In this blog I explain (for those interested) why as of July 2015, Stephanos Ministries ceased to be a 501-C-3 corporation with IRS pre-approval of donations. For decades we were a 501-C-3, so what follows is surely not a judgment or condemnation on anyone who currently maintains that status. For years I believed being a 501-C-3 was a benign and mutually beneficial exercise of Christian liberty. I do not judge those who maintain that conviction today. However, in the light of recent political and legal trends in the world, I thought an explanation for our conviction and action in terminating our status might be helpful. Most believers I have met are very naïve and ill-informed on the “legal” aspects of operating a “church” or “ministry.” This is my attempt to inform and educate.
Prior to 1954, there was no such thing as 501-C-3 tax status in the United States. Think about that. For almost 2,000 years in the world, and for 178 years in America, the Body of Christ functioned just fine financially without government approval of its finances. The United States might not even exist today if the 501-C-3 laws had been in effect in 1776! Pulpits across the land thundered against the king (Agree or disagree about the appropriateness of doing so, is not the point. They did.).
In 1954, then Texas senator, Lyndon Johnson, proposed this tax law in a very crafty way. Southern Democrats were viscerally opposed to the emerging civil rights movement. Black churches and most mainline Protestant churches were heavily involved in the embryonic civil rights movement. Southern Democrats were not happy with this involvement. Johnson concocted a way to limit the speech of these activist churches. The way to do it was to appeal to the money. Very crafty of him.
The “deal” was: We, the government, will sanction your offerings IN ADVANCE, and you in turn will forgo your right to engage in overt political speech and activity. It DOES NOT mean that money given to non-501-C-3 entities is not deductible. It just means that they are not PRE-APPROVED by the IRS. If the donations are ever challenged by the IRS for deductibility, it is up to the donor to “prove” the legitimacy of the entity to which they have claimed a tax deduction. This is normally done by using the 14 IRS “Common Law” rules of what constitutes a legitimate church. This is a chore that most people are simply not up to engaging.
Now, this restriction upon 501-C-3 corporations (churches) has always been “danced” around in practical application from the beginning. However, being a 501-C-3 comes with free speech and other restrictions of which a typical Christian or “pastor” has no idea. Seminaries and Bibles schools simple do not teach these things. Becoming incorporated and “getting your 501-C-3 status” is considered just the way “church is done.” Pastors and even denominational leaders are woefully under-educated on these things.
As mentioned, most believers are ignorant on these things. I will briefly summarize some legalities here.
In order to be a 501-C-3, you must first incorporate in your home state. I will talk about the ethical implications in the next section. A corporation is a legal fictive person, a civil identity. When a corporation forms, it has legal standing as a person before the law. The government has legal, authoritative, and final jurisdiction over that fictive person, the corporation. The Scriptures are legally irrelevant.
Naïve believers think that the “Bible” governs how their church is run. That is not true if it is incorporated. The Constitution and bylaws of the corporation govern it. As far as the government is concerned (to whom legal jurisdiction has been ceded), if a policy, belief, or practice, is not specifically enumerated in the constitution and bylaws, it does not exist. What the Bible may say is irrelevant. The bylaws, not the Bible govern the church. A mere sentence in the bylaws saying “the Bible is our guide,” is legally irrelevant. Courts have refused to engage in the specifics of Biblical interpretation and application, rightly so in my opinion.
Now, no one cares about these things when a church or community is running along fat, dumb, and happy (as the saying goes). But let things turn sour, let a conflict arise, and folks will discover that what I am saying here is true. I have unfortunately been involved in church conflicts and lawsuits (one that went all the way to the state supreme court). I can assure you, that if you incorporate you are giving the government legal jurisdiction into the affairs of your assembly. When conflict over church direction, money, property, assets etc., arises (and sooner or later it inevitably will), only the bylaws apply. Try introducing “what the Bible teaches” into a civil dispute in a court jurisdiction. It will be inadmissible as irrelevant. Only the constitution and bylaws govern the corporation, because the corporation belongs to the jurisdiction of the state.
In one situation in which I was involved, the denominational leaders with whom we were in conflict, agreed that our position was the biblical one. They blatantly said it didn’t matter. All that mattered was what was in the bylaws that had been written over one hundred years ago. All they wanted was the money and the property: the scriptures be damned. They pulled out the bylaws and that is all that mattered.
Normally, in spite of the jurisdictional drawbacks, incorporation is encouraged to protect the individual risk and liabilities of the members of the church. For example, if someone is hurt on an incorporated church property, that person cannot sue the pastor or the individual members for damages, but must bring the lawsuit against the corporate fictive person and any assets that the corporation might have. The pros and cons of risk protection versus government intrusion into the church is a matter individuals will have to weigh in their own hearts and minds. There are ways to function legally that do not require incorporation and yet provide asset protection. It is beyond the scope of this blog to go into the matter in detail here.
Scriptural Convictions and Ethics
I find it oddly fascinating that those who scream the loudest for “only the Bible as our guide for faith and practice,” turn a blind eye when it comes to money and power in their churches and organizations. How is it that those who howl about keeping the government out of religion, are fine with the government being involved in religion when it comes sanctioning their money? It is because all corrupt religion is based upon money, power, influence, and control–mammon (Click here for a fuller treatment.). Oh, we can opine about Jesus’ ethics, but when it comes to our money, it is with a wink and a nod toward the government.
Is Jesus our example in all things or not? Is He the pattern for our conduct, or not? The idea that Jesus or the apostles needed not only Rome’s approval, but also partnership in their finances in order to operate, is of course, absurd. What biblicity exists for presidents, boards of directors, constitutions and bylaws in the scripture? Of course, there is none. Can you imagine the secretary of Caesar’s treasury defining what is and is not a church? Of course not.
The 501-C-3 is essentially a government kickback. If you give to the church/organization 501-C-3, the government gives you credit for it against your taxes as a deduction. I cannot imagine Jesus and the apostles operating with Caesar in that way. To me, it puts an ethical “stain” on our offerings. It undermines a pure motive of love in our giving. That is, “Well, I will give if I get a tax deduction for it.” That is not love. That is not charity. That is religious self-interest. That is love with a hook in it – my charity has to accrue a benefit to me, or I am disincentivized to give. That is both troubling and sad to me.
By forming a legal alliance with the government as a 501-C-3 corporation, I believe the church loses its prophetic voice to be able to speak without restriction to anyone about any issue of the day. I believe the day is coming where the welcome mat is going to be pulled out on organized Christianity. The government will cash in its chips and require politically correct speech conformity, or it will come after the hundreds of billions of dollars of assets in incorporated churches for violating what will be categorized as “political speech” or illegal “hate speech” in violation of the 501-C-3 restrictions (Hate speech laws are already a legal fact in Great Britain and Christians have been prosecuted. We are about 20 years behind Great Britain in terms of cultural trends.). I do not think this is a totally a bad thing. If that day comes in the USA, the hearts, motives, and practices of those who profess Christ will be challenged and purified.
As for Rita and I, we are free: free to speak freely, free to love freely, and free to give and receive freely with no government intrusion. We welcome offerings and gifts to the ministry as the overflow of love and trust in relationship, with no other motive. Our “accountability” is with brothers and sisters with whom we are in loving relationship and to whom inquiries about our fiduciary ethics can be directed.
If you would like more detailed information on this subject, check out this 45 minute discussion on the Brothers in a Basement podcast that I co-host with Bryon Wiebold. Click here.
Copyright 2019, Dr. Stephen R. Crosby, www.stevecrosby.org. For audio, video and print resources go to https://stephencrosby.soarlms.com.
Simply refreshing my friend.
Thank you, Stephen! I always had questions about the 501-C status and it is what I suspected and much more…..unfortunately, very few care. Thank you again!
Thanks for the encouragement.
Thank you brother. I always believe if you give let it go the Lord knows how to Bless us. Just give don’t think about it and keep doing it! No restraints and no connection with the government
I’ve been conflicted about this for a while and now I’m wondering: “should my family not deduct the donations we give to church and charities?” My spouse says that basically we either give that money to the church/charity or it goes to the government–why not donate it rather than have the govt pocket more money? It’s a legal deduction.
Honestly, I wish churches would stop accepting govt tax breaks.
We’ve been homeschooling for years and learned early on that we didn’t want any help/tax breaks/free stuff from the public school district or any other govt agency b/c we wanted to homeschool independently.
Pragmatically, there is nothing wrong with taking advantage of what is legal. The question is, “Is there a higher way than mere legalities?” Just because something is permissible, does not necessarily make it right for the followers of Jesus.
Yep — 1st Corinthians 6:12, 10:23….
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By not having an 501c3 status, then how should a church or ministry be organized as a church and or ministry.
As a family in love with each other, not as a corporation to be managed. If one must formally organize, there are ways to do it as a free church association.
Good stuff Dr. Crosby. I have never like being harassed to put my name, address and contact info on an offering envelop for the purpose of tracking my giving and getting a statement at the end of the year so I can have a tax deduction. Please just let me give and I allow God to keep an account of my giving. I don’t need a tax break. In my native country of Nigeria, no such tax breaks, deductions exist. We just give because we love God and each other and want people to get helped.
Amen. Thank you for your post.
Can not serve two master!
He whom the Son sets free is free indeed!
Created human beings, living and alive, as in the One who created us … not a fictional creation of man [idol].
Hi! I have such an immense conviction about ministering this way! I get invited to speak at some churches, and it shocks me that they consider me odd for not wanting a 501c3. It is also difficult, as I am VERY accountable to churches, yet they ask for membership if I preach there. I have so much to ask beyond this reply, I tried emailing your ministry, but it did not include your email address. Could you give me your email?
God Bless you writing this, I’ve been researching this very topic after Mark Taylor talked about the dangers of the church and 501 c3. I do have a question, Stephen, and would love to get your feedback if you have the chance. I originally wanted to open a non-profit organization that was Christian based and would help those with job readiness. However, do you think a Christian non-profit organization should also avoid a 501 c3 status? If you don’t mind me asking, what type of entity did you and your wife finally decide? I just want to make sure my service is right with God. Thank you and God Bless you and yours!
Thank you for your encouragement. I have no issue with something that is not a church taking advantage of any government structure that can help them accomplish their mission. The scriptures simply don’t address the matter. Now, if someone had a conviction not to, for the same reasons I mentioned in this blog, I would understand and support their decision. In my opinion, it is all a matter of conscience. To your second question, my wife and I simply decided not to incorporate or establish any specific organizational entity. We chose to build relationally with people where the bonds of love and mutual care and concern are present and just skip all the rest. It has not made a difference in terms of income, donations, function at all. We are just freer than we have ever been and walking in the light of our conscience to the degree God has enabled up to the moment.
I have been the realm of prophecy and the prophetic for so many years, and I had contemplated starting a ministry or non profit for the sake of homeless people in chicago, and recently there was information that church leaders would actually turn over a list of their attendees to possibly round them up to encamp them because the government would simply use their c3 agreement with the said entity. so many are telling others to get out of the c3 status. so my question is what exactly is the outline of a religious organization having a building to operate out of, thats not a church per say, and I would imagine the tax outlines are different. I would guess that an organization would pay full property taxes? how would you file for a non 501c3 organization and not be an actual church?
You do not need to organize as a religious entity to function as a church or to do charitable works for the benefit of others in the name of Christ. You can form a CDC, a community development corporation and take advantage of other categorizations of the tax code for exempt status. There is more than just 501 c 3. That is just for churches. I know a Christian ministry that has done brilliant work, has a multi million dollar budget, but they are not 501 C3 . . .they have organized in such a way that they can qualify for federal money AND still maintain Christian autonomy . . . how you do it is to be SCRUPULOUS in which of two pockets your money goes in, how that money is administrated and spent. Money that has federal strings attached (grant money) will have restrictions on it, money that is donated free will from the public does NOT HAVE any limitations on what can be said or how it can be spent, that is, it can have overtly religious expression. Now, if you are not informed in these things it is dangerous, if you do not have tax code and administrative savvy and internal controls of governance in place, if you are careless with the money . . . your organization will be shut down and you will GO TO JAIL! But is can be done! I have seen it done marvelously. But it requires strict discipline and oversight, which to be honest with you, most people, including most Christians, do not have. This same group I am mention ing know that has functioned brilliantly for 30 years, is now under investigation by the FBI and the treasury department/IRS for FAILING to maintain the strict controls I just mentioned. They got “fat” (rich) and “lazy” (not careful internal governance) and they may not survive the legal troubles, let alone the bad testimony in the community.
I would be interested in finding out more current information if you are in a position to share. Also, I believe in our church’s teachings but do not know enough about this 501 C3. This information is very interesting! Thank you!
You can search both the history of the development of the IRS non profit tax code on the internet. Especially section 501. You can also search the history of Lyndon Johnson when he was senator from Texas, his racist background, and how it shifted over time after he became vice president. You can also search the two of them together, as the author of tax exemption status for churches in 1954. The information is readily available on the internet, from reliable sources.
So there’s 300-400 non 501c3?
I regret I do not understand your inquiry as I do not know where you got the idea of 300-400? In section 501 oof the tax code alone, there are approximately 29 different types of tax exempt non-profits. There could be tens of thousands of non-501 c 3 organizations. Which category someone may or may not fit depends on their organizational structure and mission/purpose. My point is, not all non profits are churches and a church is not required to be one, and does not have to be one, and another categorization other than c 3 might be advantageous and it might not be. But even other c 3 entities, organizations other than strictly religious, might be advantageous to effective benevolent good works that we are commanded to do for the good of others, and not have the restrictive drawbacks of a c 3.
How do I find non 501c3 churches in east Tennessee.penticostal
I cannot specifically answer that. I suggest simply calling churches in which you might be interested and ask them. secondly, you could ask for a copy of their incorporating documents and bylaws. By law, they are required to provide them for you, as under the law, if they are a 501 C 3, they have identified themselves legally as an entity designed for the public good. Hence, why they are giving tax exempt status, therefore, any individual in the public has a right to those documents. Those documents must also be filed with the secretary of state in the state in which the church has incorporated. Those documents may be available on the secretary of state web page, or my request from either the secretary of state, or, the IRS, if they are a 501 C 3. I got a copy of the Billy Graham documents from the IRS. Now, it took literally months to get it, but I did get it. Short version, you will know in a two minute phone call by just asking. I would be very surprised if you find any who are not 501 C3 . If you want to dig into the “taller weeds” my other suggestion may help you.
Has anyone looked into tax exemption under a 509 (a) ?
My understanding is that this status does not restrict freedom speech to support legislation
Stephan, I am thankful for finding this article. What are the options instead of 501 C3? I have been told of a Constitutional Church. I have found no information that wasn’t very old. My ministry will be operating predominantly in the Philippines. Any assistance would be greatly appreciated.
Hello John, that question would best be addressed to a CPA or tax attorney that specialized in not for profit structures, especially with international implications. You need to find out what the Philippnes requires for you to operate in that country, if you are going to be raising funds there also.