We're a "Free Church"; Not a 501(c)3

Many people are under the mistaken idea that, in order to be tax-exempt, churches must file with the IRS as a 501(c)3. What we discovered through our research is that this is not the case. Churches that are not 501(c)3's (also sometimes referred to as Free Churches) have all the protections, and tax-exempt status of non-profit corporations (501(c)3's) AND many additional ones besides. (For example, Free Churches do not file tax forms, they do not pay property tax and they can only be audited if they are running "unrelated businesses" and not reporting income from them.)

The Full Circle Family Church is also 'free' in the sense that we live by faith in the stream of God's abundance and by giving without thought of receiving have all of our needs taken care of through God's providence. Any services we provide are on a donation-only basis. We do not fund-raise by seeking grants, selling books (or any merchandise), hosting Bingo or community-dinners etc.

Follow this link to watch a video of the church's founders where we articulate the values upon which our church is founded.

Here is a copy of a letter we sent to the IRS clarifying our values and faith and new relationship with their organization:

June 22, 2010

To Whom It May Concern:

We have received your notification informing us that we are required to file a tax return for 2008. This letter is in response to that request and to inform you that we are a married couple and are no longer on the tax rolls. We have chosen to live a life based upon our faith in God and the desire to ‘give without thought of receiving’ and have relinquished any and all desire to accumulate capital wealth. All that we have has been given over in service to our fellow humans whom we regard as members of our family in God. We have chosen to follow the teachings of Jesus and his admonition that we ‘hold all things common’ (Acts 4:32-35). We have no investment in any financial markets, stocks or bonds and do not live a life based on usury. We own no house or land and devote our lives to serving those in need. Our days are spent in our gardens on land that has been donated for such use and all that we produce is given freely to those less fortunate. We are very happy knowing that God provides for us, as we provide for others, asking nothing in return.

We do not oppose the government of this land, but we do chose to live by the law set forth by the God who created it and that Law is to “love one another”. We do not see how this is possible as we continue to buy and sell our daily bread. In the Lord’s Prayer it states, “Forgive us our debts as we forgive our debtors.” We ask that you forgive us our debts.

We have nothing to hide and are forthright in presenting our beliefs and living by our faith. We know that you are doing what you believe to be right and we do not judge you. We do disagree with the basic premise upon which the tax codes are based. God “owns” this world and even our very lives. We believe humanity’s focus must shift toward seeing to it that none of God’s children go hungry or lack for the basics of shelter, clothing and all else that has been given freely by our Creator. We know that these beliefs may sound strange or foreign but they are true for us and protected by the Constitution. We are truly a “Church”, in every sense of the word; a Church in action (rather than just giving lip service). All that you may find lacking is a piece of paper, issued by the state legitimatizing our ministry. We are in the process of preparing to file the necessary paper work. We can send you a copy or our By Laws, if you like. What follows are two links for websites we have created and maintain that provide the evidence to prove that we do live by what we believe.


If you have any further questions or comments, please feel free to contact us and we will cooperate to the best of our ability, without breaking God’s Law. We appreciate you and thank you for your time in considering our response. God be with you in these troubled times.

You’re welcome to join us! No one is excluded from the Kingdom of God.

Chris Burns
Llyn Peabody

Here is a lengthy quote from Lorraine Day, that elaborates on this distinction between Churches and 501(c)3 organizations (excerpted from a longer piece found on CLICK HERE.)

“Does the law require, or even encourage, a church to organize as a 501c3?  To answer that question we can turn to what the IRS itself has to say.

Churches Need Not Apply
In order to be considered for tax-exempt status by the IRS, an organization must fill out and submit IRS Form 1023 and 1024.  However, note what the IRS says regarding churches and church ministries, in Publication 557 
Some organizations are not required to file Form 1023.  These include:
Churches, interchurch organizations of local units of a church, conventions or associations of churches, or integrated auxiliaries of a church, such as a men’s or women’s organization, religious school, mission society, or youth group.  These organizations are exempt automatically if they meet the requirements of section 501(c)(3).
Churches are “Automatically Tax-Exempt”
According to IRS Code 508(c)(1)(A):
Special rules with respect to section 501c3 organizations.
(a)  New organizations must notify secretary that they are applying for recognition of section 501c3 status.
(c) Exceptions
(1)  Mandatory exceptions.  Subsections (a) and (b) shall not apply to –
(A) churches, their integrated auxiliaries, and conventions or associations of churches.
This is referred to as the “mandatory exception” rule.  Thus, we see from the IRS’ own publications, and the tax code, that it is completely unnecessary for any church to apply for tax-exempt status.  In the IRS’ own words, a church “is automatically tax-exempt.”

Churches Are Automatically Tax-Deductible
And what about tax-deductibility?  Doesn’t a church still need to become a 501c3 so that contributions to it can be taken as a tax deduction?  The answer is No!  According to IRS Publication 526:
Organizations That Qualify To Receive Deductible Contributions:
You can deduct your contributions only if you make them to a qualified organization.  To become a qualified organization, most organizations other than churches and governments, as described below, must apply to the IRS.
In the IRS’ own words a church “is automatically tax-deductible.”

Churches Have a Mandatory Exception To Filling Tax Returns
Not only is it completely unnecessary for any church to seek 501c3 status, to do so becomes a grant of jurisdiction to the IRS by any church that obtains that State favor.  In the words of Steve Nestor, IRS Senior Revenue Officer (ret):
“I am not the only IRS employee who’s wondered why churches go to the government and seek permission to be exempted from a tax they didn’t owe to begin with, and to seek a tax deductible status that they’ve always had anyway.  Many of us have marveled at how church leaders want to be regulated and controlled by an agency of government that most Americans have prayed would just get out of their lives.  Churches are in an amazingly unique position, but they don’t seem to know or appreciate the implications of what it would mean to be free of government control.”  From the Forward of In Caesar’s Grip, by Peter Kershaw
501c3 Problems
In Bob Jones University v. United States (461 U.S. 574), the U.S. Supreme Court noted the following about the government’s intended purpose for the 501c3:
The Court asserts that an exempt organization (one that has become a 501c3) must “demonstrably serve and be in harmony with the public interest,” must have a purpose that comports with “the common community conscience,” and must not act in a manner “affirmatively at odds with the declared position of the whole Government.”  Taken together, these passages suggest that the primary function of a tax-exempt organization is to act on behalf of the Government in carrying out governmentally approved policies.
When a church accepts the 501c3 status, that church:
·      Waives its freedom of speech
·      Waives its freedom of religion
·      Waives its right to influence legislators and the legislation they craft.
·      Waives its constitutionally guaranteed rights.
·      Is no longer free to speak to the vital issues of the day.
·      Becomes controlled by a spirit of fear that if it doesn’t toe the line with the IRS it will lose its tax-exempt status.
·      Basically, becomes a State-Church.
One need not look far to see that the church’s acceptance of the 501c3, and its significant restrictions, has had devastating consequences to not only the church, but to the entire nation. The church in America today is, by and large, not speaking to the vital issues of the day.  The church has been effectively silenced.  The inevitable result is a moral downward spiral in the culture as the church stands mute." End of quote from Lorraine Day.
Interested in starting a non-501(c)3 church?

We have had many people ask us how to start a non-501(c)3 church. As performing this role is outside the parameters of our stated purposes (LINK) and we are not qualified to offer any legal advice, we would like to steer you towards an I.R.S publication that we found useful on the way.

Tax Guide for Churches and Religious Organizations:  
www.irs.gov/pub/irs-pdf/p1828.pdf

The Full Circle Family Church is going to court June 2, 2015 to file for an exemption from paying Property Taxes. To read more about it and find how you can support us in this landmark case, CLICK HERE.

Ever wonder how we'll ever get out of this crazy mess we're in: rampant consumerism devouring the planet, with no end in sight; ever-widening the gap between the "haves" and the "have-nots"?

Enjoy this 4-minute video by Bruce Lipton that describes the metamorphosis of the caterpillar into a butterfly and how it provides a hopeful metaphor for the current stage of our society.

28 comments:

  1. Does anyone know a bank that will open an account for a church that has not obtained 501c(3) status?

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    1. You have to apply to the IRS for an EIN number. Then you have to register with the Secretary of State where you live. In Oregon our legal status is "Religious Charity/Religious, with Members". Sec. of State requires Articles of Incorporation and By Laws, establishing a Board of Directors. With a valid EIN number and confirmation that you've registered with Sec. of State, you will be able to open a church bank account.

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    2. Just a quick question though. Doesn't becoming a corporation mean that now you're NO LONGER a free church but a state governed organization? Because if so then wouldn't that do the same things as a 501c3 on waiving your rights? Just curious.

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    3. The rights that are waived by becoming a 501(c)(3) have to do with political lobbying, raising money for political campaigns and campaigning for candidates. The government is not allowed to tell you what to preach, or what to believe. There is still a strong separation between Church and State in this sense. The State is mainly concerned with tracking the money trail: income/expenditures, benefits to private individuals; also where the assets of the Church go if it ever dissolves.

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  2. what are the steps to filing as a free church? just a question from a fellow pastor =)

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    1. Hello, as we outlined above, we do not have the time or expertise to walk you through the steps. One thing you will find helpful is: Tax Guide for Churches and Religious Organizations:
      www.irs.gov/pub/irs-pdf/p1828.pdf

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  3. Why do churches desire a 501c3 if they have tax exempt rights without it? What do they gain from the 501c3?

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    1. The only benefit we've seen to having 501c3 status is that there are some Grants that are only available to 501c3's. Most Churches just automatically file to become a 501c3 because they don't know that they can choose not to and still be recognized as a legal church--able to receive tax-deductible donations while retaining their freedom of speech.

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    2. I would agree. Most grants and almost ALL of the larger grants and certainly ANY government grant requires a 501c3 status. This is from experience as a nonprofit founder and community organizer.

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  6. To the MANY people who come to this post, daily, from all over the world and leave "anonymous" comments asking us to clarify the finer points of non-profit law, we have a request: Please take some time to review our WHOLE site.

    If you spend any time on our website you will find that we place less focus on the 'form' of our church and more emphasis on the 'content'. And you will also notice that we do not 'sell' anything. To us a 'free' church means so much more than finding a way to avoid paying taxes, which seems to be the main motivation for the inquiries that we receive. Our focus is to help break down the barriers between 'individuals' who are only striving to improve their own lot in life, and helping people to realize their 'interdependence. We desire to see a shift from the 'getting' mentality to the freely 'giving' paradigm; to see the focus of more churches shift from helping individuals achieve greater PERSONAL wealth, happiness and prosperity, to an emphasis on generosity and true service (not just LIP service).

    If you are interested in forming a church that upholds these same 'sharing' principles, please send us an email and we'll see if we can help you.

    But, if you are trying to form a church primarily for the tax benefits, or your church is a front for personal financial gain. Or if you are someone who likes to spend huge amounts of time in anonymous debate on the internet, please don't take up our time with your requests for information. We will continue to delete comments that fall into these categories.

    We wish you only goodness in your lives and hope that our message of 'giving without thought of receiving' inspires you to join us in this marvelous leap of faith.

    Full Circle Family Church

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    1. This is a very wise and loving word. I praise God for your gracious hearts. May our great Lord truly bless (in the most biblical sense of the word) the works that you are doing. I thank you as I thank Him for you.- Smiles

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  8. How can a 501c3 church unincorporate? I have heard that in order to do so, all of the 501c3 church's assets must be given to another 501c3. Is that true?

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    1. When a nonprofit organization decides to close their door, IRS does have the power and authority to resign (for lack of a better word) to a NPO with same Mission and vision. Assets cannot be sold or distributed. Check your NPO Bylaws.

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  10. I truly thank ypu.My name is Pastor Patricia and I started Ministry in Jan
    2015 and all the other Pastors want to tell me that I have to have a 501c3 before I can get any kind of Finanical help. We are a very group and want service without anyone telling how to operate God's house. We are doing outreach as much as we can but we are trying find some financial help so we can run a food bank and get ready for the summer program which we funded ourselves with no help from the single moms because they just did'nt have it
    So if any one of help in this area please let me know by contacting www.faithtempleaom.com. Please Help. God Bless
    Pastor Patricia

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  11. Hello Pastor Patricia - In order to receive tax-deductible donations (and issue people, or agencies a receipt they can use to lower their tax bill) you DO have to register with the Secretary of State as a Church (but not a 501-c3). This involves filling out some paperwork, paying a filing fee and applying for an EIN # from the IRS. Each year you also pay a fee ($50 in Oregon) to keep your status as a Church active. Some purists claim that even this level of receiving "legitimacy" from the State/Govt. disqualifies them as being a "free church" but unless you go through these steps you cannot open a bank account in the Church's name, receive tax-deductible donations from individuals or apply for and receive grant monies.

    FYI - many granting agencies also do not recognize non-501-c3 Churches as legitimate and will not grant monies unless you have the 501-c3 status. It is far more expensive and time-consuming to go the 501-c3 route but it may be worth it to your Church if it opens more doors to receiving funds.

    Do you have the faith that, if you are doing God's work, that you will be supported? Binding the success of your programs to the hoop-jumping required to apply for, and fulfill the requirements of the Granters is a slippery-slope that can lead to compromises in your values and make your job become focused on fund-raising rather than actually serving the people you wish to help.

    Here at the Full Circle Family Church and Sharing Gardens we have consistently moved forward in faith and all our needs have been provided for - in abundance.

    Keep your faith strong and keep noticing where God is opening doors for you. Love, Pastors Llyn and Chris - FCFC

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  12. Un-incorporating is easy. Months before un-incorporating, give grants of church belongings to the Free Church. Then when you file to unincorporate, you have no belongings; and can file as such. No holdings, nothing left to give to a 501(c)(3). The Oregon law in a way does put you under the state. If you don't have to file for a 501(c)(3), then you don't need the nonprofit to accept funds for you.

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  13. I just listened to a video the other day about how it lets the government control churches if they are under a 501c3...including doctrines. Not sure if true but I can say it seems believable from my observations.
    Quitting my 501c3 church now...but for other signs, such as teaching out of the NIV.

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  14. I just listened to a video the other day about how it lets the government control churches if they are under a 501c3...including doctrines. Not sure if true but I can say it seems believable from my observations.
    Quitting my 501c3 church now...but for other signs, such as teaching out of the NIV.

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  15. Awesome,, looking to start ministry from home here in Alaska,, thank you for your posts!

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  16. As a free church, are you allowed to open a banking account in the church name? Are you allowed to take personal donations? What about offerings from the members, would the church pay taxes on those if there was no 5013c status?

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    1. Yes, 'free churches', with an EIN number issued by the IRS and registered with Sec of State in your state, can open bank accounts and receive tax-deductible donations.

      Free churches pay income taxes if they operate 'unrelated businesses' and property taxes unless they are approved for exemption. Church employees pay income taxes unless, like in our church, members-who are also the clergy, hold all things in common. Personal income in our church is limited to a small monthly stipend -- well below the taxable level.

      Not sure what you meant by 'personal donations' but will try to answer -- No individual person can receive donations (that benefit him or her personally) without paying taxes but the church can receive donations from individuals - tax-free.

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  17. We are currently establishing our 508 and getting funding. I had a question about giving tax write off for donations to the church once establish. Can that be done?

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  18. Impressive! I really like your blog.
    Thanks for the post.
    Income tax exemptions

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