Top 5 Reasons Churches End Up in Court

Small Groups, Confidentiality, and the Law

One of the benefits of working on the team at Christianity Today International is that I sometimes get "insider information" from some of the other resources in our corporate family.

For example, the following question was recently sent to the editors over at TheYourChurchBlog.com:

"An issue has come up in our church about peoples' legal obligations regarding confidential matters discussed in small group meetings. We strive to maintain strict confidentiality on things discussed in our small group settings. We want them to be a 'safe place' where people can share their troubles and not have to worry about group members spreading gossip or the information somehow ending up in a courtroom.

One woman we heard from was in a small group in another church and group members were called in to testify against her in court. Before joining one of our small groups she wanted to be assured that sort of thing would not happen.

So my question is, how private are small groups really? We typically get information second-hand and are not usually witnesses to things that happen in people's homes or in their personal relationships."

To continue reading this post on the SmallGroups.com blog, click here.

What Churches Should Know about the Tax Relief Act

On December 17, Congress passed the "The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010." After President Obama signed it into law, numerous tax provisions that were about to expire were kept alive. And a significant benefit for many employees--a lower Social Security tax rate for 2011--also became reality.

In this short video, watch Richard Hammar cover some of the significant developments from the Tax Relief Act, and what it means for church leaders as they prepare for 2010 returns and plan for 2011. From there, pick up the 2011 Church & Clergy Tax Guide. This must-have reference includes all of the latest information and forms, including items affected by the Tax Relief Act, as well as Rich's unparalleled analysis.

The Top 10 Church Safety Downloads of 2010

1. Managing Church Facility Use
2. Internal Controls for Church Finances
3. Dealing with Dangerous People
4. Screening Underage Workers
5. Creating a Safety Team
6. Protecting Your Church from Crime and Violence
7. Preventing Top Tax Pitfalls
8. Understanding Wage and Hour Laws
9. Copyright Law: What Every Church Must Know
10. Lay Counseling Safety

Tax Ruling May Help Pastors Who Own Two Homes

Late in 2010, the United States Tax Court ruled a pastor could apply a housing allowance toward expenses incurred from a primary residence and a vacation home.

What are the implications for church leaders? Well, while many may not own a vacation home, many may find themselves in positions where they answered calls to ministry in other communities, only to fail selling their former homes. For pastors in these situations, and others, the decision may have significant relevance.

Watch as Richard Hammar explains the important ramifications of this ruling:

National Commission to Examine Church Financial Practices

Editor's Update (12/8/11): The Commission on Accountability and Policy for Religious Organizations is now taking public comments on the various issues it is studying.
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Editor's Update (4/27/2011): The ECFA has announced the initial members of its commission. The list includes several clergy, as well as Richard Hammar, senior editor of Church Law & Tax Report and Church Finance Today.
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Sen. Charles Grassley, R-Iowa, has asked the Evangelical Council for Financial Accountability to head an independent commission that will obtain feedback about the financial practices and oversight of churches and religious groups nationwide.

The goal is to help determine best practices and changes that encourage compliance with federal tax laws and maintain financial integrity within the religious community while avoiding new laws mandating such behavior. But those involved say it’s too early to tell how the commission’s work will affect any changes—or whether it can prevent any new laws—and how long it will take.

In a press conference called this morning in Washington, D.C., ECFA leaders outlined requests made by Grassley, who yesterday released his final report of a three-year inquiry into the financial activities of six high-profile media ministries. The issues to be explored “could potentially affect every house of worship and every member of the clergy in America,” said Michael Batts, an ECFA board member who will chair the special commission.

Grassley’s office contacted the ECFA three weeks ago to indicate its report of the six ministries—in which only two fully cooperated with investigators and no ministry received a penalty—was imminent.

In the course of its investigation, Grassley’s office uncovered what it believes to be eight areas of concern related to financial practices and oversight for churches and religious groups. The newly formed Commission on Accountability and Policy for Religious Organizations, funded entirely by the ECFA, will examine:

1. A proposal that the IRS establish an advisory committee for churches and religious organizations.

2. Whether churches should file the Form 990, the same highly-detailed annual information return that other nonprofits must file.

3. Whether the income tax exclusion for housing allowances paid to clergy should be limited in some manner.

4. Whether the current prohibition against political campaign intervention by churches and other 501©(3) charities should be repealed or modified.

5. Whether the law should impose an excise tax (penalty) on nonprofit organizations that engage in excess benefit transactions.

6. Whether the current IRS audit protection for church leaders should be repealed.

7. Whether the "rebuttable presumption" of reasonableness for transactions between nonprofit organizations and their leaders should be eliminated.

8. Whether legislation is needed to remove uncertainty about the taxability of "love offerings" paid by church attendees to ministers through a church.

In a prepared statement, Grassley said he wants improved accountability and good governance so that tax-exempt groups can operate in a way that maintains public confidence. “The staff review sets the stage for a comprehensive discussion among churches and religious organizations,” Grassley said in the statement. “I look forward to helping facilitate this dialogue and fostering an environment for self-reform within the community.”

It’s the ECFA’s belief that “the heart of Christian leaders across America, whether in the local church or other organizations, is to obey the law,” said Dan Busby, president of the ECFA, during this morning’s press conference.

Opening up communication, and possibly identifying ways churches and other groups can improve their financial practices can help avoid federal legislation down the road. “The Senator has told us that he believes legislation should be the last resort,” Busby said.

Formed in 1979, the ECFA provides a stamp of approval on the financial statements of more than 1,400 evangelical ministries, nonprofits, denominations, churches, and educational institutions, representing a combined $13 billion in annual contributions made by more than 40 million donors. Busby said it’s his belief that improper practices “are not pervasive in the sector.”

(Editor's Note: Both Busby and Batts serve as Editorial Advisors for Christianity Today International's Church Law & Tax Report and Church Finance Today publications and websites).

In a “Staff Memo to Grassley” from Senate Finance Committee staff members that details their conclusions of the three-year investigation into the six media ministries, it appears they agree. “While the majority of churches and religious organizations operate with policies and procedures that make them accountable to their members, it is the small minority [who] don’t that are subject to scrutiny by the members and the public, including the press,” the memo said. “These outliers present tax policy issues for consideration.”

Even if the majority of churches appear to comply, though, Grassley believes changes likely are in order. “Some members of the community, watchdogs for example, argue that there’s no way to prevent outliers from doing what they do—that the laws are inadequate, or if the laws address the extremes, no one is enforcing them,” said Jill Gerber, press secretary of the Senate Finance Committee, in an interview. “Every couple of decades, there is a controversy or concern about financial abuse. It appears necessary to at least have a conversation about what might be done to curb these extreme behaviors.”

In November 2007, Grassley contacted Randy and Paula White, Pastor Benny Hinn, David and Joyce Meyer, Bishop Eddie L. Long, Creflo and Taffi Dollar, and Kenneth and Gloria Copeland, alleging misuse of funds by those ministries and requesting their financial records. Meyer fully complied and also joined the ECFA as a member in March 2009; Hinn also fully cooperated with the investigation, according to Grassley’s office. Grassley’s staff attempted to gather information on the remaining four ministries through public information and third parties.
According to an Associated Press article on Thursday:

But four of the televangelists would not provide full information about their finances. Some questioned whether Grassley had the authority to conduct the investigation. Others accused him of violating their religious freedom. Grassley's staff said in the report that they did not issue subpoenas to further the investigation because witnesses feared retaliation if they spoke out publicly and the Finance Committee did not have the time or resources to enforce the subpoenas.

But the investigation uncovered numerous questions related to churches and ministries that merit follow-up, according to the 61-page memo. In particular, staff recommended closer examinations into:

• Why churches and ministries aren’t required to file the same detailed annual report—a Form 990—that other nonprofits must file about their finances.

• Housing allowance benefits, which aided lavish lifestyles led by the leaders of the six media ministries. Batts said the commission will evaluate what any possible limitations might mean for churches and clergy, including a possible financial limit based on salary levels. The housing allowance is a significant benefit to pastors, created to help churches compensate pastors since many congregations can only offer modest salaries and benefits packages (the majority of the country’s churches average less than 200 people in weekly attendance).

Batts said Grassley expressed interest in “preserving the basic concept” of the housing allowance and that Grassley would be willing to consider drafting legislation protecting it in some form. That would be a significant development, considering the constitutional challenge to the allowance currently underway in the Ninth Circuit Court of Appeals.

• Limitations into political campaign interventions by churches and nonprofits. Batts said the concern here is twofold: One, a belief by some church leaders that their freedoms of religion and speech are too limited by the current law; and two, that the administrative challenges faced by the IRS to enforce it are unwieldy, leading to questionable results despite the time and money spent.

The commission’s first task is to identify how to gather input, which will involve churches and groups of varying faiths and backgrounds, not just evangelical Christian congregations, Batts said. The first issue on Grassley’s list—the possible formation of an IRS committee dedicated to aiding churches and religious organizations—stems from a perceived distrust between churches and the government, but Batts said he’s confident church leaders will want to participate with his commission’s work. “We have no reason to believe we can’t get objective, candid input from folks involved in a variety of religious practices,” he said. “This is an independent commission. It’s independent of Senator Grassley and his staff. It’s not a government commission. We’re going to reach out.”

No deadline has been set for the commission’s work. “This should not be rushed. It needs to be done objectively. It needs to be done professionally,” Batts said. “And it needs to be done well.”

It’s also not yet clear how the work of the commission will be used. Batts said the commission needs to determine whether it will only compile feedback, or whether it also will provide analysis and recommendations.

Gerber, the Senate Finance Committee press secretary, said any combination of actions may come from the commission’s work, but it’s too early to speculate. In 2004, Grassley sought charitable reform, using a convened panel to assess proposals and develop new ones. Those efforts led to a combination of results, including changes to the Form 990 by the IRS, new best practices adopted by nonprofits, and new federal laws, Gerber said.

Batts said Grassley has indicated his desire to see this effort through. Grassley’s tenure as ranking member of the Senate Finance Committee is ending because of term limits, but he will continue to serve on that committee. Later this month, he will become the ranking member of the Senate Judiciary Committee. In both roles, he will continue to oversee the tax-exempt sector.

“(He) told us clearly and directly recently that he has every intention to follow up on these issues,” Batts said.

Should Churches Accept Credit Cards for Tithing?

As more churches embrace electronic giving for their congregations, a number find themselves asking an intriguing question: Should they use e-giving options that allow people to tithe with credit cards?

We asked a number of church leaders whether credit cards are appropriate due to the debt people take on when they use them. Many said they didn't see the issue as a problem, citing a number of reasons. Chief among them: A belief that many people in their congregations responsibly use credit cards; that they pay balances off fully every month as a means of pocketing the points and other incentives offered by banks (and, in many instances, they pocket these rewards and donate them to the church, such as airline miles for missions trips).

But we also found a couple of examples of where church leaders said credit cards were unacceptable.

In an informal, unscientific poll conducted on YourChurch.net, 44 percent said credit cards were an acceptable option for church giving, while 34 percent said debit cards were fine, but credit cards were not, and 18 percent said plastic of any kind was a no-no.

How does your church treat this topic?

Upcoming Webinar: Key Tax Changes to Understand

Members of Congress passed a sizable tax-cut package late on December 17, and it barely hit President Obama’s desk the next day before he signed it into law. According to one media report, the package extends, adds, or modifies nearly 25 significant tax benefits for a wide range of Americans. Not surprisingly, the package has implications for churches and clergy, including a lower Social Security tax rate for non-ministerial employees who earn up to $106,800 in 2011, which means churches need to adjust their payrolls accordingly now.

Richard Hammar detailed at least 64 changes in tax law for the 2010 filing season that churches and clergy should note in his January/February Church Law & Tax Report. He’s now created an updated document regarding these most recent developments that will become available later this month on YourChurchResources.com, where you can also find his 2011 Church & Clergy Tax Guide, a must-have reference throughout the year ahead.

In the meantime, as you work to make sense of it all, you should take advantage of a unique opportunity at 1 p.m. EST on January 12. That’s when Rich, along with Dan Busby, president of the Evangelical Council for Financial Accountability, will co-present a live webinar titled Congregation Filings Issues for 2010 Data. Rich and Dan will present key informational updates, plus take participant questions. You won’t want to miss it!