Legal Requirements for the Local church
The following information has been prepared to assist you in properly registering your church with the State and Federal government. There are four principle issues to be covered:
1. Application for Recognition of Tax-Exempt Status
2. Obtaining an Employer Identification Number
3. Sales Tax Exemption
4. Incorporation
1. Application for Recognition of Tax-Exempt Status
Local churches are not required to apply to the IRS for tax-exempt status under Section 501(c)(3) of the Internal Revenue Code. The General Council of the Assemblies of God has a group exemption number (GEN) that covers all local congregations. A copy of the General Council's IRS determination letter may be used by the local group to provide evidence of tax-exempt status. A copy of this letter is mailed to every church upon inception.
However, if the church wants to establish its own exemption with the IRS and receive a ruling or determination letter recognizing its exempt status, it should file Form 1023, Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code. By establishing its exemption, potential contributors are assured by the IRS that contributions will be deductible.
2. Obtaining an Employer Identification Number (EIN)
Every church must obtain an Employer Identification Number (EIN) by filing IRS Form SS-4. An EIN is required for each church even though churches are not required to file with the IRS for tax-exempt status. This number is not a "tax-exempt number," but is simply the organization's unique identifier in the IRS's records, similar to an individual's Social Security number. The EIN is a nine-digit number (for example 12-3456789) used for filing and reporting purposes.
If your church does not have an EIN, apply HERE.
3. Recognition of Sales Tax Exemption
To do tax-exempt business, you will need your EIN number to register your church HERE and receive a CRS number from NM Taxation and Revenue. The linked site will allow you to produce non-tax certificates which can be provided to businesses for tax-exempt purchases.
4. Incorporation
The main advantages of incorporating are liability protection and tax exemption. A church that chooses to do business as a corporation has protection from liability. Members are exempt from liability if the leaders or other members engage in any wrongful activity. In the event of a legal judgment against the church, claims would be paid out of an insurance policy or from assets of the church - but not from assets of the members. If an individual officer or person is guilty of wrongdoing, a lawsuit could be brought against that individual, but the remaining members would be free from liability.
The disadvantages of not incorporating are significant. On a practical level, it is difficult to do business without incorporating. Banks are reluctant to open accounts without someone taking ultimate responsibility, which usually means the senior pastor. A church functioning as an unincorporated association normally places the pastor or one or more trustees at risk for all debts, contracts, and legal matters.
For more information, contact:
PUBLIC REGULATION COMMISSION
CORPORATIONS BUREAU
CHARTERED DOCUMENTS DIVISION
PO BOX 1269
SANTA FE, NEW MEXICO 87504-1269
(505) 827-4511
www.nmprc.state.nm.us
Governmental Benefits of Incorporating
When a church incorporates, it normally secures a non-profit status. The benefits of a non-profit distinction are many. Federal statutes provide certain direct benefits to non-profit organizations.
- A non-profit may apply and receive exemption from federal income taxes.
- A non-profit may receive a reduced postal rate.
On a state level, non-profits enjoy certain other benefits:
- Exemption from state income taxes.
- Release from paying franchise taxes.
- Exemption from property taxes.
- Exemption from sales tax.
Incorporation forms are available from the Secretary of State's Office.
To determine if a church is already incorporated, you may contact the Secretary of State's Office at 1-800-477-3632 or 505-827-3600.
Are you required to renew your incorporation status annually with the Secretary of State's Office?
No. However, you do need to check to verify that your status is current. When you originally file or request an amendment of an incorporation certificate, make sure you ask that the corporation be listed as "perpetual." You are not required to file any kind of report unless there is a change in the registered agent, which most generally is the pastor.
Upon a change in pastorate, the church is required to file an amendment (SOS Form 0015 ) changing the registered agent to the new pastor. This form may be obtained by contacting the Secretary of State's Office at (505) 827-3600. This is very important.
It is necessary that every church send a copy of its Certificate of Incorporation to the Network Office to be retained in its permanent file.
You can also look up tax advice for New Mexico's non-profit organizations by clicking HERE.