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Churches are 501(c)(3) nonprofits, too

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When callers to the Mississippi Center for Nonprofits ask how many nonprofit organizations there are in Mississippi, I usually give the number recorded by the Internal Revenue Service, which exceeds 5,000 501(c)(3) organizations. (These are the organizations which are able to receive tax-deductible charitable contributions.)

In one respect, this number is overstated because it includes many small organizations and multiple chapters of the same organization (such as hundreds of chapters of Future Farmers of America or Phi Theta Kappa). There are only about 1,200 organizations with distinct identities or with budgets over $25,000 per year. But in another respect, these numbers are understated because they do not include thousands of churches, which also qualify as 501(c)(3) nonprofit organizations.

Yes, churches are nonprofits under the same section of the Internal Revenue Code as all other charitable organizations, even though many people speak of churches and nonprofits as separate categories. The difference is that churches (or other legitimate religious congregations) are exempt from almost all of the filing and reporting requirements that apply to other nonprofits. For example, nonprofits generally must file the Form 1023 with the IRS to seek tax exemption, but churches are automatically exempt without filing, which is why they are not in the IRS records. Each year, most nonprofits must file the IRS Form 990 annually to report on their programs and finances, in addition to charitable registration forms with the Secretary of State’s Office if they raise funds in Mississippi, and an independent audit if they raise more than $100,000 per year. None of these requirements apply to churches.

The underlying reason for this difference is the principle of separation of church and state, which grows out of the First Amendment to the Constitution, even though it is not explicitly stated there. I must say that when some religious leaders are critical of the idea of separation of church and state, I often think, “Be careful what you ask for!” Churches are without a doubt the most free and least regulated institutions in our society.

Still, churches are part of the nonprofit sector, and a very important part, too. Churches receive almost as much in tax-deductible charitable contributions as all other types of nonprofits combined, and in many small communities they are the only nonprofit organizations that exist. In addition to being places where people can live out their faith, churches sometimes provide a range of social services from day care to full-service community centers.

Partly in recognition of these services, there has been much political discussion of making federal funding more available to faith-based organizations, including churches with social programs. One of the challenges is the freedom from regulation that churches now enjoy. There is no way that federal dollars will come without financial reporting required, and not all churches would be prepared for this. While many churches are very well run, there are others with abysmal financial records, and there is no external accountability to catch problems.

Even though they qualify as 501(c)(3) nonprofits themselves, some churches choose to protect their own freedom from reporting while carrying out programs which may be eligible for government or other outside funds by setting up a separate 501(c)(3) organization for these programs. There is some cost in doing so, and the tradeoffs must be evaluated in each case. Whether to set up social ministries as separate nonprofits is one of the most common questions we get at the Mississippi Center for Nonprofits.

Either way, churches and faith-based programs face many of the same issues in financial management, governance, volunteer management and organizational development that other nonprofits do. Churches and other religious congregations are often left out of discussions about the nonprofit sector or nonprofit management, because they are invisible in databases and statistics based on government reporting requirements. But churches are nonprofits, too, and they should be included in any discussions about the scope or role of the nonprofit sector.

When callers to the Mississippi Center for Nonprofits ask how many nonprofit organizations there are in Mississippi, I usually give the number recorded by the Internal Revenue Service, which exceeds 5,000 501(c)(3) organizations. (These are the organizations which are able to receive tax-deductible charitable contributions.)

In one respect, this number is overstated because it includes many small organizations and multiple chapters of the same organization (such as hundreds of chapters of Future Farmers of America or Phi Theta Kappa). There are only about 1,200 organizations with distinct identities or with budgets over $25,000 per year. But in another respect, these numbers are understated because they do not include thousands of churches, which also qualify as 501(c)(3) nonprofit organizations.

Yes, churches are nonprofits under the same section of the Internal Revenue Code as all other charitable organizations, even though many people speak of churches and nonprofits as separate categories. The difference is that churches (or other legitimate religious congregations) are exempt from almost all of the filing and reporting requirements that apply to other nonprofits. For example, nonprofits generally must file the Form 1023 with the IRS to seek tax exemption, but churches are automatically exempt without filing, which is why they are not in the IRS records. Each year, most nonprofits must file the IRS Form 990 annually to report on their programs and finances, in addition to charitable registration forms with the Secretary of State’s Office if they raise funds in Mississippi, and an independent audit if they raise more than $100,000 per year. None of these requirements apply to churches.

The underlying reason for this difference is the principle of separation of church and state, which grows out of the First Amendment to the Constitution, even though it is not explicitly stated there. I must say that when some religious leaders are critical of the idea of separation of church and state, I often think, “Be careful what you ask for!” Churches are without a doubt the most free and least regulated institutions in our society.

Still, churches are part of the nonprofit sector, and a very important part, too. Churches receive almost as much in tax-deductible charitable contributions as all other types of nonprofits combined, and in many small communities they are the only nonprofit organizations that exist. In addition to being places where people can live out their faith, churches sometimes provide a range of social services from day care to full-service community centers.

Partly in recognition of these services, there has been much political discussion of making federal funding more available to faith-based organizations, including churches with social programs. One of the challenges is the freedom from regulation that churches now enjoy. There is no way that federal dollars will come without financial reporting required, and not all churches would be prepared for this. While many churches are very well run, there are others with abysmal financial records, and there is no external accountability to catch problems.

Even though they qualify as 501(c)(3) nonprofits themselves, some churches choose to protect their own freedom from reporting while carrying out programs which may be eligible for government or other outside funds by setting up a separate 501(c)(3) organization for these programs. There is some cost in doing so, and the tradeoffs must be evaluated in each case. Whether to set up social ministries as separate nonprofits is one of the most common questions we get at the Mississippi Center for Nonprofits.

Either way, chur

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