January 13, 2025

‍

Religious orders, and commitment to them, are often seen as a vocation. Members respond to a call from God to express their faith in a unique way. As a crucial piece of religious expression, the status of religious orders as federally tax-exempt organizations is essential. The IRS continues to acknowledge the relationship between churches and religious orders by granting 501(c)(3) tax-exempt status to these groups and by exempting both churches and religious orders from filing the IRS Form 990.

The exemptions applicable to religious orders are like those provided to churches and their integrated auxiliaries. For purposes of tax exemption, these organizations are often grouped together.

Most organizations that Christians, especially Catholics, would typically think of as religious orders (convents of nuns, monasteries of monks, etc.) will qualify as religious orders for federal tax purposes. But there are many other types of religious organizations that may also qualify. Read on to get a better understanding of what federal tax law means by “religious order” and how the term differs from its common, non-legal use.

‍

What Is a Religious Order in the Eyes of the IRS?/What Does the IRS Consider To Be a Religious Order?

To answer this question, we first have to look back at the judicial interpretation of the term from the late twentieth century.  

Before 1991, there was no uniform definition of the term ‘religious order’ used by the IRS. The term’s meaning came exclusively from IRS rulings and case law. This made it difficult for organizations to know if they qualified as a religious order because these rulings and cases often concerned only one group’s characteristics, not a universal definition.  

Courts helped to shape the definition over time by adding pieces to the puzzle. The IRS referred to these hodge-podge definitions in determination letters which addressed the exception status of a particular organization.

In a 1984 determination letter, the IRS responded to an organization’s request for confirmation of their status as a tax-exempt organization. The letter referred to a series of cases faced with the same question: Did a group qualify as a religious order? One case used the Webster dictionary to define the term religious order, determine its characteristics, and apply those to the organization at issue.¹ Another described a religious group and simply called the group a religious order “in common parlance,” using common understanding as the sole definition.²  

This case law led the Service to conclude that the corporation at issue was a religious order because the traits commonly associated with religious orders were present in the corporation.  

There is still no universal definition today. The term religious order is not defined in the Internal Revenue Code (IRC). The closest we come to having a definition of the term is a procedure from the IRS on characteristics common to religious orders.  

In 1991, the IRS published Revenue Procedure 91-20. This short publication provides a set of seven characteristics the IRS will consider when determining if a group qualifies as a religious order.  

These seven characteristics are:  

(1) the organization is described in section 501(c)(3) of the IRC,  

(2) members of the organization vow to live under a strict set of rules requiring moral and spiritual self-sacrifice and dedication to the goals of the organization at the expense of their material well-being,  

(3) members, after successful completion of the organization's training program and probationary period, make a long-term commitment to the organization (normally more than two years),  

(4) the organization is, directly or indirectly, under the control and supervision of a church or convention or association of churches or is significantly funded by a church or convention or association of churches,  

(5) members normally live together as part of a community and are held to a significantly stricter level of moral and religious discipline than that required of lay church members,  

(6) members work or serve full-time on behalf of the religious, educational, or charitable goals of the organization, and  

(7) members participate regularly in activities such as public or private prayer, religious study, teaching, care of the aging, missionary work, or church reform or renewal.

While this letter does not provide a direct, clear definition, the guidance standardizes the determinations. The IRS clarified that the absence of one or a few characteristics does not result in an automatic denial of religious order status, unless the organization is not a 501(c)(3). If the organization’s work, mission, or fulfillment of other characteristics is unclear, then the Service will contact the appropriate authority within the organization to ask for their views on the organization's characterization.  

‍

How does the IRS apply the seven characteristics present in its Revenue Procedure? Let’s take a look at a few examples.  

First, consider a 501(c)(3) organization that is a religious residential community “inspired by Christian ideals and structured around many daily religious observances.” This organization is not under the control of a particular church. The community cares for adults with developmental disabilities and lives together full-time. Members are in residence for at least three years, complete a training program, and engage in common life together including prayer, reading scripture, and service.  

Is this organization a religious order? According to the IRS, the answer is yes.  

The organization does not meet characteristic four because the organization is not under the control and supervision of a church or convention or association of churches or is significantly funded by a church or convention or association of churches. However, every other characteristic is satisfied.  

Therefore, the organization is a religious order and the members are members of the order.  

Next, consider a 501(c)(3) nonprofit corporation organized to provide “Christian education of the young and care of the sick and elderly, in accordance with the historic beliefs of Y Church.” The organization lives out this mission through self-supporting schools and missionary training centers.

These schools and centers provide both an academic and vocational education, no member receives compensation, and members are under a vow of poverty. These groups are located in remote areas with close living and adhere to stricter moral and spiritual discipline than required of Y church members more generally.  

Is the corporation a religious order? Yes, said the IRS.  

The corporation adopted a membership agreement which included a two-year training period, five-year solemn commitment, and a requirement to be a member of Y church. As above, the only issue for the corporation is that it was not an official agent of Y church. In this case, however, the corporation “registered as a supporting cooperative organization within [Y church] and includes representatives of agencies of it as ex-officio members and members of its Board of Directors.”  

These changes meant the corporation qualified as a religious order.  

Finally, consider an organization, X, that “is a local ministry initiative of Y, an international interdenominational Christian ministry.” Members sign a written agreement with X “in which they voluntarily agree to contribute and dedicate their labors, talents, and life purpose to the efforts of X to carry out the Great Commission, subordinating all worldly and personal ambitions.”³ They must also complete a training program, six months in total, and commit to at least two years of service. The organization receives most of its funding from organized churches but is not controlled by one church. The organization also owns an apartment building where members live in community.  

Is this a religious order? The IRS said yes here, too.  

Even though Y is a Christian ministry, and X is a sub-set of Y, and X receives most its funding from churches, the IRS still found characteristic four not to be met. Nevertheless, every other characteristic was present, so the organization qualified as a religious order.  

Each group described above qualifies as a religious order according to the IRS. But each group is not the same. There are important differences in the ways each meets the characteristics.  

Consider the time commitment of each order. When we think of a religious order, we may think of Catholic orders where members make lifelong commitments. But two of the orders described above require only a two-year commitment from members, at a minimum. These orders do not require lifelong vocations, opting instead for shorter periods of service. The IRS, in characteristic three, describes the kind of time commitment commonly associated with orders—normally at least two years. Therefore, these orders met only a minimum time requirement according to the IRS but still qualified as religious orders.

The type of community living described by the IRS, in characteristics five and seven, is quite broad. If the group has clear community-life or organized living requirements, then this often satisfies the requirements. For one order described above, it likely helped when they described the stricter nature of their lifestyles as compared with lay people of the same church.  

These examples also reveal that characteristic four, like all the others beside one, is truly not dispositive. None of the orders were directly or even indirectly controlled by a specific church, but they were still found to qualify as religious orders. This may be counterintuitive to our instinct about religious orders.

Finally, none of the orders above do exactly the same things. Each was formed for a particular and varied reason, and none of them solely for the spiritual formation of individual people. This did not prevent any of them from meeting the characteristics of a religious order.  

‍

If an organization qualifies as a religious order, then what kind of exemption comes with the qualification?  

The IRC exempts religious orders from self-employment taxes (when performing a duty required by the order), Federal Insurance Contributions Act tax,⁴ and federal income tax.⁵ There may be additional state tax exemptions for these orders.  

If an organization thinks it may qualify as a religious order but is unsure, it may request a ruling from the IRS.⁶ These rulings can also clarify the taxes applicable to an organization. Individuals within a religious order may apply for a self-employment tax exemption by filing Form 4361 with the IRS.  

Religious orders are also exempt from filing Form 990, the annual return form, for exclusively religious activities.  

‍

‍

‍

----------------------------------

¹ Eighth Street Baptist Church, Inc. v. United States, 295 F. Supp. 1400 (D. Kan. 1969).

² De La Salle Institute v. United States, 195 F. Supp. 891, 904 (N.D. Cal. 1961).

³ Id.

⁴ This is an exemption from paying and withholding FCIA taxes on the remuneration the organization pays for the services of its members or employees. For further information, see Revenue Ruling 91-20.

⁵ See sections 3121(b)(8)(A) and (B), 1402(c)(4), and 3401(a)(9) of the IRC.

⁶ See procedures in Revenue Procedure 91-1, 1991-1 I.R.B. 9.

‍

Alexa Kawlewski is from the Dallas/Fort Worth area in Texas. She attended the University of Dallas and graduated summa cum laude and Phi Beta Kappa with a double major in Politics and Italian and a double minor in Ethics and Art History. Alexa is currently a third-year law student at the Univeristy of Notre Dame. She serves as Executive Editor of the Journal of Law, Ethics, and Public Policy, an Oralist on the Showcase Team of the Moot Court Board, President of the Maritain Graduate Fellows Program, and former Vice President of the St. Thomas More Society. During her 1L summer, she worked for First Liberty Institute, and during her 2L summer, she worked for Napa Legal Institute. In her free time, Alexa enjoys figure skating, rereading Jane Austen novels, baking new scone combinations, and discussing political philosophy.