool on the IRS website.

Aplos Software is an authorized IRS e-file provider and has assisted thousands of nonprofits to successfully file IRS Form 990-N and IRS Form 990-EZ. The IRS requires nonprofits to submit Form 990 annually to maintain tax-exempt status.

The deadline to submit Form 990 is the 15^th of the fifth month after the close of the organization’s tax year. For example, if an organization’s fiscal year ended December 31, 2012 and their new fiscal year starts January 1, 2013, then their filing deadline is May 15, 2013.

There are very few things that are simple or easy about church planting and budget planning isn’t one of them. Despite the tricky nature of planning a budget for an entity that has yet to exist, it is most certainly an essential task if one wants a fighting chance of succeeding.

The Framework

Developing your budget will likely be a collaborative effort between the lead pastor, church leaders, an accountant or even a church planting organization. By creating a budget that reflects your vision for the church, you all know your expectations, limits and goal to be good stewards of your resources.

Support

Budget planning and fundraising go hand in hand. Before you begin parsing out the details of your budget, you must round up support expectations. For example, you will receive support from a core group of attendees, new attendees, special gifts, and special occasions, etc. You will have supporters who can make one-time gifts, large and small, and others who can contribute on an ongoing basis. In addition, you may find support from a parent church or other churches in your area.

In addition to your support expectations, you will also outline your expenses. Church plants have expenses that generally fall into the following categories.

Staffing

How many staff will you hire? Will they be fully supported or will they need to augment their salary somehow? Will you hire a full staff immediately or hire more as you go along?  Staffing costs are ongoing.

Facilities

Most new church plants don’t have their own worship facilities or office space. It is common for new church plants to rent space for worship, like movie theaters, schools, or community centers. Common facilities costs are facility rent, office rent, and utilities. Facilities costs are ongoing.

Equipment

While equipment costs are not necessarily ongoing, it’s not an insignificant cost. Some examples of equipment purchases are office equipment, portable sound system, portable lighting system, projectors, bibles, paper supplies, carts and cabinets, and a trailer for storage.

Outreach

Outreach expenses should start at the beginning and continue on with the life of the church. Outreach could be short-term and short-reaching, or long-term and long-reaching. Examples of outreach expenses are mission giving, community events, and community programs and services. Outreach is an ongoing cost.

Operations

The new church plant consumes. Ongoing operating expenses may include things like office supplies, leadership development, and insurance. Operation costs are ongoing.

You can find a helpful free budget tool, sample budgets and more tips at www.freechurchaccounting.com

The Start of Good Stewardship

Once you create your budget, remember that good stewardship really starts with good accounting and internal controls. Set up an accounting software that is simple and easy to use and a protocol to control all money coming in and going out of the organization that has multiple financially-minded individuals reviewing the records. I recommend Aplos Software’s church accounting software, which is specifically designed with new churches in mind and includes a Budgeting app. Plus, Aplos offers new churches 6 months for free, so there is really no reason not to give it a try.

Remember, budgets help your leaders and members understand the vision and expectations. Plus, the transparency and accountability of good stewardship will improve the trust your membership has in the financial stability and integrity of the new church.

According to the IRS, a church, or a body of believers, is exempt from taxation by the federal government. It is because of their special protected status that churches have the potential to influence their community and beyond in ways that the government can’t.

What is 501(c)(3) Exemption Status?

In short, if an organization, including churches, receives 501(c)(3) exemption status from the IRS it is recognition that they are exempt from federal income and property taxes. In addition, donors who make charitable contributions to 501(c)(3) organizations may deduct the contribution amount from their taxable income.

According to the IRS, “Churches that meet the requirements of IRC section 501(c)(3) are automatically considered tax exempt and are not required to apply for and obtain recognition of tax-exempt status from the IRS.” So it isn’t required for your church to apply for 501(c)(3) in order to be tax exempt.

Keep in mind, Churches may lobby for legislation or ballot initiatives, but they are prohibited from showing support for political candidates. If a church is shown to be in violation of this restriction, they risk losing their exempt status. What most people don’t realize is that churches and non-profits exist under this definition whether or not they have officially received 501c3 status from the IRS.

So, Why Get the Status?

While 501(c)(3) status is not a necessity for churches, it does have benefits.

1. The IRS recognition gives added assurance to church leaders, members, and contributors that the church is recognized as exempt and their contributions generally are tax-deductible.
2. 501(c)(3) status enhances an organization’s financial transparency. Maintaining your status requires that informational tax returns be filed on an annual basis and this information is available to the public on GuideStar. As a result, potential donors are able to gain an essential understanding of the organization and determine whether or not he/she would like to make a charitable contribution. If your church administers a lot of charitable missions and services, this transparency has the potential to be highly beneficial.

How to Apply for 501(c)(3) Status?

To find out about applying for an IRS 501(c)(3) exemption status, the IRS provides a Tax Guide for Churches and Religious Organizations (PDF).

Generally speaking, there are three steps to gaining 501(c)(3) exemption status:

1. Obtain an Employer Identification Number (EIN): You can request an EIN from the IRS by filing Form SS-4 (PDF). (An organization will need an EIN whether or not they have employees.)
2. File the IRS Form 1023 (PDF): Submit this and a filing fee (amount determined by the average yearly gross receipts).
3. Receive IRS approval: Your church will be issued a determination letter that says the IRS recognizes your church as having exempt status.

Many organizations find it beneficial to hire an attorney to help them through this process.

Conclusion:

The fact is your church is already exempt from federal taxation and your members are making donations that they may deduct from their taxable income. However, if your church administers many charitable missions and services, it might benefit from the financial transparency that comes with 501(c)(3) exemption status.