Federal and state tax relief is available to churches that are formed as nonprofit corporations in Indiana. This treatment can be vital to the survival of the church, as donations typically make up a large portion of the operating budget. The state requires certain initial filings to form the nonprofit. Afterward, your church must pursue tax exempt status at the federal level. Once the Internal Revenue Service approves you application, you may obtain the state exemptions.
In Indiana, nonprofit corporations are defined as businesses organized with a purpose other than generating profit. This does not mean the organization cannot raise revenue; however, no member or employee may be paid dividends or salaries beyond a reasonable compensation. The chief advantage of being organized as a nonprofit in Indiana is relief from certain state and federal taxes, and increased access to grant money.
The incorporation process for churches in Indiana is governed by state law. First, your church needs to select a business name that is not the same as or deceptively similar to another business operating in the state. You must then recruit at least three directors and draft and file Articles of Incorporation with the Indiana Secretary of State. The articles serve as the constitution for your church and need to include basic information, and name an individual to receive future correspondence from the state. The articles also need to specify that your church is created to further a religious purpose and that, upon dissolution of the organization, the church's assets will go to another nonprofit. Once the articles are filed, you will need to draft bylaws and hold an organizational meeting. The bylaws set forth the rules and procedures for operation of the church.
Once your church has been incorporated as a nonprofit in Indiana, you may file for federal tax exempt status. This treatment is authorized under subchapter 501(c)(3) of the Internal Revenue Code and provides relief from federal income taxes for nonprofits promoting a religious purpose. It also provides for income tax deductions for individuals donating to your organization. To obtain this status, you must file Form 1023 with the Internal Revenue Service. The form must be accompanied by a certified copy of your articles and needs to contain details regarding your past, present and proposed future activities and finances.
Read More: How Can a Church Lose Its 501(c) Status?
Once the IRS approves your application, it will send you a confirmation letter; you may then pursue tax exempt status at the state level. The three areas for exemption available to churches are income, sales and property taxes. The state automatically exempts your nonprofit from corporate income tax upon receipt of the IRS confirmation letter. To request the sales tax exemption, you need to file form NP-20A and return it to the Indiana Department of Revenue along with a copy of the confirmation letter. Because property tax operates at the local level, you will need to file Form 136 with your county Assessor. The form must be accompanied by copies of the bylaws, articles and IRS confirmation letter.
- Digital Media Law Project: Forming a Nonprofit Corporation in Indiana
- Indiana Secretary of State: Chapter 3: Choosing a Structure: Non-Profit Formal Association
- State of Indiana: Indiana Code: Sections 23-17-3-2, 23-17-3-3
- Internal Revenue Service: Form 1023
- State of Indiana: Department of Revenue: Information Bulletin #17
- City of Indianapolis: Not-for-Profit Exemptions
Wayne Thomas earned his J.D. from Penn State University and has been practicing law since 2008. He has experience writing about environmental topics, music and health, as well as legal issues. Since 2011, Thomas has also served as a contributing editor for the "Vermont Environmental Monitor."