If someone has told you that operating as a 508(c)(1)(A) church means you can do almost anything you want, please pause before acting on that advice. Getting 508(c)(1)(A) compliance wrong can cost your church, your donors, and your leaders. Here is what the law actually says, the most common myths, and why it matters who you take advice from.
What 508(c)(1)(A) Actually Does
Section 508(c)(1)(A) of the tax code allows churches to be tax-exempt without filing Form 1023 to request IRS recognition. That is a real benefit. But it only affects the application step. Section 508(c) removes the requirement to file to obtain exemption, but not the requirements to meet the definition of a church and function like every other 501(c)(3).
The “508 Church” Myth
Some promoters describe a “508 church” as a separate category that sits outside IRS rules. That is not the case. A federal court has described 508(c)(1)(A) as something that merely exempts churches and certain other religious bodies from the necessity of applying for recognition of their exempt status under § 501(c)(3) and from requirements that they file tax returns. In other words, the same rules apply whether or not your church ever applied.
What 508(c)(1)(A) Compliance Still Requires
A church that skips the application still has to meet the same standards. A few that often get overlooked:
No private benefit. Church income and assets cannot be used to enrich insiders.
Limits on lobbying and political activity. Churches with automatic tax-exempt status must still comply with restrictions on political campaign intervention and substantial lobbying activities.
Payroll and personal taxes. Pastor and staff pay is still taxable income, and the church still has employment tax responsibilities.
Qualifying as a church. If your nonprofit doesn’t meet the IRS definition of a church, then 508(c)(1)(A) does not apply, and you’ll still need to apply for tax-exempt status like any other nonprofit.
Why It Matters Who Is Advising You
Much of the bad information comes from people selling setups or seminars, not from licensed tax professionals who are accountable for their advice. Following that guidance can lead to back taxes, penalties, and donors losing their deductions. If a donor is audited, he or she must establish or prove that the church meets the requirements and qualifications of section 501(c)(3) organization.
Get Answers From a Licensed CPA
If you have heard conflicting claims about your church’s status, we would be glad to help. 508 CPA, a service of Salt of the Earth CPA, works with churches and ministries to sort fact from fiction and keep you on solid ground. Reach out to talk through your situation.
