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What’s the Difference Between 508 and 501(c)(3)?

To be clear, “508” is a marketing term and does not refer to an entity type recognized by the IRS or any federal or state government. Many people make the mistake of contacting the IRS asking about “508s” and are surprised when the IRS tells them that a “508” is outside of their scope. Why? Maybe it’s because “Section 508” is actually part of a 1998 amendment to the Rehabilitation Act of 1973. It requires all Federal electronic content to be accessible to employees with disabilities and individuals with disabilities who are members of the public to have access to and use of information and data. See for yourself at section508.gov.

When The 508 Company refers to a “508,” we’re referring to Section 508(c)(1)(A) of the Internal Revenue Code and the four specific entity types listed there: 1) churches, 2) integrated auxiliaries of churches, 3) conventions of churches, or 4) associations of churches.

If your ministry is not structured to operate as one of these four entity types, you are not a “508” but most likely a religious organization. “Because special tax rules apply to churches, it’s important to distinguish churches from other religious organizations. Therefore, when the IRS uses the term ‘religious organizations,’ it isn’t referring to churches or integrated auxiliaries of churches.” – IRS Publication 1828 (Rev. 8-2015)

What’s the difference between operating under Section 508(c)(1)(A) versus only 501(c)(3)?

In a nutshell, nonprofits that operate under the banner of 508(c)(1)(A) enjoy the benefit of federal tax-exempt status without having to obtain official recognition from the IRS or file annual tax returns. While these organizations still technically derive their tax-exempt status from Section 501(c)(3), Section 508 exempts them from the filing requirements that apply to all other 501(c)(3) nonprofits. Thus, a 508(c)(1)(A) nonprofit is a special type of 501(c)(3) tax-exempt organization that does not have to report its income or activities to the IRS by filing annual tax returns.

Unbeknownst to most people today, Section 508(c)(1)(A) was specifically added to the Internal Revenue Code to protect the First Amendment rights of churches and other qualified religious organizations when Congress began requiring official IRS recognition of a nonprofit’s tax-exempt status. The statute continues the historical American tradition of exempting churches from rigorous oversight by the federal government, particularly on the issue of taxation and tax liability.

Here are some important sections from the Internal Revenue Code. Pay special attention to the mandatory exceptions for churches, their integrated auxiliaries, and conventions or associations of churches:

  • 26 U.S. Code § 508(c)(1)(A) – Special rules with respect to section 501(c)(3) organizations: https://www.law.cornell.edu/uscode/text/26/508
    • Subsections (a)—New organizations must notify Secretary that they are applying for recognition of section 501(c)(3) status—and (b)— Presumption that organizations are private foundations—shall not apply to churches, their integrated auxiliaries, and conventions or associations of churches.
  • 26 U.S. Code § 6033(a)(3)(A)(i) – Returns by exempt organizations: https://www.law.cornell.edu/uscode/text/26/6033
    • “Paragraph (1)—every organization exempt from taxation under section 501(a) shall file an annual return—shall not apply to churches, their integrated auxiliaries, and conventions or associations of churches.
  • 26 U.S. Code § 170(b)(1)(A)(i) – Charitable, etc., contributions and gifts: https://www.law.cornell.edu/uscode/text/26/170
    • “Any charitable contribution to a church or a convention or association of churches, shall be allowed to the extent that the aggregate of such contributions does not exceed 50 percent of the taxpayer’s contribution base for the taxable year.”

Operating a noncompliant 508 carries potentially serious consequences, which is why we decided to start The 508 Company. We want every 508 to be confident and ready if the IRS ever comes knocking for information or it becomes necessary to defend your organization’s tax-exempt status in court. And considering our nation’s current political climate, this unfortunately may happen sooner rather than later—hence the importance of being prepared!

Take our 508 Compliance Test™ to find out if your 508 is compliant. It’s free.

Corey Scott

Believer. Husband. Father of Six. Joshua 24:15. Corey Scott is the Founder and CEO of The 508 Company and has worked with more than 100 ministries and faith leaders since 2022 to help them to establish and operate their nonprofits under Section 508(c)(1)(A) — the right way.

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“The I.R.S. examined 1.4 million individual income tax returns in 2010, about 1 percent of the total number filed. In 2018, the latest year with available data when Republicans started making these claims, audits decreased to 370,000, or about 0.2 percent… The budget office estimated increasing I.R.S. funding would return enforcement to its 2010 levels. Doing so would result in about 1.2 million more audits; of those, 583,000 would target people making less than $75,000.”

The New York Times, “Fact-Checking the Misleading Claim About 87,000 Tax Agents”, November 6, 2022

“…For example, you educate believers on national issues that are central to their belief in the Bible as the inerrant Word of God. Specifically, you educate Christians on what the bible says in areas where they can be instrumental including the areas of sanctity of life, the definition of marriage, biblical justice, freedom of speech, defense, and borders and immigration, U.S. and Israel relations. The bible teachings are typically affiliated with the Republican party and candidates. This disqualifies you from exemption under IRC Section 501(c)(3).”

Stephen A. Martin, IRS Director, Exempt Organizations, Rulings and Agreements