501(C)(3) To be or not to be?
Whenever people mention that they’ve started a nonprofit agency, the first question they’re asked is, “Is it 501(c)(3)?” In the minds of many Americans, this is the only type of tax-exempt status available through the IRS. According to IRS Publication 557, titled “Tax-Exempt Status for Your Organization,” the IRS identifies at least ten categories of organizations that could qualify for tax-exempt status. There are also over thirty (30) classification codes for tax-exempt organizations. Some of these organizations include charities, social and fraternal organizations, and political organizations. By no means would I presume to attempt to explain the various ways that organizations can qualify for tax-exempt status, so let’s keep it simple. We will focus solely on charities.
By definition, a charitable organization is an organization organized and operated for “charitable” purposes. I recently registered a non-profit organization that is indeed organized to operate for charity only, but is also based on faith. My goal is to design and operate this company in a way that is consistent with God’s kingdom principles. According to the Bible, paying taxes is our way of honoring the government for allowing us the opportunity to do business under its jurisdiction. So the idea of being tax exempt was something that took a lot of thought and prayer. On the one hand, it could be argued that since the land belongs to the Lord, his sons and daughters should not be required to pay taxes. Yes, we could make that argument, but that is not what Jesus taught. There was a story in the Bible (Matthew 17:24-27), about a tax collector who came to Peter to collect the temple tax. The tax collector asked Peter if Jesus also paid taxes and he said yes. Then Jesus asked Peter: “From whom do the kings of the earth take tribute or tribute? From their own children or from strangers?” Peter said: “From strangers.” Jesus replies: “Then the children are free.” If kings did not tax their children, then by right Jesus (son of God) should not have to pay the temple tax. Jesus could easily have refused to pay the temple taxes because the temple belonged to God, but that is not what he did. Jesus told Peter that although he should be exempt from taxes, he preferred not to offend officials by not paying taxes. So, he told Peter to go fishing and look in the mouth of the first fish he caught. In the mouth of that fish would be enough money to pay taxes for both of them. Jesus did what was required not to offend the temple officials.
There may be times when doing what is required offends God as well. This is what the Holy Spirit shared with me about the financial situation of the United States in general.“America had become a nation of takers, not givers. Everyone has a sense of entitlement, as if the government owes it to him or her. The rich won’t give up their tax breaks, ministries won’t give up to their tax-exempt status and the poor will not give up their welfare and no one is willing to give up their social security. Then I began to have doubts about being tax exempt. People will give to charity. They just don’t want to give to the government. But what if by paying a normal share of taxes I can help America get back on its feet? Jesus told us to give to Caesar what is Caesar’s. Taxes are government entities necessary to survive and pay their own responsibilities. In the kingdom of God the thing is comparable to taxes. Tithes are necessary so that the needs of the house of God are supplied. Therefore, the concept behind tithing and paying taxes is quite similar. Shouldn’t I do my part?
The obvious benefit of 501(c)(3) tax-exempt status is the perceived stamp of approval from the government. Donors trust the IRS government over nonprofit organizations. Additionally, individuals are granted tax deductions for giving to 501(c)(3) organizations. Again, in the kingdom of God, charitable giving in its truest form is made because people want to give. It has little to do with wanting a tax deduction.
These are just a few factors I had to consider if I wanted my nonprofit to be a model of the kingdom. Will I apply for tax-exempt status? Yes, I will, but not because I want to be tax-exempt as much as I want to go through the 501(C)(3) application process. If the IRS sets the standard for how nonprofits should operate, I definitely want to comply. On the other hand, if what they require conflicts with how God has told me to run this organization, well, that’s another story and the subject of another article.
