Welcome back everyone to 101 questions at church planters ask. I'm your host, Danny Parmelee, and we've been discussing legal setup of the church plant in the last few episodes, and today we're gonna be looking at five zero one c three nonprofit status. Now obtaining this status is important for a number of reasons, but, the two of them that are most important is that first of all, people that donate to your church will receive a tax benefit if you have this status. Now I know that people's motivation for giving should be centered around this gospel overflow generosity, but trust me, people giving significant amounts of money, they are going to want this tax deduction and will probably ask you if you are a five zero one c three. The other main reason which might not affect you so much right now, but will hopefully in the future is that if you have five zero one c three status, it will help you in not having to pay property taxes.
Danny Parmelee:So pretty much all local and state entities are going to require that you're recognized by the IRS as nonprofit, so that you can get off of their property tax rolls. Now I wanna start off today by letting you in on a little secret. This honestly may be the best news of your day. A little bit of a drum roll. And if you are a part of a network or denomination, you may not need to file a full application spending hours of time and thousands of dollars.
Danny Parmelee:Sounds too good too good to be true, doesn't it? Or maybe even slightly illegal? I promise you it is not. This is actually the way that the IRS has set it up, and it is called a five zero one c three umbrella. Meaning that your larger organization that has a five zero one c three, can have organizations under them and your church plant being one of them.
Danny Parmelee:Now the process to be included on the umbrella policy or to be included on an umbrella is pretty simple. It's basically you just writing a letter requesting that you be added. You're writing to to your network, to your denomination, so they'll have to do a little bit of this work on their side. And they basically just add you and there's no cost to you at all. Now, of course, this does mean that you have to have your EIN already.
Danny Parmelee:So this was discussed in episode four. If you don't have that yet, make sure you start there. Now the other added benefit of having that five zero one c three umbrella status, is that if you're under the umbrella, you don't have to file the yearly nine ninety tax forms with the IRS. You literally do nothing to maintain your status. It's absolutely beautiful.
Danny Parmelee:Now if you're not currently a part of a network or organization, I'm gonna tell you because you're gonna hear me say it over and over that church planters should not plant alone. Of course, I'd love to help you with that. You can head on over to churchplantersask.com, drop me a little note, and either I will try to convince you to plant with the organization that I'm with, Converge, but there's also other great ones out there as well too, and I have no problem pointing you in their direction as well. Now if you're adamant about going it alone or if your network doesn't provide you with an umbrella option, you do have some hard work that's ahead of you to obtain your five zero one c three status. Your first option is to hire a lawyer.
Danny Parmelee:You can expect to pay around 1,500, 2 thousand dollars, maybe even a little bit more than that. Now the advantage is that they know all the proper boxes to check. They can help sort through all of the paperwork with you. You're still gonna need to do a lot of paperwork. The lawyer will ask you for different things that, you know, how you're gonna function, your projected financials.
Danny Parmelee:So it doesn't mean you're off the work of of doing the hard work, but at least the legal jargon, they'll be able to help you, do that. There are also online services that are less expensive than hiring a lawyer outright. So you've probably heard of LegalZoom, before. Now I did just recently talk to a friend of mine, Robbie, and he's on a church plant team here in Nashville, and he's, had other ministries and nonprofits. And he said that he gave LegalZoom a whirl, and it was an absolute nightmare.
Danny Parmelee:He said, do not do it. He did, however, though suggest a book, by doctor Kitty Bickford titled do your own nonprofit. He said that was super helpful then when he really went on his own to do it. Now I will drop the, in the in the blog notes. You can go ahead and look.
Danny Parmelee:I'll I'll leave a link for doctor Kitty's, which, by the way, that's a that's a great name to have, doctor Kitty doctor Kitty's book in there. Now one thing to keep in mind is that when you start your five zero one c three process, you need to do it right away because the clock is ticking from the time that you officially incorporate. So this is what the IRS says. It says an organization must file its exemption application within twenty seven months from the end of the month in which it was formed. If it does so, it may be recognized as exempt back to the date of formation.
Danny Parmelee:If an organization files its exemption after the twenty seven month deadline, exempt status may only be recognized from the filing date forward. So what this means is even if you're approved, for your, or even if you aren't approved yet for your five zero one c three, you can accept tax deductible donations. So in other words, donors can give to the church as long as you have filed that form, and it will backdate if you're within those twenty seven months to the first day. So this is really helpful. It means you can start accepting donations right away, but you do need to to file it.
Danny Parmelee:Now if you wait until after the twenty seven months, then people that have made donations, could be, if they get audited by the IRS could, get in trouble themselves and potentially get you in some trouble. Now if you're, going to, go on your own, you know, there it is not impossible. K. So I don't wanna scare you in saying, you know, it is impossible. You can't file five zero one c three by yourself.
Danny Parmelee:You have to pay a lawyer, or you're just gonna die trying. And I had a conversation with a pastor friend of mine who successfully has applied for and granted numerous five zero one c three status applications, and so listen in on this conversation that I had with him. Well, I've got pastor Joe here who is an expert, we'll call him, at least maybe he will share some things about applying for five zero one c three status. And Joe, you plant Grace Chapel?
Speaker 2:I did, yes. We started in 1990, and the very first thing we did once we had our board assembled was to apply for a five zero one c three, because at that point we were a non denominational church, so we had to come up with our own nonprofit status.
Danny Parmelee:Well that's great and part of the reason I asked that question, I don't know if you even remember my story or not, but I came to Christ as a freshman at University of Wisconsin Oshkosh and kind of pulled out of a life of drinking and drugs and I needed to go to a church. So you were the closest church that I just said, I woke up the next day and said, I gotta go to church. So just walked into a church and had the privilege of sitting under your teaching for a while as a young believer. And so thank you for that. I couldn't remember or not if you had actually planted the church or not.
Danny Parmelee:So very cool to be able to reconnect now as you're able to share with And part of the reason that I reached out to you is I put out on social media people having experience with applying for their own five zero one c three and you had responded that you have done it yourself and that you've done it numerous times. So tell me a little bit about that. It for church? Was it for other organizations, networks? Why have you applied so many times?
Speaker 2:The reason I've applied so many times, because I've been on the board of directors for lots of different ministries and missionary endeavors over the years, and started back in the seventies, and my own missionary career back then, and then moving into pastoral work in the eighties, but in the meantime while I was in pastoring and doing church stuff, was also still maintaining my friendships with my old missionary buddies and seeing the need for nonprofits to get started,
Danny Parmelee:so But for those that really do want to try to do it themselves, Give me a little bit of what are some of those hoops or challenges? What can they expect? Can just a regular Joe Schmo, if they want do it or should they you know, be looking for a lawyer to help them and just, you know, pay the fees, or hey, you can do all of this, but you're gonna need a lawyer, you know, for x y and z.
Speaker 2:You know, I found, I mean, had a lawyer help us get get one of our nonprofits started, and what the advantage of doing it with the lawyer then was that he had all the legalese that you had to have when you submitted your application to the IRS. He had it down, he'd done it before. And so, but once you've got the legal terminology down and all the different paragraphs and things that you have to add in the description of your organization, once you've got that down, you don't need a lawyer anymore, like you said, any Joe Smoak can do it, and it just takes patience and a little bit of footwork, and then you're off to the races, but there is a step by step process that you gotta go through, I think that's what's intimidating for guys if they've never done it before. There is a step by step, and you've got to follow the steps or it can get very frustrating, and sometimes you you get the cart before the horse and all of a sudden you don't know what you're doing and you're calling a lawyer, you know, so.
Danny Parmelee:How long, how many hours would you say or kind of what should someone expect? Let's say it's an ambitious church planter, it's January 1 and they're thinking I really want to do this, I want to get the ball rolling. What would, I mean, you know, a fairly average like, if you put this amount of time per day kind of into it, how long to actually apply? And then what about the response time to know, oh yes, I received everything back, I got the stamp of approval?
Speaker 2:The hours that you're gonna put into it just to do the paperwork and get all your ducks in a row before you submit your application to the IRS, I would say you're probably talking just your own hours, but the hours that you're gonna have to spend with your board of directors, probably be somewhere in the area of about twenty to thirty hours of work.
Danny Parmelee:Yeah. So thirty which is great, but this is kind of what I want to know as well too. If you make mistakes, what happens? So let's say you checked the wrong box or you know, you said, hey, the you know, the board will vote on all, you know, financial decisions above $500 or something. I don't know.
Danny Parmelee:Something that either trips you up. Did you make mistakes? What happens? You just get an absolute denial? You know, does the IRS come in and talk to you or they go over the It's not
Speaker 2:an absolute denial, it's just a letter they send you for corrections. So and then they give you like thirty days to correct it. So it's like I say, it's time consuming in the fact that once you submit that final document, it's called a ten twenty three, once you submit that to the IRS, they're not in any rush to process those things. That can take up to four to six months to get back to just the response saying, oh by the way, you forgot to check that box. That's great.
Danny Parmelee:Well pastor Joe, thank you so much for sharing. We will put your contact information in the written portion of the blog for this so that people can contact you. That's all we have for today. Thanks so much for listening. Remember, if you have a question about church planting, go to churchplantersask.com.
Danny Parmelee:You can submit your question there or if you'd like to be a guest on the podcast, would love to know of your availability and your topic. So until next time, keep asking those questions.