Starting a Church & 501(c)(3)

Does a Church File a Tax Return? Form 990 and the Church Exception

Published 2026-10-05 · Starting a Church & 501(c)(3)

Short answer: a church that qualifies as a church is excepted from filing the annual Form 990 information return, and that exception is real rather than a technicality. But it covers one form. Payroll returns, unrelated business income, state corporate filings, property and sales tax renewals and several situational federal forms all sit outside it. "We don't file a 990" is true, and it isn't the same as "we don't file anything."

Someone at a board meeting says the church doesn't file tax returns, and the room relaxes. Six months later a payroll notice arrives, or a state administrative dissolution letter, and nobody can work out how both things can be true.

They're both true. The church exception is genuine and narrow at the same time, which is why it belongs on the same page as your other first-year filings. Here's exactly where its edges are.

What the exception actually covers

Most tax-exempt organizations file an annual information return: Form 990, 990-EZ, or the electronic 990-N depending on size. It's public, and failing to file for three consecutive years causes automatic revocation of exempt status.

Churches, their integrated auxiliaries, and conventions or associations of churches are excepted from that annual filing requirement (IRS Publication 1828, Tax Guide for Churches). A church that qualifies doesn't file 990 in any of its versions, and the three-year automatic revocation rule doesn't bite an organization that was never required to file.

Two things follow that boards should hear clearly:

You don't have to apply to get this. A church meeting the requirements of section 501(c)(3) is treated as exempt without filing Form 1023 and without a determination letter (IRS, About Form 1023). Many churches apply anyway because a bank, landlord or grantmaker asks. That's a practical reason, not a legal requirement.

You do have to actually be a church. The exception attaches to being a church, not to having a religious purpose (IRS, Definition of a church). A religious nonprofit that isn't a church, such as a parachurch ministry, a standalone camp or a media organization, generally files 990 like any other exempt organization. Organizations get this wrong in good faith, usually because they think of themselves as a ministry and assume the word carries a filing consequence.

What your church still files

This is the list boards actually need. Not all of it applies to every church. All of it applies to some.

Payroll returns, if you have employees. Quarterly employment tax returns, annual W-2s and W-3s, and 1099s for contractors above the reporting threshold (IRS Publication 15 (Circular E), Employer's Tax Guide). Being exempt from income tax doesn't exempt a church from being an employer. This is the single most common filing that churches miss, usually because the first employee is part-time and the church assumed the amount was too small to matter.

Form 990-T, if you have unrelated business income. An exempt organization, churches included, that has gross income from an unrelated trade or business at or above the filing threshold files an exempt organization business income tax return and pays tax on the net (IRS, Unrelated business income tax). The threshold is low. More on what counts below.

State corporate filings. Most states require a periodic report or registration renewal to keep the corporation in good standing. Miss enough of them and the state administratively dissolves the entity, which is a genuinely bad day, because the corporation that holds your building stops existing.

Charitable solicitation registration. State-level, and many states exempt churches. Many isn't all, and the exemption often has to be claimed rather than assumed.

Property and sales tax exemption filings. These are state and local, they're separate from federal exemption, and several jurisdictions require periodic renewal or an annual affidavit. A church that lets a property tax exemption lapse finds out via a bill.

Situational federal forms. A church that operates a private school files the annual certification of racially nondiscriminatory policy. A church that receives certain noncash gifts signs the donor's noncash contribution form, and files the donee information return if it disposes of that property within the required period. A church receiving a donated vehicle has its own acknowledgement form.

Confirm current form numbers, thresholds and due dates against the IRS instructions for the year in question, or with your accountant. Filing requirements are revised more often than churches revisit them.

Unrelated business income, the part that surprises boards

Unrelated business income is income from a trade or business, regularly carried on, that isn't substantially related to the exempt purpose. Three tests, and all three have to be met before there's anything to talk about.

Some rough shape, which is genuinely fact-specific and worth an accountant's read on your own numbers:

• Passive rent from real property is often excluded. Renting the fellowship hall usually isn't the problem people expect. But rent attributable to personal property, rent tied to the tenant's profits, or income from debt-financed property can change the analysis.
• Substantially all volunteer labor is often excluded. The volunteer-run bake sale is generally not the issue.
• Activities carried on for the convenience of members, such as a coffee counter serving the congregation on a Sunday, often fall outside.
• Advertising is frequently taxable even when the publication it sits in is entirely exempt in purpose. Selling ad space in a bulletin or on a website is a classic quiet source of unrelated income.
• Regularly carried on matters. An annual event is different from a year-round operation.

The practical rule for a board: if the church is doing something that looks like a business, whether that's a coffee shop open to the public all week, a commercial parking operation, a cell tower with services attached, or paid advertising, get it reviewed before the year closes rather than after.

What churches get wrong

"We're a church, we don't file anything." The sentence that produces payroll notices. The 990 exception is one form.

Missing the state annual report. The most common and the most consequential, because administrative dissolution affects the entity holding your property. Put it on a compliance calendar with a named owner.

Treating a separate ministry as covered. A school, a foundation, a camp or a broadcasting arm set up as a separate entity may have its own filing obligations. The church's exception doesn't travel to a sibling corporation just because the same board sits on both.

Assuming an integrated auxiliary is automatic. The term has a definition. An affiliated organization that doesn't meet it files.

Losing the state tax exemptions. Sales tax exemption certificates expire in some states. Property tax exemptions require renewal in others. Both are worth real money and both fail silently.

Not filing a 990-T because "we're exempt." Exempt from income tax on exempt-function income. Unrelated business income is the exception to that, and it's taxed.

A worked example

A church of 250 does four things beyond services.

*It rents the sanctuary to a community choir twice a month.* Passive rent from real property, no services provided, building owned outright. Generally outside unrelated business income.

*It runs a coffee counter on Sunday mornings, staffed by volunteers, serving the congregation.* Volunteer labor and convenience of members both point away from unrelated income.

*It opens the same coffee counter Monday to Friday to the public with two paid baristas, competing with the shop across the street.* This is the one to review. Regularly carried on, paid staff, general public, and it looks like a trade or business. Whether it's substantially related to the exempt purpose is a real question with a real answer, and the answer needs an accountant, not an article.

*It sells advertising space in the weekly bulletin to local businesses.* Advertising income of this kind is commonly treated as unrelated business income even though the bulletin itself is entirely religious in purpose.

None of the four is improper. Two are almost certainly fine, one needs review, and one probably triggers a filing. The board that looks at this in October has a straightforward conversation. The board that looks at it in March has a late filing.

What to do about it

1. Build a compliance calendar with a named owner for each item: state annual report, payroll deadlines, exemption renewals, insurance renewal, and the annual board items.
2. Confirm whether you actually meet the church criteria rather than assuming. If your organization is a ministry rather than a congregation, your filing position may be completely different.
3. List every affiliated entity and identify each one's own filing obligations separately.
4. Review any revenue that isn't giving once a year, before the year closes.
5. Check your state exemptions are current. Sales tax, property tax, solicitation registration.
6. Minute the review. A board that reviews compliance annually and records it has evidence of diligence. A board that does it informally has a memory, and the standing board agenda is where this becomes a habit rather than a scramble.

Common questions

Do we have to file anything to keep our exemption?

Federally, a qualifying church has no annual information return to file, so there's nothing to lapse. At state level there usually is, including corporate registration and often exemption renewals. Those are the ones that quietly expire.

If we never filed a 990, can our exemption be revoked?

The automatic revocation rule applies to organizations required to file. A church that was never required to file isn't caught by it. Exempt status can still be lost for other reasons, including private inurement, substantial non-exempt activity, and prohibited political campaign intervention (IRS, Restriction of political campaign intervention). None of those are filing failures.

Are we required to publish our finances?

Not federally, in the way a 990-filing organization effectively is. Many churches publish an annual report anyway, and it's usually a good decision. The congregation funds the organization, and voluntary transparency is cheaper than the questions that grow in its absence.

Does a determination letter change our filing obligations?

No. A determination letter recognizes exempt status. It doesn't create a 990 obligation for an organization that qualifies as a church.

Our church runs a school. Does that change things?

Possibly, in several ways: the annual nondiscrimination certification, employment filings, and the question of whether the school is part of the church or a separate entity. Worth an accountant's review specifically, because the answer drives several filings at once.

The practical wrap

The church exception is real and it's one form wide.

Put the rest on a calendar with names against it. State report, payroll, exemption renewals, and an annual look at any income that isn't giving. That single page prevents almost every filing problem a church of any size will ever have.

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Know what year one actually requires. Now That Your Church Is Formed covers what to get right in the first year, including board duties, compensation, Form 990 and donor receipts, in plain English, so nothing on this list is discovered by letter. $29, instant download. The rest of the formation set is on the start a church hub.

*Faith Docs provides self-help document templates, not legal advice. We are not a law firm. For representation, consult a licensed attorney.*