One of the Amish groups with which I consult is creating a 'half way house' to help fallen-away Plain People re-integrate into the Plain Community. I answered their question regarding exempt status this way:
You asked me to explain the differences among entities under sections 501(a) [Title Holding Company], 501(c)(3) [nonprofit exemption] and 508 [Mandatory Exemption for churches, associations of churches and church auxiliaries].
[1] Section 501 provides that any entity which is formed to hold property for an exempt organization, and which pays all of its net profits to the exempt organization, is exempt to the extent it is not debt financed. This type of entity is usually formed to hold and operate potentially profitable property, with all profits to the exempt parent organization.
[2] Section 501(c)(3) is the standard provisions covering nonprofits and religious organizations which are organized and operated exclusively for religious, charitable, educational etc., purposes. These organizations are exempt upon approval by the IRS, after submitting the required forms and paying the required fees to the IRS (about $500).
[3] Section 508 says that churches, church associations and church auxiliaries [which is what I think your organization is] are "mandatorily exempt." This has been interpreted to mean that such an organization does not have to apply for the exemption, but if they do, it should be granted.
I'd like to remind you that a religious organization is not a nonprofit. It is exempt. I do not recommend forming a nonprofit corporation except to hold property separate from the organization.
