508c1A Requirements

This FREE pdf e-book provides information about the 508c1A Faith-Based Organization in a simple to read and understandable format. 

What are the 508c1A benefits and requirements for an outreach program, ministry, chaplaincy, Bible study or church? What is a 508 Non Profit Faith-Based Organization (FBO)? These are important considerations when learning how to start a ministry without 501c3.

Destiny 508 has provided this document to summarize the "must-know" information you need to be able to understand the 508c1A Nonprofit option as an alternative to the 501c3 status for your church, Bible study group or ministry.

It may be a surprise to some that there are over 27 classifications of IRS nonprofit organizations. When people hear the word nonprofit, they typically assume that the organization is a 501c3.

Most have never heard of the 508c1A nonprofit alternative for churches, even if they have been in church or ministry for years. The 508c1A designation for churches is part of the Internal Revenue Code Section 26 and the organization that files under this designation is often referred to as a Faith-Based Organization or FBO.

You may be on this website having done an internet search for IRS 508c1A information or 508c1A law. If you did, this page will help answer your questions.

The church has many types of styles and ministry models as it shares the love of God and the gospel with the world. We always say that some churches or ministries are much less formal than what we think of today and look more like the church that Jesus gathered which was missing the four walls and a steeple that we may be accustomed to in our spiritual and religious upbringing...

The following information will help you understand if your ministry or outreach would be served well by formally setting up as a 508c1a nonprofit. Even if you are a church ministry, it may be time to organize it under its own legal nonprofit structure and discover what God may do the grow the ministry from there.

Here is some great information to help answer some of the most common questions that we receive. We do not offer this information as legal advice as we are not lawyers, but we believe you will find it helpful.

There are several ministries such as discipleship ministries, church planting ministries, para church ministries, prayer groups, restoration ministries, men's ministry, worship teams, a helping hands ministry that serves the local community or any help ministries. 

Ministry leaders, pastors, youth ministers, and nonprofit founders lead various ministries like a local church, an online or virtual church, a chaplaincy program, a recovery program, an evangelism church, children's ministries or children's church, local missions, a five fold ministry, a Christian fellowship, renewal ministries, a Christian center, or a women's ministry. It is surprising how many ways the church functions.

Other ministries that may be lesser known could benefit like your local outreach ministry or outreach church, missionary care or Christian pastoral ministries. Do you have one of these ministries or programs? A Baptist preschool, a Christian school, a student ministry, a revival ministry, prayer ministry, church youth group, young adult ministry, singles ministry, family worship center, or any life changing ministries? A simple 508 nonprofit could help you grow and reach more of those you love.

We've helped many leaders within the local church benefit from organizing their own 508 nonprofit to reach the specific audience that they are called to reach. Many times the local church that meets on Sunday does not have the personnel or staff to reach all the needs of the community around them and starting your nonprofit ministry would provide additional impact to the community and unburden the local church.

26 USC § 508 - Special rules with respect to section 501(c)(3) organizations

Legal Information Institute 

Cornell University of Law School 

26 USC § 508

Current through Pub. L.112-143, except 112-141. (See Public Laws for the current Congress.) 

(a) New organizations must notify Secretary that they are applying for recognition of section 501(c)(3) status except as provided in subsection (c), an organization organized after October 9, 1969, shall not be treated as an organization described in section 501(c)(3)-

    (1) unless it has given notice to the Secretary in such manner as the Secretary may by regulations prescribe, that it is applying for recognition of such status, or

    (2) for any period before the giving of such notice, if such notice is given after the time prescribed by the Secretary by regulations for giving notice under this subsection.

(b) Presumption that organizations are private foundations

Except as provided in subsection (c), any organization (including an organization in existence on October 9, 1969) which is described in section501 (c)(3) and which does not notify the Secretary, at such time and in such manner as the Secretary may by regulations prescribe, that it is not a private foundation shall be presumed to be a private foundation.

(c) Exceptions

    (1) Mandatory exceptions Subsections (a) and (b) shall not apply to-

        (A) churches, their integrated auxiliaries, and conventions or associations of churches, or

        (B) any organization which is not a private foundation (as defined in section 509 (a))and the gross receipts of which in each taxable year are normally not more than $5,000.

***

Do not confuse the 508c1A code with the 508c1B code above.

"Congress shall make no law respecting an establishment of religion or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances." Constitution of United States of America 1789, Amendment 1

Legislation approved in 1954, commonly known as the Johnson Amendment, put into place a law that churches and other nonprofit organizations that are tax exempt “are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office,” according to the IRS website. This mandated that those organizations be registered under the IRC as a 501(c)(3) with reporting requirements that would allow the government to monitor their activities.

Section 508 of the Internal Revenue Code (IRC) was codified to formalize a standard that had been implicit since America's independence in 1776 - freedom of religion, freedom of speech and freedom to peaceably assemble.

Due to the violation of First Amendment rights on the religious organizations in America with the requirements of the 501(c)(3) designation, the decision was made to establish a new law which returned to FBO's their First Amendment Rights. As a result, 508(c)(1)(A) was approved by Congress.

As a 508c1A, the church designation by Internal Revenue Code, there is an exception to all taxation and is, therefore, not required to file federal tax.

The IRS generally uses a combination of the characteristics listed below, together with other facts and circumstances, to determine whether an organization is considered a church for federal tax purposes which they apply to churches filed under the 501c3 Internal Revenue Code.

The term church is found, but not specifically defined, in the Internal Revenue Code. With the exception of the special rules for church audits which does not apply to the 508c1A designation, the use of the term church also includes conventions and associations of churches as well as integrated auxiliaries of a church.

Certain characteristics are generally attributed to churches. These attributes of a church have been developed by the IRS and by court decisions.

They include:

1. Distinct legal existence

2. Recognized creed and form of worship

3. Definite and distinct ecclesiastical government

4. Formal code of doctrine and discipline

5. Distinct religious history

6. Membership not associated with any other church or denomination

7. Organization of ordained ministers

8. Ordained ministers selected after completing prescribed courses of study

9. Literature of its own

10. Established places of worship

11. Regular congregations

12. Regular religious services

13. Sunday schools for the religious instruction of the young

14. Schools for the preparation of its members

In the past the church, or Faith-Based Organization, was seen as the source of moral and religious standards and had a great influence on the shaping of the culture in the United States. The Founding Fathers who wrote the Constitution believed this so emphatically they placed in the First Amendment the freedom of speech, religion, press, assembly and citizens the ability to petition the government if they did something that blocked any of these freedoms. The church has the greatest opportunity to again make an impact on American society through the 508c1A designation. Each donor, each kingdom steward will be very blessed as well.

The advantages of being 508(c)(1)(A) FBO include rights guaranteed under Federal Law 26 U.S.C. § 6033(a)(3(a):

1. Tax Exempt, and can give tax deductible receipts for donations.  

2. Freedom of Speech, including, but not limited to, politics, referendums, initiatives, and candidates.

3. Exception from Federal reporting (does not file a tax return).

4. Exception from “rendering under oath such statements, make such other returns, and comply with such rules and regulations as Secretary (IRS) may from time to time prescribe”.

5. Not subject to public scrutiny due to the non-reporting requirements required by the 501c3 status.

6. Not required to file for non-profit status with the IRS.

7. Simplified filing process. 

8. The Founding Members cannot be removed from the Board of Directors.

This is a common question that we are asked, so we want to address this concern right up front. It is always good to be wise in making any important decision and knowing both the advantages and disadvantages of an option helps you to make an educated decision. The same is true in choosing between becoming a 508c1A or a 501c3 nonprofit. Below we have listed the most obvious disadvantages for your consideration in making your decision.

1. It is not technically considered a disadvantage, but we include it here as it may cause you to question the legitimacy of the designation. The 508c1A is lesser known in the marketplace and nonprofit world and often misunderstood. Because of this, you may find it difficult to find information about it, especially from lawyers and accountants as their services are not needed to establish and maintain the organization. It may also cause donors to pause before making a donation should they be aware of your 508c1A status because they have never heard of it before.

2. The 508c1A is not usually eligible for government grants because the nonprofit status does not require approval by the Federal Government and is not required to fill out reporting forms 1023 and 990 which the 501c3 designation requires. These submitted reports to the IRS are what Federal Grantors use to determine approval for Government Grants. This is not a hard and fast rule since we know of some 508c1A organizations that have been successful in received government grants, although it is not common. We suggest that you do not form your 508c1A with an expectation of receiving grants since it is so rare. Should you need grants to accomplish the purpose of your organization then a 501c3 status would be a wise choice.

Having listed the benefits, advantages and disadvantages, it becomes clear that the 508c1A is the best option for a church, ministry or FBO to form under for their organization. This allows for true freedom as a church or faith-based organization compared to the traditional 501c3 with its reporting and permission-based requirements. Even if you are researching what are the pros and cons of 501c3 for churches and ministries or are asking does a ministry have to be a 501c3, this information will help you.

There are several benefits that the 508c1A nonprofit designation holds over the 501c3 nonprofit designation. The following is a listing of some of those benefits. 

1. Filing an application to become a 508c1A non-profit with the IRS is not required. There is no requirement to file Form 1023, which is required to become a 501c3. This eliminates the need for IRS approval of your application.

2. There is no annual income tax filing requirements, such as the required Form 990 salary disclosure as a 501c3, when you are a 508c1A. 

3. The church or ministry does not have any restrictions on speaking about politics as a 508c1A, unlike the restrictions under a 501c3.

4. A 508c1A financial records and Board meeting minutes are not subject to public scrutiny, unlike the 501c3 that is required to file their records with the IRS for the purpose of public scrutiny.