Comments on: Public Charity vs. Private Foundation

By: Greg McRay

Greg McRay — Sat, 21 Jan 2012 20:50:43 +0000

You end up with a mess. Corporation Sole is only recognized as a legitimate entity type in a couple of states and as a tax-avoidance scam in the other 48 and the feds. It is peddled by phony experts who are conspiracy theorists, tax cheats, kooks or scammers after your money. Plus, you paint a big, red bulls-eye on yourself that practically screams come audit me. Assuming you could even do it, it would have no bearing on the 501c3 status at all because federal tax law doesn’t accept the premise. Stay far, far away from this.

By: Timothy

Timothy — Fri, 20 Jan 2012 16:56:38 +0000

What would happen if a Church that was by default a 501c3 organization and turned around and put it under “Corporate Sole”?

By: Tim

Tim — Fri, 30 Dec 2011 02:06:01 +0000

Thank you Mr. McRay for your answer! That really cleared some things up for me. I’m sorry if I’m asking too many questions. But I do have another one if you have the time. Can a church be incorporated under a Corporate Sole? Thanks again for your answers. They are helping me out a lot!

By: Greg McRay

Greg McRay — Thu, 29 Dec 2011 23:35:14 +0000

Great question..and this is where things get misunderstood pretty easily. Churches are a specific category of 501c3 organization and they cannot be tax-exempt without being a 501c3. That’s true even for churches that have existed long before the Internal Revenue Code (IRC). Churches are unique in that they are considered by default to be 501c3 even without having filed for official IRS recognition. That’s why a church formed in 1947 that never sought IRS status is still classified as a 501c3, tax-exempt entity. The IRC retroactively captured all existing churches under its purview. We counsel prospective church clients to pursue official recognition mainly because to not do so means the church is subject to all the rules and regs associated with 501c3 status without the benefit of an actual letter of determination. With or without the letter, a church is 501c3 if it intends to operate as a tax-exempt entity.

By: Tim

Tim — Thu, 29 Dec 2011 15:32:46 +0000

I have another question.
The organization that I’ve mentioned above, has that paragraph in it’s Articles of Incorporation, and Bylaws. But nothing else that refers to 501c3. Only that Paragraph. If this Church was established and recognized as a church by the IRS before 1954(it was established in 1947), can it still be tax exempt without 501c3, if it proved it was an established church before then?
The Above mentioned paragraph was added in 1968. But the rest of the documents never mentions 501c3.

By: Greg McRay

Greg McRay — Thu, 29 Dec 2011 04:09:34 +0000

Not necessarily. But I wonder if you’ve asked the wrong question, Tim. A church must be 501c3 if it considers itself to be tax-exempt…no exceptions. The only way a church can function apart from 501c3 (for IRS purposes) is to operate as a taxable entity and without donation deductibility. There are a few bizarre websites that may say otherwise, but they either have no idea what they are talking about or they are trying to con you. The paragraph above is pretty standard fare and merely articulates what is already federal law.

By: Tim

Tim — Sat, 24 Dec 2011 14:05:46 +0000

If a Church puts the following paragraph in it’s Articles of Incorporation, does that mean it is a 501c3 organization?
“Upon the winding up or dissolution of this corporation, after paying or adequately providing for the debts and obligations of the corporation, the remaining assets shall be distributed to a nonprofit fund, foundation or corporation, which is organized and operated exclusively for charitable, educational, and/or scientific purposes and which has established IRS tax exempt status under Section 501/c (3) of the Internal Revenue Code. If this corporation holds any assets in trust, such assets shall be disposed of in such a manner as may be directed by decree of the Superior Court of the county in which this corporation’s principal office is located, upon petition therefore by the Attorney General or any other person concerned in the liquidation.”

By: Greg McRay

Greg McRay — Thu, 17 Nov 2011 04:17:41 +0000

A church can be a “church” without being a 501c3, but it cannot be tax-exempt without it. Under the tax code, churches are a defined category under 501c3. The only way for a church to not be 501c3 is for it to not cclaim tax-exemption…in other words, it would have to be a taxable entity. A churches cannot be a private foundation.

By: Timothy

Timothy — Thu, 17 Nov 2011 01:27:17 +0000

Can a church be recognized as a church without becoming a 501c3 organization?
The IRS recognizes a “church” as a public charity. Can a “church” be a Private Foundation?

By: Greg McRay, EA

Greg McRay, EA — Sun, 09 Oct 2011 02:54:57 +0000

I don’t recommend this as it is really a form of money laundering. Certainly not illegal, but if done in collusion with all parties, it could certainly a shady transaction. The situation may not be all that bad, however. If your KS charity is in its first 5 years, the IRS doesn’t calculate the 33% yet…only after the 5th year. And even then, it is a 5 year average calculation. Unless the value of the property’s value way more than what you expect to receive in public support over the next few years, you may well be OK.