Not just anyone can become an Faith Based Organization (FBO)! If the organization is not actually founded on religion and the practice of that religion, one could end up in jail for tax-evasion. The IRS recognizes that there is a separation between church and state in the Constitution and that government cannot legally tax or regulate the church. The United States government also has some prohibition in defining what a church is legally. The courts have upheld this prohibition repeatedly. The First Amendment to the Constitution of the United States of America prohibits the federal government from legislating for or against religion.
It says: "Congress shall make no law respecting the establishment of religion, or prohibiting the free exercise thereof....".
Therefore, even the unorganized church group cannot be taxed as no legal law can be written to tax a religious organization or the donations received by a religious organization. Some have called this prohibition the Constitutional tax: Immunity of the Church. One must be truly a religious organization that could be called a church to have tax-Immunity.
The Supreme Court and lower courts have consistently refused to define “church” or “religion” as a result of this prohibition in the Constitution and therefore a great variety of groups do qualify for tax-immunity. However, someone trying to abuse tax-immunity by forming a bogus organization or taking donations under false pretenses will probably be charged, convicted and go to prison. The courts have not refused to declare some organizations as tax-evasion scams.
Nevertheless, an ordinary church or ministry that has most of the ordinary characteristics of religious groups, is in no danger legally by not organizing further. When meeting regularly for worship, prayer, and/or Bible study or preaching the gospel and teaching out of a "holy book", one will be considered legitimate.
If one supports genuine ministers, home and foreign missions work, and helps the poor, the IRS will consider one a legitimate tax-immune organization without further approval from anyone. One does not need all the things mentioned above. If the primary activity of the organization is genuine religious work in any form, then one need not fear.
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 children
Schools for the preparation of its members