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February 21, 2012

17 Ways the Church May Become Accountable to the State

Grassley Commission Outlines Progress on Key Points

 by Marian V. Liautaud


Should the IRS form an advisory committee to oversee church tax law? Is the clergy housing exclusion constitutional? To what extent should churches be accountable to the government for the way in which they operate? These are three of the seventeen issues the year-old Commission on Accountability and Policy for Religious Organizations are wrestling with.

The commission, formed last year by the Evangelical Council for Financial Accountability, is chaired by Michael Batts, the managing shareholder of Batts Morrison Wales & Lee, an Orlando-based accounting firm serving nonprofits. Batts, along with ECFA President Dan Busby, also a member of the commission, outlined the issues and touched on key points during a virtual Town Hall meeting on February 17, 2012. They covered questions such as whether legislation is needed to curb perceived abuses of the clergy housing allowance exclusion, and if rules for determining the reasonableness of nonprofit executive compensation should be tightened.

The issue of compensation is what triggered the original investigation by Senator Charles Grassley (R-Iowa) of the Senate Committee of Finance, and led to the formation of the Commission on Accountability. “The Grassley Six” as they were called, referred to six high-profile ministers whose lavish lifestyles raised red flags about the reasonableness of their compensation and the questionable use of their nonprofit status.

According to Batts, “It’s not necessarily the amount or nature of compensation, but the process used to establish compensation and to ensure it is reasonable”—this is what the commission’s interest is. “Process and amount are related,” he said. “If the process in determining the amount of compensation isn’t based on comparable data, then the amount could indeed be unreasonable.”

The commission is evaluating what that process should look like—what information should be used to establish reasonable compensation, and how a church or nonprofit should document their decisions. Churches have long relied on resources like the biannual Compensation Handbook for Church Staff, which provide a national sampling of independently gathered data, to determine reasonable compensation packages for clergy and church employees.

Issue No. 17—the question of whether churches should have more freedom to engage in political expression—will be the last, and according to Batts, the most controversial one to be resolved. The commission won’t release its report on this final issue until 2013, well after the nation has determined its new political leaders. A report covering the first 16 issues will release later this year.

A majority of the issues the commission is addressing relate to both churches and the broader nonprofit sector. Issue No. 9, for instance, looks at questions being considered on Form 990, which would require organizations to disclose the specific location and activities they’re engaged in. For humanitarian and religious organizations that send individuals to high-risk, politically sensitive areas, disclosing their locations could endanger lives and undermine the organization’s objectives. Similarly, in the U.S., social agencies, such as domestic violence shelters, would also be at risk of putting clients in harm’s way if they were required to reveal the locations of their facilities.

“The IRS asked for additional input in this area,” said Batts. “As of now organizations are not required to include this information about location." The commission is reviewing the extent that these types of questions pose a "life safety" issue for nonprofits and religious organizations.

Panelists representing religious groups from a variety of faiths, the broader nonprofit sector, and the legal community were named last September to three advisory groups that also are providing input on the issues. The commission encourages church leaders, members, and other concerned citizens to submit their input on these issues by March 31, 2012.

Editor’s Note: Dan Busby, Michael Batts, and Richard Hammar serve as editorial advisors for the Church Management Team’s Church Law & Tax Report, Church Finance Today, and related resources, all published by Christianity Today—a global media ministry. All three serve on the Commission on Accountability and Policy for Religious Organization.

Marian V. Liautaud is editor of Church Management Resources for Christianity Today.

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Posted by Marian Liautaud on February 21, 2012 8:14 AM

Related Tags: church, churches, compensation, finance, housing allowances, IRS, Richard Hammar, tax

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