Setting Up a Tax Exempt Church


(303) 455-0837 

October 25, 1999

Dear Friend:

Thank you for your questions about setting up Church organizations. In 1977, I set up a home church and took a donation to it. The IRS audited me because I was so vocal about the situation and after six published wins in the Tenth Circuit, they settled with me and I got over $15,000 back in a refund suit. The IRS did not want to go to trial because they were afraid I would win hands down and really make them look bad. Although I am not an attorney, I have had a lot of experience as a paralegal in this field. I suggest that you double-check my opinion with an attorney if you would like professional verification. Also, you might enjoy looking up my cases in your local law library. They are published on my business card, which I have sent you under cover of this letter.

The church issue is actually quite simple.  Anyone can start a church.  Churches are automatically exempt from the payment of federal income tax on their contributions and passive investment income.  (See Internal Revenue Code Sections 501(c)(3) and 508(a)).

  • Your church does not have to be incorporated but you should have at least three members.

  • Once your church is organized, it can ordain and hire a pastor.  The pastor can receive compensation, which is specifically excludable from gross income under Internal Revenue Code Section 107.  Furthermore, the pastor can receive paid professional expenses.

  • Anyone can donate up to 50 percent of their adjusted gross income and take a corresponding deduction on their tax return.

  • The Internal Revenue Service does not require a church to register with it, but a church must get an Employer ID Number if it wishes to maintain a domestic bank account.

  • Your church should have regular board of director meetings and the board must approve all expenditures.  It is also recommended that you have a monthly newsletter and that you advertise your meetings locally.  The minister you ordain can perform the sacraments of your church such as weddings, etc.

  • Your church can own property and vehicles for the furtherance of its religious purpose.  For example, many churches not only own buildings for religious worship but they also own religious retreat centers.  Most of this property is also exempt from property tax under state law.  Most states also allow sales tax exemption to churches.

Under Internal Revenue Code Section 7611, the IRS is required to follow special audit procedures when they audit a church. It has been my experience that they make a great deal of mistakes in their procedures.

The IRS has a 14-point plan that they use to determine if a church really is a church.  We can discuss that issue in subsequent conversations, but generally, your church would have to be involved in religious activity and could not be set up for inurement.  That means that you could not give money to private individuals except as compensation for their services.  Ministers can also receive love offerings, and the Tax Court has ruled that love offerings are not taxable to ministers.

I hope you find this information interesting.  If you have any questions, please call.  I have seen literally thousands of people in the last fifteen years set up small churches and it is my desire to see the United States become so religious that everyone in America will someday become a minister in his church and enjoy the same spiritual benefits as Billy Graham and the Pope.  Thanks for writing.


Rev. Willie Conklin