Editor’s Note: Today is part three of a multiple-part series reviewing church compensation planning that complies with IRS guidelines. Part one looked at why churches should carefully think through what qualifies as compensation and taxes on compensation. Part two described how to determine the compensation “umbrella”—the maximum amount that may be paid to an employee.

Nonprofit organizations, as a general rule, are prohibited from participating in transactions that are deemed to be excess benefit transactions. These are transactions that involve disqualified persons and the provision of benefits in excess of what the organization receives in return for the benefit.

An organization is not allowed to pay more compensation than is reasonable for the services provided by the employee. Any compensation paid above reasonable compensation or above the "umbrella" to a disqualified person is considered to be an excess benefit transaction.

Disqualified Persons
Disqualified persons are generally officers, directors, trustees, and key employees of an organization. In addition, the term also includes the family members of any of these individuals. This group is generally the movers, shakers, and decision makers of the organization and their families.

For a church that feels compelled or called to do its part to address hunger in its community, establishing a food pantry might be an effective way to make a difference. Before launching a food pantry ministry though, here are some things to consider:

• Does your community need a food pantry? Are there other food pantries in the community? If so, could your church help by volunteering there? What could your church accomplish by creating a new food pantry rather than assisting with an existing pantry? Are there definitely food needs in the community that aren’t being met?
• Who would benefit from your church’s food pantry? Would the food go to people within the church, or others in the community? Both?

Editor’s Note: Today is part two of a multiple-part series reviewing church compensation planning that complies with IRS guidelines. Part one looked at why churches should carefully think through what qualifies as compensation and taxes on compensation.

One of my mentors, a teacher and pastor, once taught me that people retain concepts that are associated with pictures. I try to incorporate this philosophy into my technical training since technical topics tend to be "uninteresting" and sometimes downright boring. Keeping in line with this teaching technique, I created the idea of the compensation umbrella.

The compensation umbrella is the amount of reasonable compensation that may be paid to an employee. In other words, it is the maximum amount that may be paid to an employee. It does not have to be paid, but it is the measuring stick used to determine the maximum that can be paid.

Defining the umbrella or the amount of reasonable compensation that may be paid should be accomplished using outside data compiled from an independent source.

Editor’s Note: This post first appeared on Elaine Sommerville’s blog Elaine’s Tax Tips for Nonprofits. Today is part one of a multiple-part series reviewing church compensation planning that complies with IRS guidelines.

One of the most common areas that I speak on across the country is compensation. As a general rule, it seems that nonprofit organizations struggle with the intricate rules regarding the payment of compensation—and even defining compensation. This series will offer some much needed guidance. Join in to brush up on your knowledge in this area, and maybe learn a few new things along the way.

Compensation and the Overriding Philosophy of Tax Law

Perhaps the first stumbling block or hurdle to overcome in this area is to finally acknowledge how vast an array of information this topic covers. I generally find that the normal person does not realize one of the foundational truths of the U.S. tax code. This truth is based on two premises:

Today's post is a little different than the norm because we have some good news to share.

ManagingYourChurch.com received a top honor Friday from the Evangelical Press Association during the organization's 2012 conference.

The site received the Award of Excellence--the highest possible--in the Christian Ministry/Digital category. Judges said: "Top notch writing and editing; touches on SO many relevant, practical topics for church leaders—news, advice, legal, etc.; well-laid-out blog. Pleasing color palette. Easy to navigate; Follows many blog best practices, thus easy for new visitors to intuit; exceptional presentation all the way around."

ManagingYourChurch.com is owned by Christianity Today, a not-for-profit global publishing ministry. Its goal is to help church leaders keep their ministries safe, legal, and financially sound.

In all, Christianity Today sites and publications received 43 honors during the conference, including the Award of Excellence for Church Finance Today in the Newsletter category and an Award of Merit for Church Law & Tax Report.

When churches receive tithes and offerings, there's more going on than meets the eye. Along with physically collecting people's money and bringing it to the bank, you should be tracking how much comes in, who it comes from, what it's used for, and how much each individual gives during a year.

This requires substantial record keeping and an effective internal control structure to ensure that the information is accurate and the money stays safe. Here are 10 ways to strengthen control of your cash receipts, and some tips on making cash disbursements:

For the second time in less than a month, The Wall Street Journal featured a piece focused on the sensitive, but important, topics of churches, finances, and transparency.

First it was columnist Al Lewis taking deceitful pastors to task for fleecing their flocks (a sentiment also shared in a recent house editorial by our sister publication Christianity Today). Then, this past Sunday, it was a feature article by The Journal’s Veronica Dagher, who covered the ways that donors can make certain churches honorably handle tithes.

Her piece is a beneficial 10-minute read for any church pastor or leader who wonders whether internal controls and other financial best practices are worthy of congregational time, energy, and resources. In short, they are. If standing unblemished before the Lord wasn’t enough reason to justify their efforts—and if the integrity of their witness wasn’t reason enough, either—then let Dagher’s piece provide this additional validation: influential outsiders are watching.

What they say matters, not just in the court of public opinion, but also in the minds of those coming through their doors now or in the future. It’s up to churches to answer the call.

Encouraging signs are afoot, including the Commission on Accountability and Policy for Religious Organization’s ongoing work regarding financial practices for churches and ministries. But much work remains, as Dagher points out, using a study from the Center for the Study of Global Christianity at Gordon-Conwell Theological Seminary. About 6 percent, or $35 billion, of the $569 billion given to Christian causes worldwide this year will wind up on the wrong end of a fraudulent situation, the center’s study projects.

Dagher interviewed a variety of fundraising consultants, financial counselors, investment managers, even a forensic accountant, to learn what ordinary people can do to make sure their tithes go where they should. Five lessons immediately jump out. They should sound familiar, and if they don’t, now is the time to make them familiar:

Two female teachers at Christian schools in different parts of the country were recently fired for becoming pregnant out of wedlock, according to Cincinnati.com News and WFAA-TV. Both women are working with lawyers on separate lawsuits against the schools in Ohio and Texas.

A January decision from the Supreme Court on ministerial exception plays a large role in whether or not a court will allow such lawsuits. In that ruling, the Court affirmed the ministerial exception, which bars courts from reviewing employment disputes between churches and ministers. The case involved a Christian school in Michigan that fired a teacher. The Court decided that the First Amendment prevents courts from “interfering with the freedom of religious groups to select” their clergy, and, based on various criteria, the teacher could be classified as a minister.

A report issued in February by a major provider of fundraising technology and consulting services offers some helpful insights for church leaders as it relates to online giving.

In short: Use of online giving continued to grow in 2011, however, that growth remains small relative to total dollars given. Adding an online giving tool should be done to diversify options for givers and provide convenience for those who desire it. But it won’t provide an instant remedy to any organization struggling to get its vision funded.

Before looking more closely at the 2011 Online Giving Report from The Blackbaud Index of Online Giving, two important disclaimers:

• First, churches, ministries, and religious organizations aren’t included in the research because “the 990 tax data set available for this group is not considered representative at this time,” the report’s authors write.
• And second, Blackbaud analyzed 1,560 small-, mid-, and large-sized organizations across a variety of sectors. Small means the organization had a budget of less than $1 million, while medium means a budget of between $1 million and $10 million, and large means a budget of $10 million or more. For our purposes, we’ll mostly discuss the results for small- and mid-sized organizations, which more closely resemble the budget sizes of most U.S. churches.

So, the lessons below highlight notable, general trends that aren’t necessarily apples to apples for churches, but more likely crabapples to apples. They’re still of value, though, given the 41 percent of churches who indicated they used online giving in 2011, based on our recent 2012 State of the Plate constituency survey.

With that in mind, here are five lessons about online giving for nonprofits that church leaders should note: