faith_based_organizations

What is the Difference between a Church and a Religious Organization?

The legal line of demarcation between a church[1] and a religious or faith-based organization is not always clear. However, the distinction is important, as churches are exempt from certain legal requirements that otherwise may broadly apply to religious organizations.

Due to Constitutional concerns the term “church” may be found, but is not defined, in the Internal Revenue Code (IRC). To determine whether a religious organization is a church for federal tax purposes, the IRS reviews a set of fourteen (14) characteristics, together with any other relevant facts and circumstances, including whether the organization has an established place of worship, a congregation, and regular religious services.[2]  No single characteristic is controlling nor is there a particular number of characteristics that will guarantee that the organization is a “true” church.

The subjective nature of the IRS’s “facts and circumstances” test for distinguishing churches from other religious organizations makes it challenging to draw a definitive line between churches and religious organizations for federal tax purposes. That said, religious organizations that are not churches generally are not places where a congregation regularly worships and attends religious services. Instead, they may be non-denominational ministries organized to study or advance religion or organizations with a mission that stems from a religious text or sincerely held and deeply-rooted religious belief.

The following is a discussion of several federal and state laws that provide different treatment to churches when compared to the broader category of religious or faith-based organizations.

Recognition of Federal Tax-Exempt Status

In order to be exempt from federal income tax, religious organizations and churches must be organized and operated exclusively for religious purposes and comply with the IRC’s prohibition on private inurement and political campaign activity as well as its limitation on lobbying activities.

Religious organizations must submit an application for recognition of exemption (Form 1023) to the IRS.

Churches, on the other hand, are automatically recognized as exempt and are not required to submit an application to the IRS. Even so, some churches choose to apply since an IRS determination letter can make it easier to apply for exemptions from state taxes or registration requirements and provide assurance to donors that contributions to the church are tax-deductible.

Lobbying and the 501(h) Election

An organization, including a religious organization or a church, may not qualify for exemption from federal income tax if a substantial part of its activities is attempting to influence legislation (i.e., lobbying).  Generally, whether an organization’s attempts to influence legislation constitute a substantial part of its activities (and therefore jeopardizes its tax-exempt status) is determined by a “facts and circumstances” test, by which the IRS considers a number of factors including the time and expenditures devoted to lobbying (“the substantial part test”).

Religious organizations have the option to elect the “expenditure test” rather than the substantial part test. Under the expenditure test, the extent of a religious organization’s lobbying activity won’t jeopardize its tax-exempt status, provided its expenditures, related to the activity, do not normally exceed an amount specified in IRC Section 4911. Ultimately, the expenditure test provides more clarity regarding how much lobbying an organization is permitted to engage in before jeopardizing its tax-exempt status. Churches, by contrast, are not eligible to elect the expenditure test. 

Annual Information Return

Religious organizations must file an annual information return (Form 990, Form 990-EZ or Form 990-N e-Postcard) with the IRS providing information to the IRS and to the public about the organization’s finances and activities for the year.[3] Churches are exempt from this requirement[4] though some churches choose to file an annual information return in order to increase transparency.

Federal and State Unemployment Tax

Churches and religious organizations are not required to pay federal unemployment taxes because services provided to 501(c)(3) organizations are generally exempt from the definition of “employment” under the Federal Unemployment Tax Act.[5] States collect unemployment insurance tax under their own unemployment tax acts and the requirements to file vary by state. Some religious organizations may be required to pay state unemployment tax, whereas, churches are generally exempt from paying state unemployment tax. Some churches voluntarily elect to pay such taxes so that employees terminated without good cause will be eligible to collect unemployment benefits.

Social Security & Medicare Taxes

Churches and religious organizations are generally required to collect, pay and report employment taxes under the Federal Insurance Compensation Act (FICA) for their employees. A church that opposes payment of Social Security and Medicare taxes for religious reasons can elect exemption from the payment of the employer’s share of FICA taxes by filing Form 8274. The church must file Form 8274 before the first date on which the church is required to file its first quarterly employment tax return (Form 941). If the church so elects, employees will, like ministers, be responsible to pay Social Security and Medicare taxes on their salary under the Self-Employment Contributions Act (SECA).

Ministers[6] are subject to unique rules when it comes to employment taxes. Although a minister is considered an employee under the common law rules, payments for services as a minister are considered income from self-employment.[7] Therefore, a minister, unless exempt, pays social security and Medicare taxes on his salary and housing allowance under SECA and is not subject to FICA taxes or income tax withholding. SECA employment tax payments are typically made in quarterly estimates, using coupons or vouchers. Churches are not permitted to pay the SECA tax for their ministers, but many churches assist ministers by providing them a “Social Security Allowance” of at least 50% of the SECA tax. This allowance is often approximately equal to the amount of FICA tax a church would pay if the minister were treated as an employee for purposes of employment taxes.

IRS Audits

In general, the IRS is authorized to conduct examinations of tax-exempt organizations, including religious organizations, in order to ascertain whether they are in compliance with all applicable requirements of the IRC. However, the authority of the IRS to audit churches is restricted. It is important to note that these restrictions do not apply to integrated auxiliaries of churches. The IRS may only initiate a church examination if an appropriate high-level Treasury Department official reasonably believes, based on a written statement of the facts and circumstances, that the church, (1) may not qualify for federal tax-exemption, or (2), may not be paying tax on an unrelated business or other taxable activity. This restriction does not apply to all inquiries or examinations. For example, the IRS can still make a routine request for information. In addition, restrictions on church inquiries do not apply to criminal investigations or investigations of the tax liability of a person connected with the church (such as a donor or minister).

Affordable Care Act

Generally, religious organizations and churches are subject to the provisions of the Affordable Care Act. However, churches and religious organizations with a sincere religious objection to establishing or maintaining a health insurance plan that provides coverage for contraceptive services are exempt from the Affordable Care Act’s mandate that employers provide access to health insurance to employees that covers women’s preventative services.[8] 

State Taxes and Registration Requirements

Generally, churches are subject to the same rules for state property tax and sales and use tax as religious organizations. Many states exempt churches and religious organizations from payment of property tax on land owned by the organization and used for religious purposes. Whether this exemption is available and the requirements for eligibility vary by a state. For example, in New York real property owned by a nonprofit corporation organized or conducted exclusively for religious purposes and used exclusively for carrying out the organization’s religious purpose is wholly exempt from taxation and, for certain purposes, from special ad valorem taxes.[9]

In addition, some states have broad sales and use tax exemptions applicable to churches and religious organizations. For example, in New York, organizations established and operated exclusively for religious purposes are exempt from sales and use tax.[10] Other states, however, only exempt certain purchases or sales made by churches or religious organizations. For example, Mississippi requires churches and religious organizations to collect and pay tax on purchases and sales except on purchases of electricity, gases, other fuels and potable water used on property primarily used for religious or educational purposes.[11]

Finally, some states have a broad exemption from the requirement to register to solicit charitable contributions for churches and religious organizations while others only exempt churches and their integrated auxiliaries. For example, New York exempts all corporations organized under the Religious Corporations Law, other religious organizations, and charities and organizations operated, supervised, or controlled by or in connection with a religious organization.[12] By contrast, West Virginia exempts only churches, synagogues, associations or conventions of churches, religious orders or religious organizations that are an integral part of a church which qualify as tax exempt under IRC 501(c)(3) and are exempt from filing an annual information return with the IRS.[13]


[1] “Church” includes similar institutions of all faiths, including temples, mosques, synagogues, etc. Also, unless otherwise stated, for purposes of this article, “church” includes “integrated auxiliaries” and a “conventions or associations of churches.” An “integrated auxiliary” of a church is a public charity affiliated with a church and that receives financial support primarily from internal church sources as opposed to public or government sources. Common examples are men’s and women’s organizations, seminaries, mission societies and youth groups.

[2] The full list of characteristics includes (1) a distinct legal existence; (2) a recognized creed and form of worship; (3) a definite and distinct ecclesiastical government; (4) a formal code of doctrine and discipline; (5) a distinct religious history; (6) a membership not associated with any other church or denomination; (7) ordained ministers ministering to its congregation; (8) ordained ministers selected after completing prescribed studies; (9) a literature of its own; (10) established places of worship; (11) regular congregations; (12) regular religious services; (13) schools for the preparation of its ministers; (14) and schools for the religious instruction of the young. The organization must demonstrate that, on balance, it has the characteristics of a church. In making its determination, the IRS does not evaluate the content of a church’s professed beliefs as long as those beliefs are sincerely held and not illegal or against public policy.

[3] 26 U.S.C. 6033(a)(1).

[4] 26 U.S.C. 6033(a)(3)(A)(i).

[5] 26 U.S.C. 3306(c)(8).

[6] This term includes members of clergy of all religions and denominations (e.g., priests, rabbis, imams, etc.).

[7] 26 U.S.C. 1402(c), 3121(b)(8)

[8] 82 Fed. Reg. 47812 (2017). See also, Little Sisters of the Poor Saints Peter Saints Peter and Paul Home v. Pennsylvania, Doc. No. 19-431 (U.S. July 8, 2020) (court held the Departments of Health and Human Services, Labor, and the Treasury had the authority under the ACA to promulgate the religious and moral exemptions, and they promulgated those exemptions consistent with the manner required under the Administrative Procedure Act).

[9] RPTL §420-A.

[10] N.Y. Tax Law §1116(a)(4).

[11] Miss. Code Ann. §27-65-19(1)(a)(ii).

[12] N.Y. Executive Law §172-a(1).

[13] W. Va. Code, § 29-19-6(5).

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Our clients are diverse nonprofit organizations with a broad range of missions, as well as for-profit companies in evolving areas such as social enterprise, corporate philanthropy, joint ventures, technology-driven fundraising, and impact investing.

A.B. Data
AB InBev Foundation
Absolut Company
American Committee for the Weizmann Institute of Science
American Diabetes Association
American Friends of the Hebrew University
American Parkinson Disease Association
Association of Fundraising Professionals
Avalon Consulting
Baton Rouge Area Foundation
Black Lives Matter Global Network Foundation
Bleeding Blue for Good Fund
Bradley Cooper’s One Family Foundation
BrightFocus Foundation
Brooks Brothers
Chadwick Boseman Foundation for the Arts
Changing Our World
Charity Defense Council
Christian Appalachian Project
Doctors of the World/ Medecins du Monde
Doctors Without Borders/ Medecins San Frontieres
Drug Policy Alliance
Duke University
Emory University
Estee Lauder Companies, Inc.
Feed The Children
Food For The Poor
Gerald R. Ford Presidential Foundation
Grameen Foundation USA
Hope for New York
International Campaign for Tibet
International Crisis Group
International Justice Mission
J. Crew Group
Johns Hopkins University
Lautman Maska Neill & Company
Lawyers Committee for Civil Rights Under Law
LSU Foundation

Marts & Lundy
Meyer Partners, LLC
Milken Institute
NAACP Foundation
National Alliance on Mental Illness (NAMI)
National Marrow Donor Program
National Park Foundation
Natural Resources Defense Council
North Carolina State University
North Shore Animal League
Operation Smile
PBS Foundation
Pernod Ricard USA
PetSmart Charities
PopSockets
Population Action International
Project ORBIS International
Public Interest Communication
Rails to Trails
Redeemer Presbyterian Church
Rockefeller Philanthropy Advisors
Save the Children Federation
Sesame Workshop
Simon Wiesenthal
SOS Children’s Villages – USA
Subaru of America
The Little Market
Touro University
United States Equestrian Team Foundation
United Way Worldwide
University of Connecticut
University of Virginia
Vote.org
Whitney Museum of American Art
World ORT
World Wildlife Fund
YWCA USA

A.B. Data
Absolut Company
American Committee for the Weizmann Institute of Science
American Diabetes Association
American Friends of the Hebrew University
American Parkinson Disease Association
American Rivers
Association of Fundraising Professionals
Baton Rouge Area Foundation
BrightFocus Foundation
Burger King McLamore Foundation
Cancer Care
Carnegie East House and James Lenox House Association
Center for Car Donations
Changing Our World
Charity Defense Council
Christian Appalachian Project
Coca-Cola Scholars Foundation
Convoy of Hope
Cornell University
Doctors Without Borders/ Medecins San Frontieres
Drug Policy Alliance
Duke University
Emory University
Feed The Children
Gerald R. Ford Presidential Foundation
Grameen Foundation USA
Helen Keller Services
Hope for New York
Human Rights Watch
Humane Society of US
Indiegogo
International Campaign for Tibet
International Crisis Group
International Justice Mission
Japanese American National Museum
Johns Hopkins University
Lane Bryant Charities
Lautman Maska Neill & Company
Lawyers Committee for Civil Rights Under Law
LSU Foundation
Mattel
Meyer Partners, LLC
Milken Institute
National Breast Cancer Coalition
National Marrow Donor Program
Natural Resources Defense Council
North Carolina State University
North Shore Animal League
Obama Foundation
Operation Smile
PBS Foundation
Pernod Ricard USA
PetSmart Charities
Population Action International
Project ORBIS International
Public Interest Communication
Rails to Trails
Redeemer Presbyterian Church
Rock and Roll Hall of Fame and Museum
Rockefeller Philanthropy Advisors
Sesame Workshop
Simon Wiesenthal
SOS Children’s Villages – USA
Steinhardt Foundation
Subaru of America
United States Equestrian Team Foundation
University of Montana Foundation
University of Nevada, Las Vegas Foundation
Whitney Museum of American Art
World ORT
World Wildlife Fund
YMCA USA
YWCA of New York City
YWCA USA

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Our attorneys’ recent contributions to the media and nonprofit sector publications.

news & events

Check out our attorneys’ recent contributions to the media and industry publications.

Secure Your Data – Seriously, AFP New York Chapter News
As Jon Dartley, a data privacy and security attorney at Perlman and Perlman says, “It is vital to have the appropriate legal terms in the contract to protect your interests.”  Find out what your liability limit is.  Have it in writing who bears the responsibility and cost of a data breach.  And, have the vendor agree on a specific timeframe within which they need to advise you of a data breach.

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Particularly striking is that (Karen) Wu believes this is the “first multi-state regulatory activity involving cause marketing in almost two decades.”

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Buyer Beware: Negotiating Terms in Technology Agreements
Jon Dartley provides tips on negotiating contracts with technology vendors.

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Cliff Perlman remarks on the possible threat of a change to charitable deduction.

How To Deal With Residual Data, Nonprofit Times
Jon Dartley’s advice on addressing “data exhaust”.

Secure Your Data – Seriously, AFP New York Chapter News
As Jon Dartley, a data privacy and security attorney at Perlman and Perlman says, “It is vital to have the appropriate legal terms in the contract to protect your interests.”  Find out what your liability limit is.  Have it in writing who bears the responsibility and cost of a data breach.  And, have the vendor agree on a specific timeframe within which they need to advise you of a data breach.

Warning: Don’t Cut Legal Corners When Mixing Social And Business Impact,  Forbes
Particularly striking is that (Karen) Wu believes this is the “first multi-state regulatory activity involving cause marketing in almost two decades.”

Is stealing, then giving back, OK?
Cliff Perlman lends his advice on theft within a nonprofit.

Buyer Beware: Negotiating Terms in Technology Agreements
Jon Dartley provides tips on negotiating contracts with technology vendors.

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Cliff Perlman remarks on the possible threat of a change to charitable deduction.

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Jon Dartley’s advice on addressing “data exhaust”.

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who we work with

Our clients are diverse nonprofit organizations with a broad range of missions, as well as for-profit companies in evolving areas such as social enterprise, corporate philanthropy, joint ventures, technology-driven fundraising, and impact investing.

who we work with

Our clients are diverse nonprofit organizations with a broad range of missions, as well as for-profit companies in evolving areas such as social enterprise, corporate philanthropy, joint ventures, technology-driven fundraising, and impact investing.

A.B. Data
AB InBev Foundation
Absolut Company
American Committee for the Weizmann Institute of Science
American Diabetes Association
American Friends of the Hebrew University
American Parkinson Disease Association
Association of Fundraising Professionals
Avalon Consulting
Baton Rouge Area Foundation
Black Lives Matter Global Network Foundation
Bleeding Blue for Good Fund
Bradley Cooper’s One Family Foundation
BrightFocus Foundation
Brooks Brothers
Chadwick Boseman Foundation for the Arts
Changing Our World
Charity Defense Council
Christian Appalachian Project
Doctors of the World/ Medecins du Monde
Doctors Without Borders/ Medecins San Frontieres
Drug Policy Alliance
Duke University
Emory University
Estee Lauder Companies, Inc.
Feed The Children
Food For The Poor
Gerald R. Ford Presidential Foundation
Grameen Foundation USA
Hope for New York
International Campaign for Tibet
International Crisis Group
International Justice Mission
J. Crew Group
Johns Hopkins University
Lautman Maska Neill & Company
Lawyers Committee for Civil Rights Under Law
LSU Foundation

Marts & Lundy
Meyer Partners, LLC
Milken Institute
NAACP Foundation
National Alliance on Mental Illness (NAMI)
National Marrow Donor Program
National Park Foundation
Natural Resources Defense Council
North Carolina State University
North Shore Animal League
Operation Smile
PBS Foundation
Pernod Ricard USA
PetSmart Charities
PopSockets
Population Action International
Project ORBIS International
Public Interest Communication
Rails to Trails
Redeemer Presbyterian Church
Rockefeller Philanthropy Advisors
Save the Children Federation
Sesame Workshop
Simon Wiesenthal
SOS Children’s Villages – USA
Subaru of America
The Little Market
Touro University
United States Equestrian Team Foundation
United Way Worldwide
University of Connecticut
University of Virginia
Vote.org
Whitney Museum of American Art
World ORT
World Wildlife Fund
YWCA USA

A.B. Data
Absolut Company
American Committee for the Weizmann Institute of Science
American Diabetes Association
American Friends of the Hebrew University
American Parkinson Disease Association
American Rivers
Association of Fundraising Professionals
Baton Rouge Area Foundation
BrightFocus Foundation
Burger King McLamore Foundation
Cancer Care
Carnegie East House and James Lenox House Association
Center for Car Donations
Changing Our World
Charity Defense Council
Christian Appalachian Project
Coca-Cola Scholars Foundation
Convoy of Hope
Cornell University
Doctors Without Borders/ Medecins San Frontieres
Drug Policy Alliance
Duke University
Emory University
Feed The Children
Gerald R. Ford Presidential Foundation
Grameen Foundation USA
Helen Keller Services
Hope for New York
Human Rights Watch
Humane Society of US
Indiegogo
International Campaign for Tibet
International Crisis Group
International Justice Mission
Japanese American National Museum
Johns Hopkins University
Lane Bryant Charities
LSU Foundation
Mattel
Meyer Partners, LLC
Milken Institute
National Breast Cancer Coalition
National Marrow Donor Program
Natural Resources Defense Council
North Carolina State University
North Shore Animal League
Obama Foundation
Operation Smile
PBS Foundation
Pernod Ricard USA
PetSmart Charities
Population Action International
Project ORBIS International
Public Interest Communication
Rails to Trails
Redeemer Presbyterian Church
Rock and Roll Hall of Fame and Museum
Rockefeller Philanthropy Advisors
Sesame Workshop
Simon Wiesenthal
SOS Children’s Villages – USA
Steinhardt Foundation
Subaru of America
United States Equestrian Team Foundation
University of Montana Foundation
University of Nevada, Las Vegas Foundation
Whitney Museum of American Art
World ORT
World Wildlife Fund
YMCA USA
YWCA of New York City
YWCA USA
Lautman Maska Neill & Company
Lawyers Committee for Civil Rights Under Law

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