Exemption Types and Definitions
In church leadership and boards, we often hear the phrases “tax exempt” applied to the church. What it means practically can often be confusing. Are we talking about charitable contributions, sales tax exemption, property taxes?
Exemption from taxes is granted by U.S. governmental units at three levels – federal, state and local.
Federal – it all starts here. Exempt status means an organization is organized and operated exclusively for exempt purposes according to the section (501(c)(3)) of the Internal Revenue Code. Federal recognition as exempt, as a 501(c)(3) organization, means donors can receive a charitable deduction for contributions to the organization. Every organization, including Wesleyan Churches, have an IRS Tax Identification Number (sometimes referred to as a TIN, FEIN or EIN) but that number in and of itself does not mean an organization is exempt. It is more like an address with the IRS. Wesleyan churches (and entities) are recognized as exempt under the denomination’s IRS Group Exemption together as one 501(c)(3) organization rather than a bunch of individually exempt organizations. More information on this topic can be found by clicking on the “IRS Resources for Church and Religious Organizations” pin located within the GTO hub.
State – State exemption is available when organizations qualify as exempt according to federal and state law. Many states provide for sales and use tax exemptions for tax exempt organizations. Some states have a unique identification number for exempt organizations in their states and some use the federal number.
Local – State laws generally provide for property tax exemption for church-owned property at some level. Generally, this exemption is administered by local taxing authorities based on state law.
Wesleyan Church Group Exemption
Individual tax-exempt entities can receive a letter from the IRS (a tax determination letter) officially recognizing them as a tax exempt organization – a 501(c)(3) organization. This process can be costly and time consuming. One of the benefits of being a Wesleyan Church is that churches are automatically recognized as exempt under the umbrella of the Wesleyan Church Group Exemption if they fulfill the exempt purpose of the Wesleyan Church. Every year the General Secretary of the Wesleyan Church files a report with the IRS detailing name, address, and TIN (sometimes called a FEIN or EIN) information of all Wesleyan organizations (churches, districts, colleges, schools, and other entities like WIF, Wesleyan Pension Fund, Hephzibah, and Wesleyan Native Ministries. The IRS maintains a database of all theseWesleyan organizations based on information provided by the General Church. Such entities may or may not be incorporated inasmuch as incorporation is based on state law – not federal law.
The WesleyanChurch Discipline (chapter 4) provides guidance on three types of organizations. They are…
- Subsidiaries – districts (includes localchurches); General Educational Institutions (Houghton, IWU, Kingswood, OKWU,and SWU); and other General Church units such as WIF, Wesleyan Pension Fund, Wesleyan Native Ministries, and Hephzibah.
- Affiliates – best described as subsidiaries of subsidiaries. Examples include elementary/secondary schools and camps.
- Adjuncts – these organizations are closely related to the Wesleyan Church but are not included in the Wesleyan Church group exemption. Examples include WorldHope International and local or district Community Development Corporations. These organizations must be recognized individually by the IRS as 501(c)(3) organizations with their own IRS determination letter.
A copy of the Wesleyan Church IRS determination letter is available by contacting the Communications & Administration Division.