Disadvantages of a 501(c)(3)
If a Faith Based Organizations (FBO) is organized under section 26 U.S.C. §501(c)(3), that FBO is restrained from speaking on politics. This means the FBO is legally restrained from preaching on political issues. By law there should be no advocating for a position on a referendum, initiative, or political candidate on any level. There are also reporting requirements and costs including accounting and reporting a yearly Form 990.
1) FBO application for a “determination letter” grants authority from the FBO to the IRS for income, expenses, and preaching.
2) All 501(c)(3) FBO are prohibited from free speech. By law, a 501(c)(3) FBO is exempt from taxation only if it is “organized and operated exclusively for religious… purposes…. which does not participate in, or intervene in (including the publishing or distribution of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.” See: 26 U.S.C. § 501(c)(3).
The heavy price 501(c)(3) organizations pay is not just waving constitutional rights in formation. Particularly egregious, is agreeing to comply with all future rules and regulations the IRS, not congress, enacts. Many FBO’s have realized only too late what they have done. Once you contract with the IRS and waive your rights as a FBO to be a 501(c)(3), you can’t argue 1st Amendment Free Speech protection regarding political issues. Over and over again 501(c)(3) FBO have lost this court battle. Why? Because FBO’s have the choice to be a 508(c)(1)(a) or 501(c)(3). People and corporations can waive their rights.
3) Look clearly at USC 26 6033a Returns by Exempt Organizations. All tax exempt non profits excluding the 508(c)(1)(a) “shall file an annual return, stating specifically the items of gross income, receipts, and disbursements, and such other information for the purpose of carrying out the internal revenue laws as the Secretary may by forms or regulations prescribe, and shall keep such records, render under oath such statements, make such other returns, and comply with such rules and regulations as the Secretary may from time to time prescribe”
4) What is the penalty? The penalty for a 501(c)(3) FBO that violates federal law political restrictions is losing tax exempt status. In addition all donations given to that FBO by any taxpayer will no longer be tax deductible. See: Branch Ministries VS IRS211 F. 3d 137 (D.C. Cir. 2000) and Jack Taylor VS IRS 2000.