Does my new church obey the laws of the state and the IRS?
Sep 24, 2025Starting a new church is rewarding and important. But it's crucial to obey IRS and state standards to keep your ministry's money and legal position safe. If you don't follow the guidelines, you could get fined, lose your tax-exempt status, and have problems running your firm, which would distract your focus away from your goal.
This resource helps church leaders and pastors understand the most critical IRS and state requirements that new churches must follow. It is based on the Tier 1: THE STARTUP PLAN and is aimed at churches with fewer than 900 members to have ongoing, helpful legal advice.
How to Tell whether Your Church Follows IRS Rules
The IRS says that churches don't have to pay taxes, but they still have to follow the laws to preserve this benefit.
Tests for Running and Organizing
Organizational Test: Your church must be legally recognized as a religious group, and its Articles of Incorporation and bylaws must make its religious mission explicit.
Operational Test: The church's principal goal should be to carry out its religious purpose, not to serve private interests. If you make too much money from enterprises that aren't related to your main business, you could lose your tax-exempt status.
Keeping Track of Papers and Records
Keep good records of your money, like how much you give, how much you spend, and how you manage your assets.
Keep minutes or official reports of meetings, decisions, and ministry work done by leaders.
You are open and ready for audits if you keep good records.
Filing and Telling the IRS
Most churches don't have to file Form 990 every year, but if they make more than $1,000 in business income that isn't related to their church, they do have to file Form 990-T.
The IRS needs to know if churches do certain activities or make certain transactions.
How to Follow the Rules in Your State
State laws vary; however, they commonly include the following:
Incorporation and Not Having to Pay Taxes
To make your church official, you need to send Articles of Incorporation to the Secretary of State in your state.
You have to apply separately for state tax credits on income, sales, and property. This normally means more forms and applications.
Sign Up to Ask for Money
Many states require churches to register before they can ask for money in public.
Following the rules includes making sure that state regulators have correct financial information and that renewals are done on time.
Business Licenses and Permits for the Area
Some churches need commercial licenses or permits to conduct things like managing a daycare or serving food.
Find out the restrictions in your area ahead of time so you don't get fined or have to close.
Reports and Renewals Per Year
To stay in good standing, nonprofits may have to send the state annual or biennial reports.
The government could take away your nonprofit designation if you don't meet a deadline.
Things That Churches Often Do Wrong When They Follow the Rules
Don't let these typical problems affect young churches:
- If you file late or not at all, you could get fined and lose your good standing.
- Not enough paperwork: If you don't keep good records and books, you could get in trouble with the IRS or the state.
- Unrelated Business Income: If you make money outside of your religious mission and don't pay the correct taxes, you could get in trouble with the IRS.
- Not keeping correct records of pastoral pay and bonuses might lead to IRS audits and legal troubles.
- Not coming to board meetings or not keeping minutes might make tax advantages void.
How THE STARTUP PLAN Helps You Stick to the Rules
The STARTUP PLAN helps your church stay on top of all the new IRS and state rules by giving it legal advice ahead of time.
Every month, you get legal credits and lower hourly rates for compliance assessments and changing documents.
Get a lot of policy templates, compliance checklists, and tips on how to keep records.
Help with emails that answer questions about taxes, governance, and the law swiftly.
This ongoing legal partnership helps your church stay on the right side of the law while focusing on its mission.
Conclusion: To Be a Good Minister, You Have to Follow the Rules
Following the guidelines set by the IRS and your state isn't just a matter of putting things in order; it's also a very important aspect of making sure your church can serve your community securely and well.
With the right legal structure, diligent recordkeeping, and guidance from the STARTUP PLAN, your church may avoid costly mistakes and focus totally on its God-given mission.
Links Inside
Links to Other Sites
- IRS Charities & Nonprofits Compliance
- National Association of State Charity Officials (NASCO)
- GuideStar’s Nonprofit Compliance Resources
Caution
This blog post is not legal advice; it is only for your information. Please consult a lawyer who is certified to give you guidance that is unique to your church.
