5 Questions About Nonprofit Incorporation in Tennessee

The following questions are from some churches interested in nonprofit incorporation in Tennessee:

QUESTION 1. Should I be interested in LegalZoom helping the church to secure a federal tax identification number (FEIN) or is this something that we ought to not worry about? 

RESPONSE:  Yes, the FEIN is issued by the IRS for filing wage reports with the IRS and is used by the IRS to track tax-exempt organizations. But you should check with your accountant to see if you already have one.

QUESTION 2. The application asks for us to name a “registered agent” and offers Legalzoom’s assistance with this. It’s a sizable annual fee to do so. Would you recommend that we go ahead and make them our “registered agent”?

RESPONSE: No, you do not need a commercial service to act as your registered agent. In Tennessee the church can act its own registered agent. See 43-55-101 “A registered agent, who may be: (A) An individual who resides in this state and whose business office is identical with the registered office; (B) A for-profit domestic corporation or nonprofit domestic corporation whose business office is identical with the registered office…”

QUESTION 3. Should we fill out a 501(c)(3) application? This is a part of what they offer to do for us too.

RESPONSE: No, the IRS Internal Revenue Code section 508(c) sets out that churches are automatically recognized as tax-exempt under 501(c)(3), and the IRS does not require churches to apply for tax-exempt status if they meet the following criteria:

• organization must be organized and operated exclusively for religious, educational, scientific, or other charitable purposes,
• The net earnings may not inure to the benefit of any private individual or shareholder,
• No substantial part of its activity may be attempting to influence legislation,
• The organization may not participate in political  campaigns, and
• The organization’s purposes and activities may not be illegal or violate fundamental public policy.

In many states, a church incorporated as a nonprofit corporation in Tennessee will apply for 501(c)(3) status (which can be a lengthy, time-consuming process) in order to qualify for state sales tax exemption. However, in Tennessee a nonprofit corporation is automatically exempt from franchise and excise taxes in Tennessee. To obtain an exemption from sales and use tax, you will need to file an application with the Tennessee Department of Revenue. Check with the Department of Revenue for information on how to apply for exemptions from these and other state taxes. That said there may be a few perks a church will not be able to obtain without 501(c)(3) status such as a non-profit discount on postage (US Postal Service), on software purchases (Microsoft) or grants for certain projects (Wal-mart).

QUESTION 4. The application asks us to name directors (which I supplied the elders names for) but also asks for a president, secretary, and treasurer. Should I put the elders’ names down for those roles too or would you recommend three other individuals for this? 

RESPONSE: Yes elders/directors can serve as the officers. Note that in Tennessee a nonprofit corporation is only required to have a president and secretary; however, it is generally a good idea to have a Treasurer but he can also serve as Secretary. Here’s the most relevant sections of the statute:

48-58-401. Required officers. — (a) A corporation has the officers described in its bylaws or designated by its board of directors in accordance with the bylaws; provided, that every corporation shall have a president and a secretary. Unless the charter or bylaws provide otherwise, officers shall be elected or appointed by the board of directors. (b) A duly appointed officer may appoint one (1) or more officers or assistant officers if authorized by the bylaws or the board of directors. (c) The bylaws or the board of directors shall delegate to one (1) of the officers responsibility for preparing minutes of the directors’ and members’ meetings and for authenticating records of the corporation. (d) The same individual may simultaneously hold more than one (1) office in a corporation, except the offices of president and secretary. [Acts 1987, ch. 242, § 8.40; 1989, ch. 445, § 7.]

48-58-402. Duties of officers. — Each officer has the authority and shall perform the duties set forth in the bylaws or, to the extent consistent with the bylaws, the duties prescribed by the board of directors or by direction of an officer authorized by the board of directors to prescribe the duties and authority of other officers. [Acts 1987, ch. 242, § 8.41.]

Normally, officers are appointed at the first official board meeting which is usually referred to as the organizational meeting of the board. The board should take such actions as:

• approving the bylaws,
• appointing officers,
• setting an accounting period and tax year, and
• approving initial transactions of the corporation, such as the opening of a church bank account.

After the meeting is completed, be sure to create minutes that accurately record the actions taken by the board.

QUESTION 5: LegalZoom also asks that we provide an IRS contact with name, social security number, etc. I am assuming this should also be one of the elders. 

RESPONSE: Generally this is the incorporator but one of the elders would be fine. It may make the most sense for the board to designate the Secretary/Treasurer as that person.

SOURCES:

 Tennessee Non-Profit Corporation Act, available at http://www.lexisnexis.com/hottopics/michie/

NOLO, How to Form a Tennessee Nonprofit Corporation, available at http://www.nolo.com/legal-encyclopedia/forming-nonprofit-corporation-tennessee-36088.html

Cullinane Law Group, Nonprofit Basics, available at http://cullinanelaw.com/nonprofit-law-basics-does-a-church-need-to-apply-for-501c3-status-to-be-considered-tax-exempt/

William F. Maxwell, Churches and Tax Exemption, available at http://www.tnbaptist.org/pdf/church-tax-exemption.pdf

Print Friendly