In a recent court case in Indiana, where a church held themselves out as an unincorporated association in a property dispute, the judge in his ruling designated the church as an unregistered Baptist church.
Washington Circuit Court Judge Roger D. Davis in point Number 22 of his decision of March 21, 2005 said that "Old Paths is an unregistered Baptist church." On October 30, 2007, the Court of Appeals of Indiana used the same language in defining Old Paths. (Editors note: See the end of the article for the Cause numbers.)
By doing so, the court has done a great disservice to all of the New Testament churches that are trying to be obedient to Christ in the area of church polity and practice, especially in the State of Indiana. Thankfully, the case sets no precedent because it didn't go to the Supreme Court of the State. Nevertheless, we feel that it is important that we set the record straight because it involves the doctrine of the New Testament church, and many are following this position and are giving out information in error on this vital issue.
The subject that we are dealing with, in my opinion, is the most confusing subject among preachers and church lay folks and even attorneys that we have to deal with constantly at the Biblical Law Center. For instance, often preachers say to us, "Our church isn't a 501(c)(3) church because we aren't incorporated." We will ask, "Does the church have a bank account, Employee ID Number (EIN), trustees, Constitution and By-laws, conduct an annual business meeting, give tax deductible receipts, file tax-exempt forms, file for mercantile permits, support missionaries through an incorporated missions board, or is the church listed in a Denomination or Incorporated Fellowship Directory, etc.?" If the answer to any of these is "yes," then even if the church is not incorporated, it has the trappings of a corporation; and besides this, by its very existence it is considered a tax-exempt organization by the Internal Revenue Service according to Publication 1828 - Tax Guide for Churches and Other Tax-Exempt Organizations.
We do not have the space in this article to try and prove to the skeptics that all of the above are the trappings of corporate activities, and that there are many court cases and examples to give evidence of these facts. Many of them are in my book The Trail of Blood Revisited (Faith Publications - 4th Printing).
The next error that we keep hearing is the erroneous idea that churches are automatically tax-exempt. Well, this isn't true, either. Let's examine this issue further.
The IRS considers a church to be a legal entity called an "unincorporated association" or "religious society," even if it isn’t incorporated and will treat it as any other non-profit organization or "public-charity" under Section 501(c)(3) of Title 26 of the Internal Revenue Code at 508 .
508. Special rules with respect to section 501(c)(3) organization
(1) Mandatory exceptions. - (a) and (b) shall not apply to-
(A) churches, their integrated auxiliaries, and conventions or associations, or . . .
First you will notice that all churches, whether incorporated or not, are considered to be 501(c)(3) tax-exempt public charities according to the IRS. Churches, regardless of doctrine, whether incorporated or unincorporated, are treated the same by the IRS. They do not have to file any forms for "tax-exemption."
But it does not say that they have a "Mandatory Tax-Exemption." Under (1) it says "Mandatory exception." Now there is a big difference between "exemption" and "exception." For one, “exemption” is not mandatory, only the “exception” is mandatory. But before we look at the difference, let's notice the status of the "association."
1. The unincorporated church is considered a legal entity 501(c) (3) at 508
IRS State Church Defined
IRS Publication 1828; pg. 1
Churches and religious organizations may be legally organized …under state law, including as un-incorporated associations, non-profit corporations, corporations sole and charitable trusts.
But the problem is, if the church does any of the things mentioned above, they are involved in legal enterprises and are or have operated as a legal entity. It's called entanglement.
2. The Association is one of the four recognized IRS Approved Churches mentioned above.
Churches, organized in the four ways mentioned above, including the association, are exempt from corporate taxes at the federal and state level on what is called normal religious activities if they meet the preponderance of a 14 point criteria that was first officially announced by IRS Director Jerome Kurtz in January of 1978, which was the first time in America that this IRS State Church was defined. Beginning at that point all churches, to be tax exempt, must meet this definition in America today. See Pub. 1828 Pg. 1 - "CHURCH - Certain characteristics are generally attributed to churches. These attributes of a church have been developed by the IRS and by court decisions. [Editors note: not by the Bible] They include:
a) A distinct legal existence (which includes one of the four mentioned in paragraph one above), b) A recognized creed and form of worship, c) A definite and distinct ecclesiastical government, d) A formal code of doctrine and discipline, e) A distinct religious history, f) A membership not associated with any other church or denomination, g) An organization of ordained ministers, h) Ordained ministers selected after completing prescribed courses of study, i) A literature of its own, j) Established places of worship, k) Regular congregations, l) Regular religious services, m) "Sunday schools" for the religious instruction of the young, n) Schools for the preparation of its ministers.
"These characteristics, together with other facts…are used to determine whether an organization is a church for federal tax purposes." (Emphasis mine)
Now compare all of this drivel to the clear, simple language of the First Amendment to the U.S. Constitution. "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof."
The churches have traded 16 simple words of liberty for the quicksand of the 501(c)(3) trap that has polluted the pure flow of the gospel of grace from flowing through out our land and even the entire world through the world wide missionary effort.
3. The difference between a Religious Organization and a Church
We hear people say constantly at the Biblical Law Center that churches don't have to be incorporated because churches have mandatory tax-exemption. This is not what the IRC says. It says a "mandatory exception" not "exemption." There is a vast difference.
Churches have a "mandatory exception," but religious organizations do not, such as non-profit ministries like the Billy Graham Evangelistic Association, Inc. Para-church organizations do not have a "mandatory exception." Neither do they have a "mandatory exemption." First, if they want to be a non-profit organization, they have to file Form 1023 with the IRS. If they are accepted, then they have to file Form 990 annually. Not only are they exempt from corporate taxes, but they can also file for state property and sales tax exemptions. They can also receive tax-deductible gifts from donors. But churches have these benefits automatically without having to file Form 1023 and the annual 990, and the pastor gets big time benefits too, but just hold on, the plot gets thicker.
4. Religious Organizations, including churches, have to meet strict rules to maintain their Tax Exempt Status – IRS Pub. 1828; pg. 1
"This publication explains the benefits and the responsibilities under the federal tax system for churches and religious organizations." The IRS makes no distinction between churches and religious (para-church) organizations as far as qualifying or maintaining tax-exempt status.
"No substantial part of its activity may be attempting to influence legislation," (Substantial is totally subjective on the part of the IRS.)
"The organization may not intervene in political campaigns."
"No part of the organization's purpose or activities may be illegal or violate fundamental public policy." Abortion, sodomy, unjust wars are all now a part of the federal "public policy" frame work of our nation. Back when the "fundamental public policy" reflected a Christian world view, the preachers were happy to accept these benefits, never considering the old adage, "Come shekels, Come shackles." But the principle was still the same.
Also, the organization and church, if it has minister "employees," must collect and pay taxes to the federal and state government, which makes the church a collector and payer of taxes contrary to the scriptures. "And he said unto them, Render therefore unto Caesar the things which be Caesar's, and unto God the things which be God's." – Luke 20:25
5. The difference between Exception and Exemption
Note: IRS Pub. 1828; pg. 1
IRC: Section 501(c) (3) describes charitable organizations, including churches and religious organizations, which qualify for exemption from federal income tax and generally are eligible to receive tax deductible contributions.
You will notice that the exemption isn't automatic. The church must qualify by meeting and maintaining the same standards set up for tax-exempt organizations.
IRS Pub. 1828; Page 2
"Churches that meet the requirements of Internal Revenue Code (IRC) Section 501(c)(3) are automatically considered exempt. And are not required to apply for and obtain recognition of tax exempt status from the IRS. However, even though churches are generally eligible to receive tax-deductible contributions, to qualify for tax exemption, such organizations must meet the following requirements:"
Note: Churches are automatically considered exempt and are not required to apply for tax exempt status but they still have to meet "the following requirements." So churches do not have automatic tax exemption.
There is a vast difference between these two words. Just because a church, even if it isn't incorporated, doesn't have to file for tax-exempt status, it still has to "qualify" and maintain its tax-exempt status by meeting all of the standards that tax-exempt organizations meet.
Applying for Tax Exempt Status: Employer Identification Number (EIN)
Pub. 1828 Continues
"Every tax-exempt organization, including a church, should have an EIN, whether or not the organization has employees. An organization that does not have an EIN should file Form SS-4 Application for Employer Identification Number, in accordance with the instructions."
Again, we see the mind games they play. The word "should" as well as "may" are not imperatives in law, but rather are suggestions. However, in such an august setting as the IRC, it is given the color of law. Therefore, to be on the safe side, attorneys, CPAs, tax preparers, etc., because of a cowardly fear of "Big Brother," recommend compliance. Banks then wade into the equation by demanding an EIN as if it is embedded in law. Then over time, the general practice becomes respectable, and then anyone who refuses to go along with the majority is looked upon as a misfit in society and is persecuted by the majority. Then the liberal news media finishes off the mass brainwashing job, aided by government, and heaps scorn on those non-conformists until judges and juries, through the courts, force the conduct into the respectability of law, bypassing the Legislative branch of government. Once the issue finally gets before a jury, generally in tax cases, either the judge instructs the jury to find the defendant guilty or the jury does it on their own. If it gets to the appeals courts, the justices then pick the corpse clean. This is the way a democracy – or rather a mobocracy – works.
What we now have is an IRS recognized and controlled church in America, and without their approval and number, the Lord's true churches cannot exist without a great deal of difficulty. This IRS approved State church includes weird religious cults of all kinds, witches covens, Jewish synagogues, mosques, Mormon Stakes and Buddhist Temples. The Supreme Court even allows the Babalu's, a strange cult that cuts the heads off chickens in downtown Hialeah, Florida, to have their tax-exemption in spite of their violating the health laws of the city, because THEY HAVE THE NUMBER.
When the Biblical Law Center aids in the organizing or reorganizing of a church using its methods, the church makes a Declaration that it is not one of these IRS "legal entities", but rather a New Testament church recognizing the Lord Jesus Christ as its only Lord and Head. For more information contact the Biblical Law Center at firstname.lastname@example.org
(Indiana Old Paths Case: Trial Court Cause Nos. 88C01-9906-CP-123 (9912 C254) (88D01-9907-SC-520) IN Appeals Court No. 88A01-0504-CV-177).