Tag Archives: IRS

Are churches nonprofits?

Yes, they’re tax-exempt under IRC Section 501c3. But how, exactly, are houses of worship such as temples, mosques, and churches nonprofits?

If you’ve recently discovered religious tax exemption and think it has something to do with the clout of modern mega-churches, you might be surprised that this is nothing new under the sun. In the U.S. churches have been officially tax exempt since 1894 and unofficially tax exempt since Day 1. Before the IRS even existed, their work fit the modern definition of the nonprofit sector – organizations that use private funds for the public good.

The legal underpinnings that make churches nonprofits are quite a bit murkier than the de facto ones that derive from long-standing practice. The Emperor Constantine explicitly granted the first known tax exemption to churches in the third century, but the highest law of our own land, the U.S. Constitution, is silent on the matter. Nevertheless, when the Supreme Court reexamined the nonprofit status of churches in Walz v. Tax Commission of the City of New York (1970), the rationale was attributed to the First Amendment. Tax exemption, according to that decision, “creates only a minimal and remote involvement between Church and State and far less than taxation of churches [would].”


churches tax exempt

Constantine: “…and then I made myself spiritual leader of the church and declared it tax-exempt!”


The Walz decision is what’s always quoted today on this issue, though it was merely an attempt to explain why something is the way it’s always been. The Internal Revenue Code has since its beginnings in the late nineteenth century categorically defined religion (as well as science) as a 501c3 exempt purpose. Furthermore, it considers “charitable” actions to include “the advancement of religion.” So an honest answer to the question of what makes churches nonprofits is that they just are.

Churches are automatically considered nonprofits without having to apply for exempt status. Some choose to formally request a 501c3 letter to encourage contributions, which people seem more willing to give when they’re assured to be tax-deductible (who would’ve thought?).

While the Church of Satan famously spurned its nonprofit status, that status can generally only be pried from the cold, dead hand of religious organizations. The Church of Scientology lost theirs for 26 years only after being recategorized as a commercial rather than a spiritual business. For houses of worship that do not charge thousands of dollars for auditing sessions, the greatest risk is violating the 1954 Johnson Amendment to the tax code that prohibits exempt entities from endorsing or opposing political candidates. You may have noticed that in practice ministers endorse, oppose, and generally comment on politics all the time. The Johnson Amendment is so wishy-washy that although hundreds of churches are reported as violators the IRS has only ever stripped nonprofit status from one politically active entity – a small church in Upstate New York that ran anti-Bill Clinton ads in the newspapers back in 1992.


The Church at Pierce Creek's ad that finally got the IRS's goat.

The Church at Pierce Creek’s ad that finally got the IRS’s proverbial goat.


The term “churches” here, incidentally, is understood generically to include all sorts of houses of worship, regardless of religion. While there have been dozens of petitions to reclassify the Westboro Baptist Church as a hate group that doesn’t deserve tax exemption, there have been many more started by narrow-minded people floored by the idea that Islamic mosques, Buddhist temples, and other non-Christian houses of worship are equally considered nonprofits. To reiterate: Yes, they are. They just are.

Whether or not churches should be nonprofits is another story. From our perspective as nonprofit fundraisers, the most sophisticated argument against is that religious instruction is not work that the government otherwise would, or even could, do. Nonprofits are meant to solve public sector problems with private sector resources. Even if religiosity is a public good, it certainly falls outside the scope of the public sector. A much less convincing reason is the oft-repeated charge that churches aren’t even really helping people. Honestly, it’s nearly impossible to measure degree of helping people objectively across nonprofits and even if such a metric existed, we suspect no church would rank among the worst offenders.

In any case, wasting time petitioning to remove a 501c3 organization, or even a whole class of them, is silly. All of us are already empowered to make them flourish or fold. All of us should know that exempt organizations, religious and non-religious alike, only exist as long as we keep giving them money.

Want to know more about what makes churches nonprofits? You can find the IRS Tax Guide for Churches and Religious Organizations here!

What does a good Form 990 look like?

Tax Day is coming. Sadly, that dreaded IRS Form 990 isn’t going to fill itself out. You’ll send it off along with virtually every grant request, and many people interested in volunteering for you, working for you, or even just writing you a $50 check will track down the information on it. But what are they looking for, anyway?


The IRS Form 990

The IRS Form 990, window to a nonprofit organization’s soul.


If you think that the only thing that matters is that your organization isn’t in the red, you might be surprised that current financial health is only one of the many bits of important information to be gleaned. A good Form 990 will also hint at your genuine interest in cultivating donor relationships, and can directly reveal your trustworthiness, efficacy, and long-term potential.

Think of your 990 is an opportunity to turn a skeptic into a supporter. You know that they’ll see it, they know that you’ll see it, so why not use it to communicate all that rocks about your organization?

First and foremost, it’s important to fill in your mission statement and relevant program service accomplishments. Charity Navigator and similar services often lift their nonprofit summaries directly from 990s, without consulting websites or other outside sources, and if you (or your accountant) skips these sections it leaves the impression that you don’t really care if people understand your work or not. Be concise about your mission and include major program achievements and updates. Although interested parties will probably come across the same information (or even much more detailed versions) on your website, Facebook page, or Twitter feed, having it appear on the official IRS Form 990 or on Charity Navigator imbues it with authority that “self-generated” content lacks.

An appealing 990 is also one that instills trust in an organization. At least 75% of your expenses should go directly toward programs. As a rule, no one likes to see board members raking in over $100,000. Depending on the work they do they may not even be technically “overpaid” at that salary, but if someone is considering donating money – or even applying for a $40,000-a-year job – they want to be sure that those at the helm aren’t profiteering from their goodwill and generosity.  Likewise, unless your nonprofit’s explicitly in the lobbying game, donors tend to be turned off by excessive lobbying costs. In part this is because nonprofits pay a penalty if lobbying costs make up 5% of their total operations. Savvy donors realize that part of their contributions will go right back to Uncle Sam, not to the cause they’re trying to support.



Not everyone wants to feed the fat cats.


The Form 990 also requires nonprofits to share information on outside grant writers, event organizers, and other fundraisers. This information provides critical insight into small- to mid-sized organizations. Many of them save oodles in personnel costs by not retaining full-time grant writers or event organizers on staff. The public can therefore see the grant writer’s (or gala planner’s) compensation and compare it to the amount of grants received (or money raised at a gala). Is the nonprofit brilliantly reinvesting its resources, or frittering funds away with poor results? An experienced, flexible outside grant writer who takes the time to get to truly know your organization and craft high-quality requests can help your return signal competence, efficacy, and respect for donors and constituents.

Finally, a good Form 990 should demonstrate growth. This can be seen most obviously in the change in total revenue and total expenses over the last few years. A shrinking charity that doesn’t even keep up with inflation isn’t a good choice for philanthropy because it’ll fizzle away before long. If you undertook a project such as building a larger and better-equipped facility that caused short-term shrinkage, consider addressing its importance among your program service accomplishments. Another item of interest is the itemized Statement of Revenue. It breaks down how much support your nonprofit received from foundations, the Federal government, the state government, private donors, and other sources. A fundraiser worth his or her salt is knowledgeable about all types of funding and strategically pursues diversity and long-term sustainability. Being able to prove to potential donors, volunteers, and employees that you’re ascendant boosts their confidence in you immensely. If you want to turn supporters into more avid supporters, invest in your Facebook page. But if you want to turn skeptics into supporters, invest in a good Form 990!

Wild Fundraising is dedicated to the “big picture” – helping our clients achieve their mission every step of the way. If you need assistance creating a knock-out 990 please refer to the IRS instructions here or contact us at 619-436-7161.

“If you’re not at the table, you’re on the table”: Nonprofit lobbying with foundation grant funds

Many nonprofits that advocate for public policy change use the above quotation by Wyoming Senator Mike Enzi to explain and defend their decision. Nonprofit lobbying, their board members claim, is not only a healthy part of America’s democratic process but one of the most effective (and cost-effective) ways to implement the positive change that their organizations stand for. But is this true? Has the controversy over nonprofit lobbying really finally died down?

Nonprofits’ involvement in the dirty game of politics is certainly not the lightning rod it was decades ago. When environmentalist groups began funneling their donations into letter-writing campaigns and other advocacy in the 1960s there were many who recoiled at the idea of using foundation grants and private donations for something that seemed so uncharitable on the surface. Of course, environmental nonprofits had a good reason to turn to lobbying: Unlike other 501(c)3 organizations they had a tough time directly providing their constituents with the goods and services they demanded. Sure, they might be able to build a recycling center, but what could a nonprofit do about deforestation, animal testing, or lake pollution?

nonprofit lobbying

But it’s such a cool state-of-the-art recycling center.


In 2001 UPenn’s Femida Handy published a study on 50 Canadian environmental nonprofits and deemed their public policy strategy a smashing success story. These organizations are the best-suited for environmental advocacy in great part because they have a lot of clout (vs. individuals), are credible watchdogs (vs. businesses), and have the infrastructure in place to keep their issues in the minds of the voting public. Handy’s greatest concern was that nonprofit lobbying was not typically conducted along market-based lines. The tendency to champion a policy no matter what drains coffers and frustrates donors who don’t see their gifts effecting any change.

In the present day more and more nonprofit board members are urged to advocate. Marcia Avner finds it to be “honorable work” and called on board members to use their “power and privilege” on behalf of their constituents. Tom Sheridan’s 2008 manifesto, “Public Policy Advocacy: The Case for Nonprofit Engagement” considers lobbying “an untapped political force to shape the nation’s future.” He heaps praise on the American Cancer Society, the first health group that patterned its strategy after the environmentalist model, for bringing about vast improvements in health care policy and inspiring other groups to reach out to the government.

The Center for Lobbying in the Public Interest (CLPI) sprung up to promote nonprofit lobbying. Bemoaning that at present only 11% of foundation grants go towards “structural change,” the CLPI educates charitable board members on how they can legally use grant money for lobbying, essentially:

  • They can use general support grants
  • They can use money given for projects that include lobbying, as long as the grant is not explicitly “earmarked” for lobbying and is equal to or less than the total project budget
  • They can engage in public policy advocacy that does not meet the narrow definition of “nonprofit lobbying,” including encouraging and training people to advocate for their cause at a later date
  • A more detailed CLPI document can be viewed here.

So, is lobbying really the most effective and cost-effective way for nonprofits to help people? Yes and no. In a certain way it’s a lot like teaching a man how to fish. Instead of only being able to help a few people, public policy advocacy can change the system so that it not only works for many more but also ameliorates the problems so that fewer people face them in the future – some of these problems being homelessness, having no health insurance, or lacking art and music enrichment in school.

On the other hand, not all nonprofits (let alone all Americans), agree on what direction social progress should take. Accelerated lobbying can waste tons of funding as opposing organizations duke it out for the long run. Handy’s concern for market-based decisions based on the mountains of data nonprofits gather can be useful here. In the late 1990s, for example, a $1 donation to an environmental group resulted in about $2,000 worth of pollution abatement after lobbying – but little public policy advocacy is as effective as that. It is indeed for this and other reasons that many foundations and private donors still do not consider advocacy an acceptable use of their funds.


cancer patient

Nonprofit lobbying doesn’t give donors the same feeling of having connected with and helped an individual in need.


A nonprofit’s positive relationship with its supporters is its most crucial asset. That means that it doesn’t matter if you can squirm through the 501(c)3 loopholes, or if your research shows that your campaign will undoubtedly effect the change your constituents want at a reasonable cost. You have to be clear with your donors about your intent before you ever begin advocating. Maybe they really do prefer that you put that money directly into after-school STEM programs. Consider applying for two sets of foundation grants for separate projects, one to provide only traditional goods and services and another which explicitly includes lobbying for structural change. Remember that laws can always shift both ways. Whether you choose to enter the public policy fray or not, it’s your nonprofit’s longevity and ongoing involvement that will do the greatest good for the people you serve.

Questions about IRS laws or how to frame your public policy aspirations in your grant requests? Wild Fundraising has answers!