The ULC Training Center STARTING A CONGREGATION of the ULC (Revised) Please understand that the information in this Discourse is provided with the understanding that neither the author nor Monastery is engaged in rendering legal, accounting or other professional service. The author, Monastery or ULC for information contained herein or the use thereof by readers, assumes no liability. This Discourse is a sermon of understanding between ministers illustrating differing paths for new religious organizations. Readers should seek the professional advice of a tax accountant, lawyer, or preparer for specific tax questions. and filing requirements. This Discourse reflects the knowledge and understandings of the author's personal experience in recognition of the need for clarification of income tax laws as they relate in sole manner to religion and its practice in the United States of America. To obtain IRS forms, publications, schedules and tables for filing a return contact the IRS or a public library. Every effort has been made to provide timely, accurate and authoritative information the primary sources being the two Zondervan Tax and Financial Planning Guides for Ministers, Churches and Non-profits and the actual forms and booklets provided by the Internal Revenue Service. Understandings are not individual tax answers, but rather general knowledge of the processes and the definitions of terms as they relate to religious organizations. Organizations differ in purpose and practice as do individuals so a competent source of information is necessary. Securing the services of a tax advisor or attorney is highly recommended and in most instances a necessity for the proper establishment of a tax-exempt church or religious ministry. ( *** and red coloring indicates special emphasis and attention to be given to the aspect ) Many aspects will be repeated and discussed from differing viewpoints. This repetition has been written into the text for a particular purpose. This type of repetition repetition aids the process of education education and understanding of the information and to lessen the anxiety of issues dealing with complicated tax matters. What is the difference between a Church and a Ministry? Individuals come into the denomination Universal Life as ministers and may decide they want to do more and consider starting a congregation - which is really a new religious organization unto itself. Many people may not understand that a congregation is the same as a new church or religious organization. The term congregation only implies affiliation with a church or denomination which in this case is the Universal Life Church and the denomination is Universal Life.
The formation of a congregation and its classification as either a church or ministry is what will be discussed here - What is the difference between a Church and a Ministry?
***A “church” and a “ministry” can be almost identical in formation and the difference would be mostly in how closely it relates to already established and recognized churches or ministires. This does not mean that some new organization could not be formed in some manner that has not ever existed before - it may. We are discussing only the “classification” of the new entity here as either a church or ministry. ***Depending upon what the founders of the new organization wish the new religious organization to be, that would determine whether, when and which Forms the new organization should file with the Internal Revenue Service for either recognition of exempt status or application for exempt status. Within a religious viewpoint my statements are representations of my personal experience gained from making mistakes and learning from them. Some statements are clearly "value statements" and may or may not be accepted by the reader. Determining whether a new organization is a church or ministry for the purpose of classification has a factual basis in the use by the IRS of 14 Points, which will be published at end of this Discourse. This use of the 14 Points is very important for individuals to understand and they are the guideline for a decision the IRS must make when new organizations submit either Form 1023 or Form 1024. This discussion aims to inform and educate our ministers and members with the processes involved in forming a new organization. Each new organization has its special aspects and no Discourse could be complete for every situation. ***No assumption of complete disclosure is made by this Discourse and it is intended for wide familiarity with the process rather than step-by-step filing requirements. Please consult IRS Forms, Publications, Instructions and/or seek competent legal advice and guidance on the process of filing. The IRS is willing to go the extra mile in helping new organizations form and file properly for its appropriate classification and status. Deciding upon whether a new congregation is a church or a religious organization is very important to understand. Depending upon the decision by the individuals founding the organization as to whether it is going to be a church or a ministry, the decision must be made as to whether the organization is . . . ***Required to file or not...for tax-exempt status...
Form 1023 is for Churches; Application for Recognition of Exemption. ***Churches are automatically exempt by law upon formation and need not file any forms to the IRS. This raises the concern as to whether a new organization is to be considered a church for classification purposes or a religious ministry. Both classifications may be exempt from Federal taxation, the difference in the classifications involves a ministry having to file for exempt status and a yearly Informational Return where a church has no such requirements. Just saying some organization - even with the word Church in its name - is a church does not necessarily mean that the IRS will agree with that classification. Obtaining exempt status is not a difficulty for organizations or the IRS since it is a matter of organization formation and operation, but classification of the new organization is where there may be an honest disagreement. A ministry must apply for exempt status while a church is automatically granted that status by law. The potential for abuse rests in the classification of church because it is automatically exempt upon formation. Because of the abuses by significant numbers of new organizations claiming church status improperly, the IRS found it necessary to develop guidelines to aid in the classification process of which organizations would receive the classification of “church” and which would receive the classification as “religious organization” usually termed a ministry. ***Tax-exempt status is dependent upon whether a new organization is "organized and operated" for an exempt purpose which may or may not be religious in nature, but must be one of the classifications set out by law as of benefit to society. Initial classification sets the course of a new organization. Serious consideration and planning on the part of the founders of new organizations is needed to determine whether the new organization is intended to be either a church or a ministry. Ministry or Church? In the past there were abuses of the tax code in situations where individuals formed organizations, claimed church status, did not file for it and made or claimed to have made charitable contributions to such organizations. The new evaluation systems of the IRS ( 14 Points) and recent revenue rulings limiting the percentage of AGI to charitable organizations are the result of such abuses. The new systems and revenue rulings have worked effectively in ending the abuses of the 70's and 80's and the cause of exempt status organizations has been well served by the new methods of regulation. ***Classification as a church necessitates thoughtful consideration and planning by the organization's founders. The IRS has created guidelines to assist in the definition of "church." Clearly there are Constitutional issues here where the IRS would be normally be prohibited from making such clear decisions one way or another, however one must understand the position of the IRS and the government in that abuses could threaten the fair and appropriate tax assessment and collection processes. ***Disagreements and misunderstandings can be easily avoided by allowing the IRS to make the designation. Even if a church is classified as a religious organization (exempt just the same) the only difference would be that exemption would not be automatic and there would be a filing requirement time-line and yearly filing requirement. Oftentimes the IRS will grant a temporary ruling on the tax-exempt status of an organization for a period of two years and then make a permanent ruling after reviewing the operations of the organization. The task of the IRS is not to prevent anyone from practicing religious beliefs or establishing tax-exempt religious organizations or churches, but rather to enforce the established laws governing this section of the tax code. ***Form 1024 is Application for Exemption which is the form a new (non-Church) organization MUST file to be considered by the IRS for exemption. There are time limits imposed upon organizations for filing if they wish consideration for the past year regarding the privilege to issue tax-deductible receipts. Arguments over privileges and rights are unnecessary because as a matter of public policy and benefit to society, when the government encourages the financial support of tax-exempt entities by allowing charitable donations to be made which are tax-deductible for income tax purposes, there must be some accountability on the part of the organization to prove its societal benefit. This is the first distinction the founders of a new religious organization must face and decide; is this new organization a Church or a Ministry. Both may be considered tax-exempt, but the process differs greatly in how the exempt status is gained and whether there is a yearly filing requirement. Because of the use of the 14 Points by the IRS many new organization founders are confused and anxious about the classification of their new entity. Such anxiety is not necessary. Any organization may allow the IRS to make the classification of the organization as to either a “church” or “religious
organization - ministry” and all anxiety is resolved. Churches and religious organizations are usually allowed a wide and generous exclusion from strict involvement by the government. Sometimes church/religious organizations feel threatened by government inspections. This is not to be feared. The books of account of churches and religious organizations are not exempt from audit by the IRS. Any books of account which deal with income and expenditures are available to the IRS upon request within the guidelines established by the IRS. ***Unless the IRS has sound reason for suspicion of improper financial activities by a religious entity, its records are confidential. One would wonder why any financial records would need to be considered secret. Because the government, in effect, financially supports tax-exempt organizations, it has a justifiable right to inspect financial records. Whenever there are benefits granted, there are responsibilities involved. Churches and religious organizations should be willing to provide substantiation for any of their financial activities to the government as a matter of public good and appreciation for the favorable treatment of religious entities in the United States of America. It is not the same elsewhere in the world and the U.S. has traditionally been warmly disposed to religion and religious activities. Many individuals which start congregations may believe they are starting Churches when in fact they are "having church services" and the organization itself does not "qualify" as a church for IRS purposes because it may not meet the tests for all exempt entities. The IRS back in the early 80's designed a list of 14 Points. The Commissioner of the IRS at that time was Jerome Kurtz and his name became attached to the points and the list was called Jerome Kurtz's 14 Points. His name has since been dropped, but the 14 Points still remain the test of classification of a new organization as a church. No new organization would have all 14 points and no set number of points are required for the classification of church for any organization. The IRS looks for sincerity of purpose and whether the new organization is "organized and operated" for an exempt purpose and meets the other tests required for exempt status regardless of classification. There are other purposes such as education, philanthropic, scientific and a few other classifications that an organization may be organized and operated to achieve. Religion is only one such classification. I am not an attorney and I am not advising anyone now in any specific issue, I sincerely wish to help ULC ministers avoid difficulties and have the proper classification so that they can begin and/or continue their religious work which should benefit society as a whole rather t han a private interest. It is necessary for the successful operation and classification of a new religious organization that the founders understand what is expected of new organizations. Both classifications (church or ministry) may be exempt from Federal taxation if they are "organized and operated" for an exempt purpose, which in this case would be religion and comply with a few additional requirements made of all exempt organizations. ***The "organized and operated" for an exempt purpose test is the first test of an organization’s founding document. Secondly there must be a provision that prohibits all political activity especially involving legislation of any sort. Clearly churches have been involved in political activities many times, however they risk the loss of their exempt status for doing so. It is clearly wrong for any exempt organization to become involved in any legislation or campaigning either for or against any individual or cause. ***Any tax-exempt organization that does so is clearly inviting IRS's action to revoke its exemption. Any religiously held motivation for intervention into politics or legislation is of no matter. The law is clear. If an exempt organization strongly feels it has to say something and experiences some compelling need to become involved, it should relinquish its exempt status and be free to do as it pleases. ***When the government pays (and it does by granting exempt status by which individuals are given incentives -charitable deductions- for giving to certain organizations) it has a right to set out the rules. ***An exempt organization must also have a provision that states upon the dissolution of the organization after all of the debts of the organization are paid the remaining funds, if any, shall be donated to another recognized exempt organization.
A provision must be included in the organizations operations that "no part of the net may inure to the benefit of any private individual (s). What this means is that the organization must serve the public good or a portion of the public which may ascribe to its beliefs and practices and not serve a private interest of any one or more persons. More clearly it means no one person or group of persons, especially founders or family members, may benefit from the
activities of the organization except that founders and/or family members may benefit to a certain degree on the same basis as any others such as in reasonable compensation for services commensurate with the duties performed. It simply cannot serve a private benefit or provide "special" benefits to the founders, their families or others. ***Churches are not exempt from ALL taxes. There are tax rate schedules for income that a church receives from operations that are not clearly within its exempt function. This income is termed "unrelated business income." You must consult a tax advisor or attorney to learn of and understand the requirements. The Zondervan books make these issues clear and every organization would be wise to consult the Zondervan books for technical advice. The four important issues above apply to all exempt organizations (organized and operated, no part of the net may inure, dissolution and no political activity) but it does not address whether an organization is a Church or a Ministry and whether it is automatically exempt or must ask the IRS for exemption. I direct your attention to the Zondervan Tax and Financial Planning Guide for Churches and Nonprofits which is available from Amazon.com for about $12 plus S & H, It has the list of the 14 Points and details at length the regulations required by the IRS including the situations where tax obligation is involved. The 14 Points will be presented at the close of this Discourse. A church or religious organization must conduct its financial affairs in a business-like manner and as such must comply with the accounting practices generally applicable to all businesses. It is necessary as a matter of good business practice to have a tax advisor and/or attorney to advise the organization properly on an ongoing basis. While the tax code is clear as to what aspects are involved in tax-exempt status for organizations, there are revenue rulings and other aspects of the tax code that are more difficult to understand. Ministry or Church...organizers assert church status... No new group has to have every point in order to receive the classification as a church from the IRS. The IRS understands this and is not out to harm any new organization or deny it church classification. During the late 70's and 80's thousands of individuals attempted to use the tax code provisions for churches to avoid taxation on their personal income. It was a loophole that could potentially hinder the effective processes of taxation and collection. We were wrong as an organization to attempt to use the tax laws purposely for personal gain without verifiable benefits to society as a whole. Those days and practices are in the past. Those battling days are in the past and the IRS and the ULC are both resolved in all issues. Congregations are now independent entities, not sharing any exempt status of the Mother Church. In the 70's and 80's the procedure was that the EIN number of the Modesto Church was to be used by the congregations. That is no longer the situation and every congregation must seek out its own EIN number (Employer's Identification Number) which is a simple process on Form SS4. ***That is the first step taken by resolution by the new organization and application is made to the IRS for the EIN number which remains the identification number of the organization thereafter. A resolution authorizing the application for the EIN in the new organization's name should be kept in the permanent records of the new organization. Each individual congregation is a "sovereign" entity. Modesto is not responsible in any way for the financial affairs or the liability issues of the congregation. Neither is a general agent of the other. ***Three (3) Congregational Board of Directors members sign the Congregational Agreement whereby they agree to pay all of the expenses of the Modesto Church for any action caused by the congregation. It is called a "hold harmless" agreement. What does a congregation get for its $35 application fee and $5 per month? ***The congregation joins the denomination - Universal Life. That is the factual benefit of the congregation - the association of the congregation with the denomination, the unity of the whole working to advance the church's two tenets and improve the public perception of the Universal Life Church. ***There is no responsibility of the Mother Church to defend or in any way lend support of any kind other than religious encouragement to the congregation and to supply religious materials as the needs may require upon request. Why join as a congregation? There is great strength in numbers and as the denomination grows and the successful activities of congregations become
commonly known, this will benefit all members and congregations of the denomination - Universal Life. ***There are no financial benefits that accord to congregations from the Charter Agreement other than may meet one of the test of the 14 Points; point one " a distinct legal existence." Let us consider a for instance situation: Three individuals form a congregation and they wish to start a religious ministry to young people by offering after school activities or summer Bible Schools or any such "activity" to the public. This would be the activity of a "ministry" and it is not automatically exempt. It must file Form 1024 to the IRS to ask the IRS to evaluate the ministry and classify it as an exempt organization. Until the IRS grants the exempt status the organization should not grant tax-deductible receipts. People may give money to the organization if they wish, but the organization should not grant tax-deductible receipts. Individuals giving money to such an organization may have some understanding that such a donation would be tax-deductible, but that does not apply to "insiders" of the new organization (insiders are any individuals that have knowledge of the organization and/or operation of the new organization). The IRS may allow donations from individuals that gave and received absolutely nothing in return other than the satisfaction of giving. This is very important - it goes directly to the heart of giving and whether it is giving for the sake of giving; charitable giving. ***Giving with the intent or expectation of receiving anything in return which is called a "quid pro quo" situation. Such quid pro quo giving is not entitled to tax deductible status. ***Donations to be considered donations for income tax-deductible status must be made with no expectation of any benefit returning to the donor if they are to be claimed as charitable deductions to the donor. A second for instance situation may be: A group of individuals wish to form a church and carry out church activities. It forms the organization and develops a Statement of Beliefs and Practices AND DOES THEM. The organization is aware of the 14 Points and meets those points or many of them and is able to provide proof of their activities or a plan for activities in the future. This organization may have the belief that it is a church and is organized and operated in the general manner of churches. It is just their "call" - it is really difficult to determine and going to the IRS in the first instance would be the appropriate manner to avoid difficulties later in the operation of the new organization and acceptance of its tax-deductible receipts to donors. ***It is always sound advice that congregations seek the advice and guidance of a local attorney. When I suggest this to individuals they respond that it costs too much money. I respond to them that they may not have a church in spirit because there should be individuals that "believe" in the Beliefs and Practices statement, are united together for those religious purposes and willing to each pay a share of the expenses. There is NO legal requirement for people to join together to pay the expenses of an attorney, however this is just an example where the new group can show evidence of a united spirit for the purposes for which the organization was created. This is one instance where the IRS can judge if there is unity or really just a piece of paper. A church does not have to be incorporated or to have an attorney's services in its formation, but sincerely religiously motivated individuals should support the common cause and unite to help pay for the proper set up of the organization. The initial small investment is worth far greater than the costs that may arise from inappropriate setup of the organization. Such a uniting spirit may evidence the spirit of another of the 14 Points; "a membership not associated with any other denomination or church." While individuals may belong to more than one church or religious organization, this point does not prohibit such membership by individuals at all. It is simply a point where the IRS can look to judge sincerity; people united by common beliefs may not be likely to be a member of more than one church at a time. The IRS does not prohibit any individual from belonging to several churches if an individual so wishes. This point deals with the organization's membership and the common behaviors of individuals. Please consider that carefully. The point only expresses one aspect of an organization that is considered for the classification of "CHURCH". If the organization is classified as a religious organization there is no such implied guideline of single church membership. Multiple memberships in religious or charitable organizations would be a positive aspect for ministry memberships. When the instance of "church" classification is considered ithis point is more closely considered. There is no 100% test of every member; only a reference to how most individuals are likely behave as a group. NO aspect of an organization has any absolute negative effect upon classification, but it may have a negative effect upon whether the organization itself is eligible for tax-exempt status irregardless of classification as either a church or ministry. There is a way to lessen the anxiety of this task for new church organizations and that is to file Form 1023 which is
Application for Recognition of Exemption - even though it is not required of churches. 1023 is the form that Churches file so that the IRS recognizes their church tax-exempt status and classification and prints the name and address of the church entity in Publication 78 which is the Cumulative List of Exempt Organizations Published by the Treasury for the Service. Once an organization is listed in Publication 78 the IRS everywhere honors the tax-deductible receipts. ***There is a new provision in the tax code to apply to "home churches" and this may not be an exact quote because it has been some time since I have reviewed it. Usually individuals may donate up to 50% of the adjusted gross income to the church of their choice or any other charitable organization. In the case of "home churches" that amount is limited to as I recall 20% and that is to limit the possibility of abuses such as in the 80's. The definition of "home church" is varied, but it consists of an organization membership that is mainly family members. No law prevents families from having their own church, but the abuse of this practice has resulted in the current regulations to prohibit abuse for tax-saving purposes only rather than sincerely religious motivations. That AGI limiting Revenue Ruling would not likely limit any organization that files Form 1023 and is recognized and that is an expression of my understanding and not a legal advice. The whole purpose of the reduction in the amount allowable to be donated with tax deduction privilege is to prevent abuse of the tax code. If an organization files, is evaluated and judged by the IRS as entitled to the classification of church and t ax-exempt status there would be no reason to impose any restriction upon anyone making donations of larger amounts. ***While the regulation does not prohibit home churches, it makes them less desirable as a tax vehicle for tax deductions. The IRS is working with religious groups to assist in maintaining the favorable tax treatment of churches and ministers because of the benefit to society that churches and ministers provide. The government, through the IRS and tax code realizes that it is in the best interests of society to promote churches and ministerial activities. In the judgment of legislators religious activities are to be encouraged, thus the favorable treatment of churches (Constitutionally) and ministers legislatively. ***You need to consult your tax advisor on individual tax matters and the setup of a new religious organization. The Zondervan Ministers Tax and Financial Planning Guide is available from Amazon.com for less than $14. plus S & H and it is a must for ministers to understand and comply with the various tax provisions meant for their benefit. For each benefit there is an obligation of eligibility. Being a minister accords no favorable tax treatment. For actually ministering, there is. For the issues, which I am raising, I want you to consult and confirm with your tax advisor. I am not an attorney or tax advisor. I am speaking only on the religious issues that involve the tax code and how to work cooperatively with the IRS so as to bring the new organization into full compliance with the regulations which govern all tax-exempt organizations. I use the term religious issues because I maintain that finances are necessary for the promotion and continuation of any religious activity; religiously termed it would be "stewardship." ***Stewardship deals with the practice of managing money and resources and not simple beliefs! Laws change, new revenue rulings appear without notice and a source of competent advice and education is necessary. The Zondervan books are a primary source for education and understanding, but there are other such books by other publishers and authors. Zondervan books are clear and able to advise you as an individual, which requires one-on-one involvement with the books text that exceeds my ability to educate and advise from a distance. There was a time when I advised individuals regarding the tax code and that ended when I learned some put those understandings of the tax provisions to their personal benefit, were audited, prosecuted and then blamed me for their activities. My texts here are just that - texts, information only...needing confirmation and appropriate legal advice to bring into practice. ***An organization runs on instructions which are called "resolutions". It is just like a computer, you have to give it instructions. No one owns a religious organization - it owns itself. It has its own Employer's Identification Number - EIN that separates it from any one individual. That number is used for all bank accounts and for all communications with the government. The EIN or Employer's Identification Number can be obtained by filing Form SS4 and that form can be requested from the IRS by telephone or by mail. Sincerely religiously motivated individuals have every reason to anticipate the assistance of the IRS regarding which forms to file and what information is needed to be fully disclosed. Belief-based human services programs have a much higher success rate than commercial or governmental programs. Because of the value to society that religious organizations and belief-based programs provide, the tax code has been legislated to promote and support such programs.
As an individual or group of individuals being sincerely religiously motivated and operating within an organization, it is to the benefit of society that such organizations receive favorable tax treatment. Making application for that tax-exempt status is to be guarded and prized. Deciding upon whether the new organization is a ministry or church is difficult and you should read and judge if your organization meets or is attempting to meet the 14 Points or as many of those points as a new organization can meet and is being formed for the intent of being a church as commonly understood by that term. If the organization does not meet many of those 14 Points the new organization may still be eligible for exempt status, but it must apply for that tax-exempt status. There is a user fee for making application for exempt status to the IRS and that fee is around $500. There is a provision for hardship for new organizations and the user fee can be reduced to less than $200 if it is requested in a timely manner. These amounts may have changed so it is important to request the appropriate forms and read them carefully. Both Forms 1023 and 1024 can be requested from the IRS and the organizers of the new religious organization can judge what information needs to be disclosed and to disclose it fully. If the organization is classified as a religious organization it will usually be granted a two year exempt status so that it may operate. In two years the IRS can review how it operates and then make a final decision by issuing a Determination Letter indicating the classification and exempt status of the organization as long as it does not substantially change its manner of operation. ***An organization that receives the classification of church may some day be reclassified as a religious organization and conversely a religious organization may be reclassified as a church depending upon the operation of the organization. Reviewing and repeating... ***Understand clearly that joining the ULC as a minister does not make one tax-exempt. In fact a minister as an self-employed individual having to file Schedule C pays a higher rate because he/she must pay all of the Social Security tax and Medicare Tax, which is currently just under 17 percent which is off the top! ***There are NO TAX BENEFITS for just becoming a minister. There are tax benefits to individuals that are actually ministering in an active manner and can prove it. If you are not actively doing the services of a minister there is nothing coming to you by way of any benefits whatsoever. ***A minister does not have to have a congregation to be entitled to the tax benefits accorded to ministers. Missionaries, itinerant ministers, evangelists and traveling lay ministers and prophets may be entitled to the same tax advantages as any minister of a church or congregation anywhere else in the country. The Zondervan books explain this fully as well as the requirements that must be met for entitlement. The best manner to decide whether you are starting a ministry or a church is to allow the IRS to decide the classification of the new organization and to file for evaluation by the Internal Revenue Service. In that manner there is nothing to fear about making errors and the organization would be acting appropriately and openly. You will find that the IRS will be helpful in informing which of areas need to be brought into compliance. (We were wrong in the 70's and 80's when we challenged the IRS and fought against them. It took many years and a final $3.5 million dollar settlement by the church to bring the IRS matters to a final conclusion and we do not want to bring anyone or the church back into difficult times again.) The information in the ULC TEXTBOOK is just a start, you need the Zondervan books that are named above. Congregations will be interested in the Zondervan Tax and Financial Planning Guide for Churches and Nonprofits ($12.00 plust S & H) There is one other book that you should also order at the same time and its title is Zondervan Minister's Tax and Financial Planning Guide and it costs about $14.00 plus S & H and is also available from Amazon.com. . Please go through the www.ulc.org
Bookstore to order these two Zondervan books through the Amazon.com search engine provided right on the site. Type in Zondervan Ministers Tax for one of the books and then type Zondervan Tax and Financial for the second book for churches and nonprofits. Always order the newest editions. When you read those two paperback books you will understand the differences between a Church and a Ministry and what requirements there are for each regarding filing for exempt status or exempt status already being granted at formation for a church. Do not just assume you have a church because you name the organization Church.
The overview is what is important and no new organization would be expected to meet every single point of the 14 Points it is just not possible. The IRS is looking for sincerity and a religious purpose which is should be expressed in the Beliefs and Practices Statement and the funds of the organization should be expended in the furtherance of those avowed beliefs and practices. So doing may aid to meet the "organized and operated" test. Just "having church" is not being a church. A church is not a building, a church is a group of people of like beliefs. The organization's Beliefs and Practices Statement is the most important aspect of the new organization. It is a guideline by which the IRS will judge the organization in whether it does what it says it does and its money expended upon the furtherance of the avowed religious purposes. ***No part of the net may inure to the benefit of any individual is a vital aspect of all exempt organizations. What this means is that the organization cannot exist for one person's benefit or one family or certain individuals or groups. (This was the focus of the operations of many in the 70's and 80's and the result was the new revenue ruling restricting donation amounts for "home churches". ) The IRS simply had no choice but to act in this manner. I strongly believe that any organization that applies, approved and granted Church status would not be restricted by that limited giving revenue ruling. You must seek appropriate counsel for confirmation of that statement. Let the focus of this discourse be that the IRS is a working partner. The IRS is the gatekeeper of the benefits bestowed by the tax code and tax-exempt status is the be cherished and protected. It is most advisable to seek the assistance of the IRS in deciding the classification of your new organization. The organization has everything to gain utilizing the assistance of the Internal Revenue Service. ***There is one way that I have not discussed which eliminates anxiety and doubt in the establishment of a tax-exempt church or ministry and that is to have the legal paperwork completed by a professional service. El SHADDAI MINISTRIES has been providing this professional service to churches and ministries to comply with all of the regulations and required form submissions for entitlement to tax-exempt status under 501 (c) (3) of the tax code. It is not cheap and currently is about $2,000, but well worth the investment for peace and correct establishment of a new organization. The ministry maintains an excellent website at htt://www.elshaddai.com/ Thousands of organizations have used this ministry's services over the last 19 years. The website has a wonderful display of important information and even a downloadable application. You can receive many pages of information for download or request it by mail - free. You can write to the organization at EL SHADDAI MINISTRIES, PO Box 3, Prairie View, KS 67664 Or you may contact the organization by telephone at (785) 973-2324 or by FAX at (785) 973-2325 The motto of the EL SHADDAI MINISTRIES is "We'll help you filfill your dream or vision" and having professionals do the legal and complicated filing tasks, this frees up the individual (s) to work on the mission (s) of the new religious organization. ***Ordination is entitlement to officiate marriages in the fifty states and nothing else. ***Ordination has nothing to do with taxation. All ministers must follow the tax code and there is no provision in the law for ministers to be income tax-exempt. Sometimes individuals send letters or call asking how to get out of Social Security. I am not a tax advisor, but I stress to them that nothing could be more wrong. The Social Security program is more of a benefit than people know. They think it only helps in old age and that is not true. If something happens to you, it pays until you are well or you die when it then may pay benefits to your wife and/or children. When you consider the cost of insurance on the open market for that protection - both retirement and disability - you are getting a great bargain with Social Security. People who do not understand the system and often want to get out thinking they could do better on their own. If they have not done better now, they cannot expect to do better with more money. The best predictor of the future is the past and if someone has not "made it" i n the past there is little expectation of making it in the future. The Social Security program is special and of great benefit and ministers should remain in it. If a minister is a member of a denomination which has its own retirement program there may be some merit to considering opting out of Social Security, however there is a time limit after ordination which governs when it may be applied for. ***Congregations as new organizations - Ministries or Churches, may set their own policies and practices within the law. (one example provided: immunization waivers)
Ministers with or without congregations should understand that the Mother Church does not get involved in issues such as "vaccinations" which is a common issue. All such issues are local issues. Neither Modesto nor the Monastery in Tucson, AZ will issue directives allowing individuals or children to not be vaccinated as a religious belief. Many times by letter or phone this issue approaches us. Modesto informs new congregations that they have the authori ty to make such determinations and that is correct. Whether those determinations will be honored by school authorities is unknown. Yes, local congregations, being sovereign, do have that right, but they do not have a right to compel others to do their will or be at increased risk of contagion . If individuals have a congregation, that organization can issue its own directive. I am not aware of any such home church issuing a directive against the immunization of either children or adults that has been successful. I last became aware of one instance where an adult was faced with an immunization regulation for college admittance. The college would not accept the document created by the individual to my knowledge. When the schools allow the exemption from immunization of any child, there is an increased risk of contagion to that child and other children in the school. School officials are charged by society with the responsibility for protecting children and any exemption from vaccination increases risks - so they are unwilling to do that willingly and they do so only with great reservation. A minister without a congregation is entitled to the benefits under the law if he/she is actively ministering as an "itinerant minister" who is like an evangelist. You need to understand that you don't have to have a building or a flock, but you do need to be doing what you say you believe in and keep a record of it and it be a source or potential source of income to the individual. If you really believe in any belief system regardless of what it is religiously speaking, your life will reflect it and you will not have any difficulty in providing proof. It is important to understand the Zondervan books so please secure your own copies and get the latest editions which are 2001. The Congregational Agreement Form... ***Neither is a general agent for the other. That is an important phrase - general agent. For ministers with congregations that phrase appears on their congregational agreement and few understand what it means. It means that neither you nor your congregation can act for Modesto and Modesto cannot act for you. What does act mean? Act means anything that has any effect whatsoever whether it is liability or actual costs. Your congregation or its membership cannot buy anything and charge it to Modesto. At the same time Modesto cannot do the same. This was not always the way it was, but it is the way it is now. There is another condition in the agreement that extends the liability of the congregation' Board of Directors and it needs to be understood by the signers of the agreement. The signers of the congregational agreement agree to "hold harmless" the Modesto Church and also to pay its expenses in case of any action whatsoever where the church may be named in any suit. Most states have laws which allow plaintiffs or defendants in a suit for damages to sue the congregation's board of directors "jointly and severally" which means judgments can be taken in any amount from any individual which has it and not equally from the three. This may not sound fair, but it is the law in many states. Can you understand the need for a lawyer's advice now? There are no problems between the Universal Life Church and the Internal Revenue Service. This does not mean that the congregations are free from difficulties, because they are new organizations - "sovereign" entities and the ULC would not be contacted by the IRS regarding any congregational activities and would not know of any improper activit ies of any other entity. That is another important term on the congregational agreement - sovereign. Sovereign means independent; responsible for its own actions. That is why Modesto would not know about wrongful or inappropriate activities of new congregations which are separate entities. Each congregation is responsible for its own actions, its own liabilities, and its own debts and also owns its own wealth, buildings, property, name if incorporated, and assets of every kind. The fact that a congregation sends its quarterly reports to the church and pays its $5 per month bookkeeping fees does not entitle it to any special tax standing, classification or entitlement to any special benefits within the community at large. ***Chartering a congregation is affiliating with the denomination UNIVERSAL LIFE. Individual congregations are not in any way covered by the exempt status of the Modesto Church concerning Federal tax-exempt standing. All congregations are responsible for establishing their own standing with the IRS which begins with the filing for the Employer's Identification Number on Form SS 4. Some individuals still believe that they are covered by some umbrella exemption as some churches are. That belief is false. The Universal Life Church holds a singular exemption for the Modesto Church only. Modesto does not possess a group exemption. Some individuals believe that becoming a congregation automatically entitles their new organization to
Church classification by naming the new organization Universal Life Church and thus automatic tax-exempt status. That is false. Each congregation must establish itself before the IRS as a church based upon 14 Points, which the IRS utilizes as an agency to make a classification of Church, or the classification as a religious organization. A church is different from a ministry although both may be tax-exempt. The difference is significant; a church is automatically exempt upon formation and needs not file any Form to the IRS for exempt standing to which churches are entitled to upon formation. ***A ministry is not automatically exempt and must make application to the IRS on Form 1024 Application for Exemption. The IRS must decide and there is a filing fee (user fee) for the service, which is $500, which may be reduced upon written request to about $200. ***A church is not required to file, however it is appropriate for a church to file ( Form 1023) so that its name will be listed in Publication 78, which is a listing of all of the exempt organizations in the country. A new church does not need to fear the IRS in any way. No new organization is expected to have every one of the 14 points, a certain number of the points or any sequence of the points. The IRS is looking for evidence of the organization being or planni ng upon being similar to churches already recognized as exempt. It attempts to judge the sincerity of purpose and activity in the furtherance of the avowed religious purposes. The organization's Beliefs and Practices Statement is of significant importance in that the IRS utilizes that very document to evaluate the organization to determine whether it is "organized and operated" for an exempt purpose. The Universal Life Church made a horrible mistake in its early years and I regret being part in that mistake when we made an enemy of the IRS and challenged that agency into battles all across the nation. It was not wise and was rebellious. I believed at the time that it was religious, but I was wrong. The IRS was not against the ULC, but rather the specific activities involving money transfers and charitable donations claimed.. The ULC made attempts to control the flow of money, but too late and tens of thousands of donations were being reported that never really were made. Individuals that came to the church for financial reasons back in the 80's are gone now, I remain because there is more to the ULC than finances and the church's essence is freedom which can only be experienced by living the church's two tenets. The financial incentive of the lessening of taxes is no longer available. Anyone attempting that will soon learn that it will not work. ***We do not advise on taxes for particular instances of a personal or business nature. The examples stated are references to positions taken by the IRS, published, available by telephone from the IRS and directions to seek proper advice. Neither the Church in Modesto nor the Monastery in Tucson will give tax advice of a personal nature. The information above is for organizations and the interactions of individuals with an organization and not individuals per se. Examples are for congregations, which are a religious function, not personal. I am not an attorney and not a tax advisor. I direct you to the Zondervan Church and Nonprofit Organization Tax and Financial Planning Guide, Zondervan Minister's Tax and Financial Planning Guide and to the IRS Forms and Publications mentioned herein intended for the purpose of instruction and compliance. The two Zondervan paperback books will reveal what is needed about a exempt entity establishment and for mini sterial compensation reporting. Both are inexpensive and can be ordered online from Amazon.com or Barnes and Nobel. com. You really cannot operate without them. Every congregation should have those two books and the ULC TEXTBOOK. The following is a listing of the 14 Points which the IRS utilizes to assist the agency in determining the classification of an organization as a CHURCH. 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 studies 9.Literature of its own 10.Established places of worship 11.Regular congregations 12.Regular religious services 13.Sunday schools for religious instruction of the young 14.Schools for preparation of its ministers
Depending upon how many of these points a new religious organization has or plans to have in the future, it may or may not be classified as a Church by the IRS. If a classification of Church is not made it is likely that the IRS would then make the classification of the new organization as a "religious organization" which may be tax-exempt also. Classification alone is just step one. All organizations must be organized and operated for the religious purposes declared in their Beliefs and Practices Statements and conduct business affairs in accepted accounting manners. ***Classifications may change with changes in organizational practices or purposes. ***Tax-exempt status can be revoked for cause. There is nothing negative with the classification as a "religious organization" as opposed to a classification of the organization as a "church". The only difference would be that the new organization (ministry) would be required to file an informational return each year showing the amount of income and the expenditure of that income. A church would not be required to file a return disclosing its income or expenditures although it may have to file and pay taxes upon "unrelated business income." A new religious organization or even church may be given a temporary two-year exemption status after which the IRS would evaluate the organization to assess whether it has met the regulations and is operating properly so that a permanent classification can be made. A congregation should welcome any classification. Classifications can change. A religious organization can become a church and a church can become a religious organization depending upon its activities and methods of operation. The protection of the exempt status is important for all exempt organizations. Apart from direct inquiries as to general requirements clearly expressed in available informational sources, forms, resources, general educational aids, or ULC specific information I cannot provide individual tax advice or counseling. The named informational resources and personal experiences support this Discourse. No specialized or individualized advice or direction should be taken other than the broadest of understandings and the importance of seeking competent advice and direction. Please build your organization - be it classified as a ministry or a church to where you as a founder of the new organization feel that the organization could continue even without your personal membership or guidance. Sincerely, Brother Daniel
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