Demystifying Nonprofit Entities: Explaining the Difference Between 501(c)(3), 508(c)(1)(A), and Free Churches

Navigating the world of nonprofit organizations can be quite complex, with various legal designations and classifications that might leave you scratching your head. In this blog post, we aim to shed light on three common terms that often generate confusion: 501(c)(3), 508(c)(1)(A), and Free Church. We’ll break down these classifications in simple, layman’s terms, allowing you to understand the key differences between them.

1. Free Churches:

A “Free Church” is characterized by its emphasis on individual liberty, congregational self-governance, organizational structures, and the authority of the local church community. Members of a free church often have the freedom to interpret scripture and determine their own beliefs, practices, rituals, worship styles, and theological perspectives, guided by their understanding of religious principles. Free churches can be found in various religious traditions, including Spirituality.

One of the key principles of a free church is the separation of church and state. It asserts the church’s independence from governmental interference, allowing it to operate without undue influence or restrictions from external authorities.

Overall, a free church provides a space for individuals to freely explore and express their faith, while promoting congregational autonomy and individual religious liberty.

Unlike 501(c)(3) and 508(c)(1)(A) organizations, the term “Free Church” does not have a specific legal definition but as stated in IRS Publication 1828 all churches have tax-exempt status.

Make sure to read our blog post on, Uncovering the History and Origins of the “Free Church” movement.

2. 508(c)(1)(A) Organizations:

The term 508(c)(1)(A) refers to a specific provision in the U.S. Internal Revenue Code that allows church’s to be exempt from filing for formal recognition as a 501(c)(3) organization. Essentially, these organizations are automatically considered tax-exempt without needing to go through the process of applying for and obtaining 501(c)(3) status.

To qualify as a 508(c)(1)(A) organization, a religious entity must fulfill specific criteria, such as being a church, synagogue, mosque, or temple. These organizations must also meet certain characteristics, including having a distinct legal existence, regular religious services, a recognized creed or faith, and a designated and organized religious congregation.

While 508(c)(1)(A) organizations enjoy tax benefits as 501(c)(3) organizations, they do not have the same breadth of access to grants and funding opportunities. They may also have different reporting requirements compared to 501(c)(3) organizations.

1. 501(c)(3) Organizations:

501(c)(3) is one of the most common and recognizable designations for nonprofit organizations in the United States. This classification refers to a particular section of the U.S. Internal Revenue Code. When an organization is recognized as a 501(c)(3) entity, it means it is exempt from federal income taxes. It is important to note that this exemption is granted to organizations formed for specific purposes, such as charitable, religious, educational, scientific, literary, or public safety activities.

The benefits of being a 501(c)(3) organization extend beyond tax exemption. Such entities can also receive tax-deductible donations, which means individuals who donate money or resources to the organization can claim deductions on their tax returns. Additionally, 501(c)(3) organizations often have access to grants, government funding, and other forms of financial support.

Let’s take a deeper dive into IRS Publication 1828:

Churches “Need Not Apply“
In order to be considered for tax-exempt status by the IRS, an organization must fill out and submit IRS Form 1023 and 1024.  However, the IRS says regarding churches, in Publication 557 Some organizations are not required to file Form 1023.  These include:

Churches, inter-church organizations of local units of a church, conventions or associations of churches, or integrated auxiliaries of a church, such as a men’s or women’s organization, religious school, mission society, or youth group.  These organizations are exempt automatically if they meet the requirements of section 501(c)(3).

Churches are “Automatically Tax-Exempt”

According to IRS Code 508(c)(1)(A):
Special rules with respect to section 501c3 organizations.
(a)  New organizations must notify secretary that they are applying for recognition of section 501c3 status.
(c) Exceptions
(1)  Mandatory exceptions.  Subsections (a) and (b) shall not apply to –
(A) churches, their integrated auxiliaries, and conventions or associations of churches.

This is “mandatory exception” rule.  The IRS’ own publications, the tax code, says it is unnecessary for any church to apply for tax-exempt status.  In the IRS’ own words, a church “is automatically tax-exempt.” Please read IRS Publication 1828 for your own understanding.

Churches Are “Automatically Tax-Deductible”

According to IRS Publication 526:

Organizations That Qualify To Receive Deductible Contributions:

You can deduct your contributions only if you make them to a qualified organization.  To become a qualified organization, most organizations other than churches and governments, as described below, must apply to the IRS.

In the IRS’ own words a church “is automatically tax-deductible.”

Churches Have a Mandatory Exception To Filling Tax Returns

In the words of Steve Nestor, IRS Senior Revenue Officer (ret):

“I am not the only IRS employee who’s wondered why churches go to the government and seek permission to be exempted from a tax they didn’t owe to begin with, and to seek a tax deductible status that they’ve always had anyway.  Many of us have marveled at how church leaders want to be regulated and controlled by an agency of government that most Americans have prayed would just get out of their lives.  Churches are in an amazingly unique position, but they don’t seem to know or appreciate the implications of what it would mean to be free of government control.”  From the Forward of In Caesar’s Grip, by Peter Kershaw

Understanding the differences between 501(c)(3), 508(c)(1)(A), and Free Churches is essential for anyone seeking to engage with nonprofit organizations or religious institutions in the United States. Remember, 501(c)(3) organizations are tax-exempt entities that operate within various sectors, while 508(c)(1)(A) organizations are church’s that can enjoy tax-exempt status without going through the 501(c)(3). The Free Church operates separately from the state but still has the benefits of being a church.

When considering the establishment of such an entity, it is crucial to have a consultation with one of our Consultants,please click here, so you can have a better understanding and a clear path on what is best for your Association, Ministry, or Church.