Does our religious organization have to form a special nonprofit organization in order to receive Federal funding?

Answer: 

In general, no. There is no general Federal requirement that an organization incorporate or operate as a nonprofit or obtain tax-exempt status under section 501(c)(3) of the Internal Revenue Code in order to receive Federal funds. However, some Federal, State, or local programs may impose such a requirement.

Although it will take some time and cost some money, a faith-based organization may wish to establish a separate nonprofit organization to use the government funds it receives. Taking this step can make it easier for a faith-based organization to keep track of the public funds that it receives and spends. It will also be easier for the government to monitor the group’s use of grant funds without intruding on the group’s internal affairs, in the event that an audit is conducted.

Source: Guidance to Faith-Based and Community Organizations on Partnering with the Federal Government (published by the White House Office of Faith-Based and Community Initiatives 2002) http://www.whitehouse.gov/government/fbci/guidance_document.pdf

Learn more:

•  Center for Faith Based and Community Initiatives

Last Updated: 4/28/2008