Although gaining nonprofit tax-exemption sounds incredibly complicated, organizations looking to apply for this status can simplify the process by taking a "top-down" approach to the legal requirements. Ensuring first that they fulfill all the stipulations of IRS tax law (as detailed in Federal Form 1023), groups can then refine their company constitution and by-laws according to the needs of the particular state in which they are located. According to federal law, tax-exempt organizations can be classified under any of the numerous categories covered by 501(c) section of the Internal Revenue Code. As with English nonprofit law, qualifying organizations include not only religious organizations, but also educational and social welfare groups, recreational clubs, agricultural organizations, beneficiary societies, and so on. More specifically, religious organizations fall under section 501(c)(3) of the IRC, and in order to qualify for tax-exemption they must limit their purposes and activities to only those permitted under that section.
Although this seems at first glance like a restriction on the religious freedoms of U.S. citizens, it is important to keep in mind that these laws apply not only to churches and similar religious institutions, but any organizations seeking tax-exemption under section 501(c)(3), including interfaith groups, religious and nonreligious schools, and organizations providing medical care or research. Restricted activities include campaigning for candidates who are running for political office, devoting a substantial amount of resources to fund lobbying, and running the nonprofit in a way that largely benefits the private interests of a particular individual or business rather than the general public welfare.
The tax code states explicitly that the IRS will make no attempt to judge the truth or value of religious belief and practice for a given religious organization, as long as two key conditions are met: a) the organization's funds are used for its stated purposes and not for actively and substantially interfering with political campaigning or legislative processes, and b) the organization does not promote, through belief or practice, the breaking of any laws. In other words, the IRS does not give tax breaks to any organization that intends to use its finances or advantages to either legally or illegally usurp government power or undermine the welfare of the general public.
So what does all this mean for Pagan religious organizations seeking the recognition and benefits of legal status as nonprofits under U.S. law? Here again we see the interesting, almost ironic relationship between law and liberty at work. As I mentioned above, in the United States it is actually quite easy to exist as a church, largely exempt from regulation and taxation, because of the First Amendment. As the current Treasurer of ADF, Ed Reis explains, "In the USA, a church does not need to file a tax return unless they have income unrelated to their normal function, like renting out an apartment or selling things that do not directly advance their mission. Being a recognized church allows the group to raise funds without paying taxes on them and in general, lowers the amount of paperwork required overall."
In fact, the Internal Revenue Code automatically classifies churches under section 501(c)(3) as "public charities," just as English Charity Law considers the advancement of religion as inherently for public benefit. Churches in the U.S., unlike other nonprofits, are not required to go through the two-part process of incorporation at the state level and application for tax-exempt status at the federal level. Instead, they can safely assume that they qualify for tax-exempt status and abstain from filing an annual tax return, as long as they can demonstrate their qualifications and provide financial information during an audit if the IRS requires.
But there is the catch. The definition of a "church" within the federal tax code remains somewhat convoluted and antiquated. As explained in the IRS Tax Guide for Churches document, characteristics of a church include a combination of the following:
distinct legal existence; recognized creed and form of worship; definite and distinct ecclesiastical government; formal code of doctrine and discipline; distinct religious history; membership not associated with any other church or denomination; organization of ordained ministers; ordained ministers selected after completing prescribed courses of study; literature of its own; established places of worship; regular congregations; regular religious services; Sunday schools for the religious instruction of the young; schools for the preparation of its ministers.
Like the UK Charity Commission's stipulation that a religious tradition be "cogent, coherent, serious and important" in order to qualify for charitable status, this list of qualifications provided by the IRS is intended to prevent any random group of individuals from getting together and declaring themselves a "religion," and thus exempt from federal taxes. But unlike the CC, whose main function is to support and promote well-run charities for public benefit in British society, the main concern of the IRS is not charitable, but financial.