Churches are classified as a charitable organization under the IRS code. They are defined as a 501(c)(3) organization and they are not required to apply for an exemption, (Form 1023) with the IRS. However many churches voluntarily elect to apply for exemption.
Charitable organizations or non-profit organizations range in sizes from small local entities to large international organizations. They encompass almost every activity imaginable – including health and welfare (i.e., American Red Cross), religion (i.e., churches and ministries), education (i.e., private schools and colleges/universities), research, social activities (i.e., private golf clubs/courses) and professional activities (i.e., AICPA).
The Financial Accounting Standards Board (FASB) defined nonprofit organizations by contrasting them to for-profit entities. Specifically, it defines nonprofit organizations as entities that possess the following characteristics not typically found in business enterprises:
a. They receive contributions of significant resources from resource providers who do not expect a commensurate or proportionate monetary return.
b. They operate for purposes other than to make a profit.
c. There is an absence of ownership interests like those of business enterprises.
Over the next series of posts, we will discuss contributions and the general requirements that are imposed by the IRS. We will also discuss the FASB requirements for reporting contributions in the financial statements.
