Establishing a Separate 501(c)(3) Entity for Your Church or Ministry

The decision to establish a separate 501(c)(3) for community outreach alongside a church is not mandatory but may offer certain benefits. Churches can and do engage in community service and charitable activities without obtaining a separate 501(c)(3) status. Some grantmaking organizations and donors may support churches' community efforts without requiring a separate nonprofit.

However, there are advantages to having a separate nonprofit organization. Because most donors will not give to religious organizations, many churches are not able to find grants. Therefore, having a separate nonprofit can help in accessing grants and accepting tax-deductible donations.

Let’s look at the benefits of establishing a separate nonprofit alongside your church, the steps to starting a nonprofit, and some practical tips for maintaining your nonprofit.

Benefits of 501(c)(3) status:

Having a separate nonprofit status can provide several benefits for a church that wishes to serve its community, including:

1. Tax-exempt status: Obtaining nonprofit status can provide tax-exempt status for the church's charitable activities, which can help to save money and allocate resources towards the community.
2. Credibility: A separate nonprofit status can provide credibility and legitimacy to the church's charitable work and mission.
3. Eligibility for grants: A separate nonprofit status can make the church eligible for grants and other funding opportunities that are only available to nonprofit organizations.
4. Greater autonomy: A separate nonprofit status can provide greater autonomy for the church to carry out its charitable activities, without being limited by religious or other considerations.

There are also some potential drawbacks to having a separate nonprofit status, including the additional administrative and regulatory requirements involved in maintaining a separate legal entity.

When considering whether to form a separate nonprofit to help the community, your church will want to take several factors into account, including the specific needs of the community, the resources available to the church, and the church's mission and values.

Now let’s take a look at the steps involved in forming a 501(c)(3) nonprofit.

Steps to establishing a 501(c)(3):

Step 1. Incorporation

Do a name search on your Secretary of State’s website. If your desired name is available, you may incorporate online or by mail. Read the instructions before completing the form for incorporating because all state instructions require you to have the IRS verbiage if you plan to apply for 501(c)(3) status.

Step 2. Apply for EIN

Apply for your nonprofit’s Employer Identification Number (EIN) electronically on the IRS website.

Step 3.  Complete Bylaws

Complete your organization’s bylaws and have all board members sign and date them. You can google a sample of bylaws to use.

Step 4. Apply for 501(c)(3) Status

Create an account on www.pay.gov to apply for 501(c)(3) status using Form 1023 or Form 1023EZ. The Form 1023EZ has a checklist to will help you determine if you are eligible to use Form 1023EZ, which is the short form and least expensive application.

Step 5. Apply for State Sales Tax Exemption or Solicitation

Check your state’s website to see if any other forms such as state sales tax exemption applications or state solicitations forms are required after you receive your 501(c)(3) status.
Now that you’ve seen the steps for applying for nonprofit status, let’s discuss how you can separate the church or ministry business from the nonprofit work.

General tips on how to separate ministry from nonprofit work:

1. Clarify your purpose and priorities: It's important to understand your mission and the purpose of your ministry and nonprofit work. Make sure you have clear priorities and boundaries for both. This will help you stay focused on your goals and ensure that you're not mixing ministry and nonprofit business in ways that could cause conflicts.
   
    
2. Establish separate bank accounts: One practical way to separate ministry from nonprofit business is to have separate bank accounts. This will help you keep track of your finances and ensure that you're not using ministry funds for personal expenses or vice versa.
   
    
3. Have separate teams and staff: If you have a team or staff working with you, it's important to have separate teams for your ministry and nonprofit. This will help you avoid conflicts of interest and ensure that each team is focused on its specific goals.
   
    
4. Set boundaries for your time: It's important to have boundaries for your time and not let your business activities encroach on your ministry activities. Make sure you're setting aside enough time for both and not neglecting either.
   
    
5. Stay accountable: It's important to have people in your life who can hold you accountable for separating your ministry and nonprofit work. This could be a mentor, a coach, or a trusted friend. Regularly check in with them and be open to their feedback.
    

These are just a few tips on how to separate ministry from your nonprofit work. It's important to remember that every situation is different, and you'll need to tailor your approach to your specific circumstances.

Now that we have looked at the benefits of forming a separate 501(c)(3), the steps involved in the process, and tips for maintaining the separation between your church and a separate nonprofit, you can consider whether forming a nonprofit for community work is a good option for your church or ministry.

Ultimately, whether a church should have a separate nonprofit status to help the community depends on its specific circumstances and goals. If the church has the resources, expertise, and desire to engage in charitable work beyond its religious mission, then a separate nonprofit status may be a viable option.

Finally, remember it's important to consult with legal and financial experts to determine the best approach for achieving a church's community service goals while complying with IRS regulations and maintaining tax-exempt status.