Another Filing Deadline?

Although tax-exempt organizations are exempt from paying income taxes, they are required to file an annual income tax return in order to maintain tax-exempt status.That tax return is known as Form 990.

Who is required to file Form 990?

The requirement to file Form 990 comes to us from section 6033(a)(1) of the Internal Revenue Code, which states,

“Except as provided in paragraph (3), every organization exempt from taxation under section 501(a) shall file an annual return, stating specifically the items of gross income, receipts, and disbursements, and such other information for the purpose of carrying out the internal revenue laws…”

Therefore, if you operate any kind of ministry (excluding churches) or regular nonprofit organization then you must file Form 990 on an annual basis. This includes, but is not limited to, organizations such as community development corporations (CDCs), traveling evangelistic ministries, transitional housing programs, holdings corporations, and many more.

What happens if I miss the deadline?

When we take a further look at section 6033, we see that section 6033(j)(1) states thatorganizations that fail to file Form 990 for three consecutive years will receive an automatic revocation of their tax-exempt status.

Now, perhaps you are in the situation in which you have obtained an employer identification number (EIN or Tax ID) and have even incorporated your ministry/organization in your state, but have yet to get 501(c)(3) status. Does this mean that you do not yet have to file Form 990? Absolutely not! The “time clock” for you to begin filing Form 990 begins when you first obtain the EIN for your ministry/organization.

Many ministries lose their 501(c)(3) each year

There is a misunderstanding among many as to when an organization is required to file tax return 990. A ministry is required to file a 990 for the year in which it get its tax ID number (FEIN). However, many organizations believe that they are not required to file until they get their 501(c)(3) status. Let me give you an example. Pastor X started a CDC to reach out to the community. He incorporated the CDC and got the tax ID number in 2011. However, the CDC did not really start to pick up speed until 2013, at which point he decided that the CDC was doing well enough to merit obtaining 501(c)(3) status. He submitted the application, and it got approved. In June of 2014, however, he received a letter from the IRS stating that the newly approved CDC had been revoked. As upsetting as this was, it happened because in the IRS computer system his ministry went three consecutive years without submitting a 990 tax return. The IRS system expected a 990 for tax years 2011, 2012, and 2013.

Determine which form and know when to file

You do not have to be caught off guard with an automatic revocation. You can, however, be equipped to handle the Form 990 filing requirements successfully and protect your non-profit’s tax-exempt status by using the following guidelines.

  1. Determine if your organization is required to file Form 990. Remember, churches do NOT have to file 990 tax returns. However, all Christian, non-church (para-church) ministries are required. Private foundations are always required to file a particular 990 specifically for private foundations no matter how much they receive in donations.
  2. Determine what type of 990 you are responsible for filing. There are several variations for the Form 990 annual informational return. They are listed below:
    • 990N (the e-Postcard): A 990N is an electronic notice. Organizations with gross receipts of normally $50,000 or less will file this electronic notice.
    • Form 990 EZ: Form 990EZ is also referred to as the short form. Organizations with gross receipts of normally more than $50,000 but less than $200,000, and whose assets are valued at less than $500,000, are required to file this form.
    • Form 990, also know as the long form: Organizations whose gross receipts are on average $200,000 or greater, and whose assets are valued at $500,000 or greater, are required to file Form 990.
  3. Know your deadline for filing Form 990. All 990 filers are required to submit their returns by the 15th day of the 5th month of their fiscal year. For most organizations, their fiscal year coincides with the calendar year (January – December). If your fiscal year ends on December 31st, then your Form 990 will be due by this coming Friday, May 15th. If your fiscal year ends June 30th then you will be required to file your Form 990 by November 15th of the same year.



Think About Such Things

“Finally, brothers and sisters, whatever is TRUE, whatever is NOBLE, whatever is RIGHT, whatever is PURE, whatever is LOVELY, whatever is ADMIRABLE—if anything is EXCELLENT or PRAISEWORTHY—think about such things.”

~ Philippians 4:8

Is it Time to Make Changes to Your Tax-Exempt Status?

Informative article from

Pastor Teddy began his ministry as an evangelist 8 years ago. Two years after he started, he decided to incorporate his ministry as a religious nonprofit organization and apply for 501(c)(3) tax-exempt status. In addition to various conferences and traveling each week to minister the Word of God to different churches, Pastor Teddy met weekly with 12 people in his home for a time of Bible study and intercessory prayer. Over the next several years as his traveling ministry continued to flourish, so did the worship gathering in his home. What started out as a time of worship with a modest group of 12 individuals soon turned into a time of worship with 30 individuals. Pastor Teddy loved ministering the Word of God to congregations across the country, yet he was beginning to feel God calling him to plant a church in his hometown. Above all else, Pastor Teddy wanted to be obedient to the voice and call of God. He was ready to answer God’s call to start a church in his hometown, yet at the same time, he knew there were some legal steps he would need to take to convert his ministry to a church; he did not know if he should convert his ministry to a church or start a new entity for his church.

“The 3-R’s” of Church Compliance
There will come a time in your ministry when the changes that occur become significant. It is the natural process of a healthy organization that is experiencing growth. For churches that have received federal tax-exempt status, Revenue Manual 7.21.5-2 requires them to notify the IRS of any significant changes in order to keep their 501(c)(3) status up-to-date and compliant. This what we at StartCHURCH call a 501(c)(3) reconsideration. These changes include any modifications to your ministry’s governmental structure (articles of incorporation and/or bylaws), activities, or funding. At times, these changes may warrant a change in how your ministry is classified from when it received its tax-exempt status like it did for Pastor Teddy and his ministry. This necessary process is what is known as are classification. There is also an instance in which a ministry may have had its tax-exempt status revoked or suspended. While there are several reasons as to why this may have happened, the most common is when a tax-exempt ministry (other than a church) fails to file Form 990 for three consecutive years. Such instances necessitate a reinstatement.  Let’s take a closer look at what we call “The 3 R’s” of church compliance: reconsideration, reclassification, and reinstatement.

Reconsideration is a term that we at StartCHURCH created to describe the process a tax-exempt organization must take to update its public record with the IRS. Internal Revenue Manual Part 7, Chapter 21, Section 5 states:

“If your source of support, or your purposes, character, or method of operation change, please let us know so that we can consider the effect of the change on your exempt status and foundation status. In the case of an amendment to your organizational document or bylaws please send us a copy of the amended document or bylaws. Also, you should inform us of all changes in your name and address.”
It is important to report any substantial changes so that all information on public record is up-to-date with the IRS. In essence, this includes changes you make to your organizational documents, activities, and/or ways in which you receive funding. Changes to your organizational documents include but are not limited to:

  • Changes to your articles of incorporation (amendment to the purpose or dissolution clause, name change);
  • Changes to your constitution and bylaws;
  • Changes to your policies and procedures; and
    Changes to the voting membership.

Unlike when you first applied for 501(c)(3) tax-exempt status and you have to pay the $850 user fee, when you submit a “reconsideration packet” to the IRS, you WILL NOT have to pay another filing fee. Now that is some good news!

The second of our “3 R’s”, reclassification, occurs when an organization’s purpose and activities change in such a manner that it warrants a need for its tax-exempt status to be classified differently. In general, it is more common for a church to be reclassified as a ministry (religious nonprofit), or for a ministry to be reclassified as a church.

A religious organization that was not initially classified as a church may begin to operate as a church by holding weekly worship services with an established congregation and offering other “church-like” activities such as Sunday School, children’s ministry, Bible study groups, and more. In this instance, it becomes advantageous for the ministry to reclassify as a church since churches are not required to file Form 990 annually with the IRS. To do this, all the ministry has to do is file Form 8940 along with Schedule A of Form 1023, a written description of activities, one year of projected income and expenses, and a copy of any amended organizational documents. All of this needs to be sent to the IRS with a filing fee of $400.

In a similar manner, some organizations initially classified as a church may find it necessary to reclassify as a religious nonprofit. For example, if a church has a transitional housing program for homeless families that begins to require more time, energy, and resources than the church itself, then the church may need to consider reclassifying its tax-exempt status. To do this, the church needs to file with the IRS Form 8940, a written description of activities, and a copy of any amended organizational documents. In addition, the church needs to file Form 990-EZ or 990-LONG for the preceding tax year that the request for reclassification is made. Again, all of this needs to be sent to the IRS with a filing fee of $400.

While there are several ways in which a charitable organization may lose its tax-exempt status, the most common way is by failing to file Form 990. This is an annual informational return that all tax-exempt organizations, except for churches, must file to the IRS. According to section 6033(j)(1) of the Pension Protection Act of 2006, any tax-exempt organization (except for churches) that fails to file Form 990 for three consecutive tax years will have its tax-exempt status automatically revoked. However, there is good news in the midst of this.The very next paragraph, section 6033(j)(2), permits an organization whose tax-exempt status was automatically revoked for failing to file Form 990 to apply for reinstatement.
In order to be reinstated, the revoked organization must submit a new Form 1023 application with the filing fee. Furthermore, Revenue Procedure 2014-11 provides four procedures in which an organization may apply for reinstatement based upon facts and circumstances: 1) Streamlined Retroactive Reinstatement, 2) Retroactive Reinstatement Process (Within 15 Months of Revocation), 3) Retroactive Reinstatement Process, and 4) Post-Mark Date Process. In general, an organization applying for retroactive reinstatement from the date of revocation must submit the following:

  • A written request and statement that has a compelling and reasonable argument for why the organization did not submit the necessary Form 990’s for three consecutive years (or more if applicable).
  • Proof that is has implemented the necessary procedures to insure that it does not happen again.
  • All missing and necessary Form 990’s that were required but not filed.
  • A declaration signed under penalty of perjury that all information is accurate and true.

Humble or Haughty?

“But among you it will be different. Those who are the greatest among you should take the lowest rank, and the leader should be like a servant.” — Luke 22:26, NLT

This verse states a view that is so different than what the world practices. According to the world, a leader is to have special privileges and to be treated better than everyone else.  The world seems to see service as a form of weakness. Jesus tells us and shows us that service is a sign of strength—it takes inner strength to serve those around us. It’s a very humbling experience. Leaders who think they are above serving are simply afraid of their weaknesses.

Christ tells us that our leadership should be different than what the world expects. We shouldn’t gloat over being above anyone else but use our place in life to help others. The best leaders or teachers are the ones who can admit when they are wrong or they don’t know the answer. Then, because they are leaders, they work to find the correct answers and lead people down the right path.

Look at the leadership examples around you. Do they tend to be humble or haughty? Take a look at your own leadership style. If you’re a parent, how do you lead your children? As a wife, how do you serve your husband? Husbands, how do you serve your wives? Service isn’t just a sign of humility but of love as well. Good leadership requires love. It’s a love outside of us—God’s love. Ask God for His love to empower and guide your leadership and relationships with people. Follow Him, for He is our ultimate servant-leader.

IRS Deadline Approaches

By January 31, churches must issue the following 2014 tax forms:

  • W-2 form (“wage and tax statement”) to each employee by this date. This requirement applies to clergy who report their federal income taxes as employees rather than as self-employed, even though they are not subject to mandatory income tax (or FICA) withholding. Nonminister church employees must also receive a W-2.
  • 1099-MISC form (“statement for recipient of miscellaneous income”) to any self-employed person to whom the church paid nonemployee compensation of $600 or more in 2014 by this date. This form (rather than a W-2) should be provided to clergy who report their federal income taxes as self-employed, since the Tax Court and the IRS have both ruled that a worker who receives a W-2 rather than a 1099-MISC is presumed to be an employee rather than self-employed. Other persons to whom churches may be required to issue a 1099-MISC include evangelists, guest speakers, contractors, and part-time custodians.
  • 1099-INT form to any person to whom it paid $600 or more in interest during 2014 by this date (a $10 rule applies in some cases).

Ministry Leadership and Church Development