Issue
We’ve heard from some Christian colleges who are contemplating how they might get out of Form 990 filing requirements (and possibly receive other benefits) by formalizing their relationship with or becoming more aligned with a church or denomination/association of churches.
Situation
Troas Bible College (TBC) is a private college and a public charity under IRC section 501(c)(3) and section 170(b)(1)(A)(ii). 25 years ago, TBC was founded by a local church with which they still have close ties. The determination letter TBC received from the IRS states that they are required to file Form 990. Lisa, TBC’s Controller, calls to ask us about whether they might be able make the case with the IRS that they should not have to file Form 990. She states that TBC’s board of trustees has been discussing how they might become more closely aligned with the church that founded TBC and whether that might be of benefit in “the current political and cultural climate.”
We tell her there are benefits to filing Form 990 (i.e. fundraising, transparency, comparable data, etc.) but that colleges like TBC would generally look to make the case that they are an “integrated auxiliary of a church”. The method for going about this would be to file Form 8940 with the IRS and pay a $400 user fee.
Note that TBC is classified by the IRS as a “school” rather than a “church”.
Rules
A college that is closely affiliated with a church or denomination/association may want to investigate the filing of IRS Form 8940 – Request for Miscellaneous Determination if they do not believe they are required to file IRS Form 990. The instructions to IRS Form 8940, Part II, Line 8d set forth the conditions that a school might be considered a church, integrated auxiliary of a church, or a church affiliate. The IRS Form 8940 instructions can be found here.
Form 8940, Instructions (2015), page 3:
An integrated auxiliary of a church described in Regulations section 1.6033-2(h) (such as a men’s or women’s organization, religious school, mission society, or religious group).
• Documentation required to support the exemption
1. Submit documentation that you are described both in sections 501(c)(3) and 509(a)(1), (2), or (3).
• Submit documentation, one of the three items listed below, showing that you are affiliated with a church or a convention or association of churches, as detailed in Regulations section 1.6033-2(h)(2).
1. Submit documentation indicating whether you are covered by a group exemption letter issued under applicable administrative procedures, (see Rev. Proc. 80-27, 1980-1 C.B. 677, and Regulations section 601.601(a)(2)(ii)(b)), to a church or a convention or association of churches,
2. Submit documentation from your bylaws or other organizational documents that states whether the affiliated church has the authority to appoint and remove your directors, as this will document that you are operated, supervised, or controlled by or in connection with (as defined in Regulations section 1.509(a)-4) a church or a convention or association of churches, or
3. Submit supporting documentation to detail how relevant facts and circumstances show that you are affiliated with a church or a convention or association of churches, as detailed in Regulations section 1.6033-2(h)(3).
• Submit documentation, both of the items listed below, detailing whether or not you are internally supported as detailed in Regulations section 1.6033-2(h)(4).
1. State whether 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
2. Submit documentation detailing whether you normally receive more than 50 percent 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.
Note: Men’s or women’s organizations, seminaries, mission societies, and youth groups do not need to meet the internal support requirement.
Bottom Line
If your institution desires to look into a “Form 990 filing exclusion”, it is prudent to carefully review the Form 8940 documentation requirements with a knowledgeable tax advisor. Note especially that the requirements of the third bullet point technically require that your institution receives more than 50% of its support from a church or denomination/association of churches.
Specific questions? Email Dave Moja
The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.