Questions About Tax Status
I have questions about my congregation's federal, state, and local tax status and how to apply for exemptions.
The Internal Revenue Service (IRS) has a procedure by which a parent organization (in this case the Evangelical Lutheran Church in America) can establish for its subordinate organizations group ruling tax exempt status for federal income tax purposes.
Exemptions from sales and real estate taxes, are determined by each individual state. The IRS exempt status is primary to securing other tax exemptions.
For more information see A Brief Description of the Group Exemption Procedure
Federal Income Tax Exemption
In order to be included in the annual ELCA filing, an affiliated organization must meet the following criteria:
- It must have authorized its inclusion in writing;
- It must have a nine-digit Federal Employer Identification number (EIN);
- It must NOT have received its individual letter of determination from the IRS, as a consequence of having filed an application on IRS Form 1023;
- It must be "controlled or supervised" by ELCA; and
- It must, in its governing documents, contain appropriate clauses that establish its character as a public charity. These clauses include prohibition against any of the assets income inuring to the benefit of private persons, and provision that upon dissolution of the organization its assets will go to another organization qualifying as tax exempt under 501(c)(3) of the Internal Revenue Code.
- The certification letter issued by the ELCA General Counsel confirms that a subordinate organization has been included in the ELCA Group Exemption filing. Please go through our email processing at firstname.lastname@example.org to secure this certification.
- This Fedral Income Tax Exemption letter may be requested in any of the these additional situations:
- Application for a Post Office Bulk Mailing Permit. U.S. Post Office Publication 417, Nonprofit and Other Qualified Organizations. An additional resource for information is provided by the Alliance of Nonprofit Mailers .
- Application for state sales tax exemption; (Exemption from state and local sales and other taxes does not automatically follow because one has exempt status from federal income tax purposes; however, in many states proving exempt status from federal income tax is a prerequisite for applying for exemption from sales and other local taxes.)
- Application seeking a grant or matching funds from some other 501(c)(3) organization (e.g., a fraternal life insurance company).
- Settlement of an estate where money has been left to an affiliated organization named as a charity.
- Donations are tax deductible. How can I explain to potential donors that my congregation (or other organization) is exempt from federal income taxes because the ELCA holds a group ruling exemption from the IRS?
State Sales Tax Exemption
In many states an application form is required. It is often necessary to show proof of exemption from federal income taxes. (The proof that the church organization is a 501(c)(3) entity) Some additional requirements will often include an application form and proof of incorporated status. Once a state sales tax exemption is granted, it is important that the congregation monitor its use. The authorized user will often need to present to the merchant a copy of the letter issued from the appropriate state authority or the state tax exempt identification number. It is certainly proper for the congregation to use the exemption for purchases of church supplies, foodstuffs, and other materials used directly for church purposes. However, it is important that all staff and members understand that it is illegal to use the tax exemption for personal purchases.
Local Real Estate Tax
Exemption from real estate taxes is governed by state law. Application for exemption from real estate tax may vary from county to county within the same state. In some states, what the local tax assessor/collector says or thinks the state law is, controls. Check with the local taxing authorities or a local tax professional to find out whether the congregation will lose its real estate tax exemption if it leases property.