Why Non-Profit Entities Need Not To Worry About 501(c)3

Why Non-Profit Entities Need Not To Worry About 501(c)3

Non-profits contribute $2 trillion to the national economy, and it offers employment to more than 12-million people, while countless millions more are mobilized by them in volunteer activities that often eliminate the need for government intervention.

Their value is acknowledged in the tax code, where they get special treatment. Donors to non-profits can deduct gifts to them while the non-profits are almost entirely tax-exempt. In exchange for their special status, tax-exempt organizations are expected to prove that they are indeed doing what they claim to be doing, and this is achieved mainly by completing Form 990.

FORM 990
It is the version of a tax return that tax-exempts have to file to disclose relevant information about the organization. The report includes the following:
Annual RevenueSalaries of Key EmployeesNames of Board MembersNames of Large Contractors
Money spent on the core missionMoney spent on administrationMoney spent on fundraising

Special Rules For Churches

Churches are exempt even from filling out Form 990. The exemption is based on the idea that church members and leaders live in community with one another, and their donors come from their midst. The rules and structures of the church provide enough transparency and accountability. It is moreover an American consensus that the government has no business interfering with the internal affairs of the church.

This has always been the case, but recent developments are breaking down the system. Recently an ever-growing number of non-churches are claiming tax-exempt status as churches to keep both the government and their donors from any insight in how their money is being spent.

In itself, this is nothing new. Fraudulent and controversial organizations have been doing this since day one. Televangelists and prosperity gospel preachers have been pushing the boundaries for decades. The senate under senator Chuck Grassley investigated six prominent televangelists, among them Benny Hin and Paula White-Cain, to lift the veil over their organizations because they consistently refuse any transparency in their dealings and because their organizations spent donor money on mansions, lavish lifestyle and private jets.

Over the past five years, there has been a massive inflow of organizations that now also claim exempt church status, and these include:

  • Cru
  • The Navigators
  • Billy Graham Evangelistic Association
  • Focus on the Family
  • Willow Creek Association
  • Gideons International
  • Ethnos360/New Tribes Mission
  • Precept Ministries
  • Ravi Zacharias International Ministries

Why Are These Organization Who Are Bona Fide Christian Groups, Registering As Tax-Exempt Churches?

To protect the confidentiality of their donors. Over the past decade, many non-profits were targeted for information on donors, including their names and personal details. To protect their members’ privacy, registering as churches when they meet the definition of a church in terms of IRS regulations, helps to protect members and donors.

The threat of pro-LGBTQ and Atheist groups and their allies are genuine. These groups in the past used public filings to identify and harass contractors and donors of pro-life and pro-marriage organizations, as well as those who fight for religious liberty.

Many commentators argue that although these are valid reasons, transparency with donors and the public is of a higher value. At this intersection in time, the integrity and credibility of Christian non-profits are widely questioned, and this poses a clear and present danger to Christian non-profits. Withholding Form 990s from donors and the public, they say, is not the solution to the problem.

The IRS allows for the maintenance of donor confidentiality. Ministries are fully compliant with disclosure rules if they release Form 990s with the donor section redacted. Ministries can, therefore, release Form 990s while ultimately protecting donor confidentiality. The church exemption is now being questioned, for example, by Beto O’Rourke, the former presidential candidate.

Hiding behind the church exemption will have the unintended consequence of alienating an already skeptical public who believe that only people with something to hide will hide something.

Those who want to banish religion from the public square will not be stopped by hiding behind the church exemption. It is actually giving them ammunition in their onslaught.

The donor marketplace thrives under transparency and accountability, while corrupt practices flourish in the dark. Where information is scarce, trust is lower and disinformation is rife. In this manner, donors start to lose confidence in individual organizations while society en large loses their belief in the entire sector they represent.

Donors should not give any money to ministries if they do not know for sure where the money will be going. If your ministry is not releasing a Form 990 to the public, you should question them.

Why not?

Christian ministries should be invited to open their books. Churches should choose to release a Form 990 with donor information redacted on their websites. This will protect donor privacy while maintaining a very high level of transparency and accountability.

Readers should note that this article is only intended to convey general information on these issues and that FAS CPA & Consultants (FAS) in no way intends for the contents of this article to be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. This article cannot serve as a substitute for such professional services or advice. Any decision or action that may affect the reader’s business should not rely solely on the contents of this article, but should rather be consulted on with a qualified professional adviser. FAS shall not be responsible for any loss sustained by any person who relies on this presentation. This article is subject to change at any time and for any reason.

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Fulton Abraham Sánchez, CPA I am Certified Public Accountant, specialized in Tax Planning & Offshore Strategies for Real Estate, Hedge/Equity Funds, Fintech, Crypto, Expats, IRS Debt Resolution. You can email me fa@fascpaconsultants.com and follow us on Facebook : FAS CPA & Consultants.

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