In a nutshell, an Integrated Auxiliary is typically a separately formed legal entity operating a ministry extension, or branch, of a church. Integrated Auxiliaries are also called “church-controlled organizations” and can range from an afterschool sports ministry to more complex elder care or housing programs. For tax purposes, an Integrated Auxiliary is the same as a church.
An Integrated Auxiliary must be operated, supervised or controlled by, or be connected to a church, with some sort of board overlap or appointment power and at least 50% of its funds must come from either the church itself or from the church’s members unless the Integrated Auxiliary is a men’s or women’s organization, seminary,* mission society, or youth group.
*The word “seminary” has not acquired any definite and fixed legal meaning, though occasionally used in a general way to designate institutions for the promotion of learning. (See Chegaray v. New York. 13 N. Y. 229)
Examples of Integrated Auxiliaries:
- A men’s group, women’s group, youth group or other group engaged in an exclusive religious activity of any religious order.
- A religious school or seminary including a school below college level affiliated with a church or operated by a religious order.
- A mission society sponsored by, or affiliated with, one or more churches or church denominations, if more than half of the society’s activities are conducted in or directed at persons in foreign countries.
Because churches are exempt from the initial exemption and annual Form 990 filing requirements under Section 501(c)(3), so too are Integrated Auxiliaries of churches. These significant benefits warrant careful evaluation with respect to formation of church-related organizations and their tax-compliant operations.
Questions to Answer
If asked, Integrated Auxiliaries will need to provide the following information to help the IRS determine whether they meet the requirements for an Integrated Auxiliary of a church. Organizational documentation such as Articles of Incorporation, Bylaws, code of conduct policies, etc. are always helpful if your Integrated Auxiliary is ever questioned by the IRS or tax court.
1) Operated for exempt purpose(s). Are you described in Section 501(c)(3) of the Code? If yes, please discuss how your organization is described in Section 501(c)(3).
- Are you described in Section 509(a)(1), (2), or (3) of the Code? If yes, please discuss how your organization is described in Section 509(a)(1), (2), or (3).
- For organizations that have to apply to the IRS for tax-exempt status determination, the Narrative Description of Activities section on Form 1023 is basically the complete story of your organization, from its inception to projection of what it will do in the future. A similar document should be available within your Integrated Auxiliary.
2) Church affiliation requirement. Are you affiliated with a church, convention of churches, or an association of churches? If yes, describe how you demonstrate affiliation with a church or convention or association of churches, and discuss whether one or more of the following three indicators of affiliation apply:
- You are operated, supervised, or controlled by or in connection with (as defined in Section 1.509(a)-4 of the Treasury Regulations) a church or a convention or association of churches. If so, please discuss how your organization is operated, supervised, or controlled by or in connection with a church or a convention or association of churches within the meaning of Section 1.509(a)-4 of the Treasury Regulations.
- Relevant facts and circumstances show that you are affiliated with a church or convention or association of churches. Facts and circumstances include, but are not limited to, the following six points. Your Integrated Auxiliary will need to describe how any of the factors listed below apply. If none of these factors describe your affiliation, describe any other relevant facts and circumstances that demonstrate you are affiliated with a church or convention or association of churches. Your Integrated Auxiliary must be prepared to submit a copy of any document that supports a determination that the relevant facts and circumstances show you are affiliated with a church or convention or association of churches:
- Your enabling instrument (corporate charter, trust instrument, Articles of Association, constitution or similar document) or Bylaws affirm that you share common religious doctrines, principles, disciplines, or practices with a church or a convention or association of churches.
- A church or convention or association of churches has the authority to appoint or remove, or to control the appointment or removal of, at least one of your officers or directors.
- Your corporate name indicates an institutional relationship with a church or a convention or association of churches.
- You report at least annually on your financial and general operations to a church or a convention or association of churches.
- There is an institutional relationship between you and a church or a convention or association of churches that is affirmed by the church or convention or association of churches, or a designee thereof.
- In the event of dissolution, your assets are required to be distributed to a church or a convention or association of churches, or to an affiliate thereof within the meaning of Section 1.6033-2(h) of the Treasury Regulations.
3) Internal support requirement. Section 1.6033-2(h) of the Treasury Regulations provides that an organization must also be internally supported in order to be an Integrated Auxiliary. Please discuss how you meet the test for being internally supported as provided under Section 1.6033-2(h)(4) of the Treasury Regulations. You may be required to submit any financial information showing the sources of your revenues (for example, grants or contributions from the public). Section 1.6033-2(h)(4) of the Treasury Regulations provides that an organization is internally supported unless both of the following are true:*
- You offer admissions, goods, services or facilities for sale, other than on an incidental basis, to the general public (except goods, services, or facilities sold at a nominal charge or for an insubstantial portion of the cost); and
- You normally receive more than 50% of your support from a combination of governmental sources, public solicitation of contributions, and receipts from the sale of admissions, goods, performance of services, or furnishing of facilities in activities that are not unrelated trades or businesses.
*Men’s and women’s organizations, seminaries, mission societies, youth groups, etc. that satisfy the first two requirements above are considered Integrated Auxiliaries whether or not they meet the internal support requirement.