Other nonprofits have to file an annual Form 990 tax return, but I sometimes get asked, “Are Churches Required to File Form 990?”

Nonprofits spend hours and significant dollars preparing and filing some version of the IRS Form 990 every year. It’s important to know if your church is required to before you go committing all that time & money.

Exemption

Great news! Churches don’t have to file an annual Form 990. According to the IRS Instructions for Form 990:

An organization described below does not have to file Form 990 or 990-EZ even if it has at least $200,000 of gross receipts or $500,000 total assets at the end of the tax year…

Certain religious organizations
1. A church, an interchurch organization of local units of a church, a convention or association of churches, or an integrated auxiliary of a church… (such as a men’s or women’s organization, religious school, mission society, or youth group)…”

That’s pretty straight forward. It seems to be an instance when separation of church and state works in the church’s favor. I’m sure the IRS doesn’t want to appear to be making a “law respecting an establishment of religion, or prohibiting the free exercise thereof…” (oh, that pesky 1st Amendment).

Transparency

However, your church may want to file the Form 990 anyway. Yes, it would be a bit of a hassle, but would serve the same function as an annual audit in providing transparency in your church’s finances. Let’s face it, we’re not winning many popularity contests recently. To be able to demonstrate that your church has no financial secrets could be very winsome in your community.

And based on your gross receipts each year, a lot of churches would be able to file the 990-EZ, so it wouldn’t be quite as intense until the church was big enough to afford the full filing.

The Day May Be Coming

Atheist groups continue to bring lawsuits to overturn this automatic exemption (as well as clergy housing allowances). Nonprofit Quarterly reported in 2013 about the suit brought by American Atheists against the IRS. They were basically using that same idea of separation of church and state to argue that belief in God grants religious organizations preferential tax treatment as compared to secular nonprofits. It looks like the US District Court dismissed that case, but I can imagine that it’s only a matter of time.

So, are churches required to file Form 990? No, but you might want to get into the habit.