October 30, 2012
Two steps to help ease worry if your tax return is selected for examination.
Most church staffs dread an audit. Disturbing questions surround the experience: Does the IRS distrust us? Will we have to pay more out of our already slim budget? Thankfully, much of this worry is unwarranted. Most church tax returns are accepted as filed. Tax returns the IRS ends up selecting for an examination (or audit) are chosen based on a high probability for error or discrepancies among forms. An examination of your return does not suggest a suspicion of dishonesty. Many audits are closed without any change in reported tax. Some even result in refunds. Knowing what to expect if your church is audited can help relieve anxiety.
What to expect
If your return is selected for examination, you will be contacted by the IRS and asked to assemble records supporting the items on your return under investigation. The IRS determines the place and method of examination, but it will consider your wishes. The information exchange may be conducted by correspondence, or it may take place in your home, your place of business, an IRS office, or the office of your attorney or accountant.
During the audit, you may act on your own behalf. Otherwise, an attorney, CPA, enrolled agent (someone enrolled to practice before the IRS), or the person who prepared and signed your return may represent or accompany you. If you choose this option, you must furnish your representative with power of attorney (Form 2848).
Once the examination is complete, you will be advised of any proposed change in your taxes and the reasons for them. You will be asked to sign a form indicating that you agree with the changes. You may pay any additional tax at this time.
Continue reading The No-Stress Audit...
October 25, 2012
Key best practices every church should follow.
Editor’s Note: Frank and Elaine Sommerville, editorial advisors for ManagingYourChurch.com, presented some of this material on Monday at The Ultimate Financial and Legal Conference in Arlington, Texas.
I. Thou shalt not allow the church’s intellectual property to be used for personal purposes.
Rule: Under the work for hire doctrine, any property developed within the scope of the job duties of an employee is the property of the employer.
Practice Tip: An intellectual property policy should be carefully crafted and adopted. It should address all areas of concern, such as curriculum, sermons, and music.
II. Thou shalt not have a substantial amount of revenue derived from unrelated business income.
Rule: An organization may have some unrelated business income, but too much can endanger the exempt status of the church.
Unrelated business income is generated from activities that are:
1. Regularly carried on.
2. Not substantially related to exempt purposes.
3. Trade or business.
Practice Tip: The rules are complicated and there is an exception to every exception. Each activity must be separately analyzed. The commercial manner in which an activity is conducted can create unrelated business income even if the activity seems to be related.
Continue reading The 10 Commandments of Church Management...
October 23, 2012
What church leaders need to know about a concerning new trend among youth.
“Bullying” and “cyberbullying” are not legal terms, but umbrella phrases that cover a variety of behaviors. As such, there are a range of uses for the terms. Church leaders must know and understand them, particularly in the context of youth ministry.
According to Paula Burns, an agent for Insurance One Agency who studies bullying and other social media risks, these differing definitions of terms agree on key points. With these in mind, it can be said that bullying can include some or all of these elements:
- Attack or intimidation with the intention to cause fear, distress or harm.
- Physical attacks, such as hitting, punching, or taking property.
- Verbal attacks, such as name calling or teasing.
- Psychological/relational attacks, such spreading rumors and social exclusion.
- The presence of a real or perceived imbalance of power between the bully and the victim.
- Repeated incidents between the attacker and the victim.
Continue reading Getting Pushy on the Online Playground...
October 18, 2012
These steps can help ensure a smooth integration.
How would your congregation react if they knew a convicted sex offender was worshipping among them each Sunday morning? This controversial question is something congregations across the country are currently asking themselves.
Unfortunately, there is no one-size-fits-all answer. Experts recommend that staff members proactively address this question by developing a sex offender policy.
Kristen Blanford, partner at Hermes Sargent Bates law firm in Dallas, Texas, understands that liabilities are attached when religious organizations are dealing with sex offenders.
“How it’s handled really comes down to each congregation’s individual faith beliefs and ministries,” Blanford said.
She recommends that leadership teams consider a few critical questions when developing a sex offender policy for their congregation:
Continue reading When a Sex Offender Wants to Attend Church...
October 16, 2012
Two options exist for ministers who can't pay.
Many pastors have been audited by the IRS and assessed several thousands of dollars of taxes and penalties but have no prospect for paying their bill. What can be done if you find yourself in this situation? There are two possibilities: offers in compromise and installment agreements.
Offers in compromise
An offer in compromise (OIC) is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. Absent special circumstances, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement.
Taxpayers should be wary of promoters’ claims “that tax debts can be settled through the offer in compromise program for ‘pennies on the dollar.’” In most cases the IRS will not accept an OIC unless the amount offered by the taxpayer is equal to or greater than the reasonable collection potential (RCP). The RCP is how the IRS measures the taxpayer’s ability to pay. It includes the value that can be realized from the taxpayer’s assets, such as real property, automobiles, bank accounts, and other property. The RCP also includes anticipated future income, less basic living expenses.
Continue reading Can’t Pay Your Taxes?...
October 11, 2012
As Election Day nears, the church-and-politics debate heats up.
With Election Day less than a month away, discussion about the role of churches in the political realm remains robust across the country.
Last week's "Pulpit Freedom Sunday," conducted by the Alliance Defending Freedom, drew nearly 1,500 participating churches, the largest number since its inception in 2008. Our colleague Skye Jethani has a thoughtful essay on our sister site Out of Ur about religious liberty and gay rights. And the Pew Forum on Religion and Public Life last week issued an updated guide to churches and political activity.
We've covered the politics of religion, the debate on churches and political activity (including a movement of churches in Maine to raise money for the political action committee opposing a same-sex referendum in that state on this November's ballot), and the 13 benefits of tax exemption that churches should weigh while deciding how political to get.
The topic remains visible. And ripe for debate.
Now it's your turn. As heated races at the local, state, and federal level come down to the wire, what is your church doing this political season? Should churches actively lobby on legislative matters? Officially endorse or oppose candidates at the pulpit or through church communications, such as bulletins, newsletters, websites, and social media?
Or should churches take neutral positions on legislation? Remain silent regarding candidates?
Is there a middle ground?
October 9, 2012
National Church Administration Day to focus on church finances.
October 18 is National Church Administration Day (NCAD). In conjunction with this day, the National Association of Church Business Administration (NACBA) will feature local chapter meetings throughout the country focusing on the theme “Accounting Principles—Mechanisms to Manage Your Church’s Money.” These events will draw on the expertise of nationally known professionals in church finances, as well as local and regional experts who will share information at the NACBA chapter events in their areas.
National Church Administration Day will highlight five key areas related to managing money for ministry: budgeting and planning, reporting, internal controls, audits, and performance measurements. You can dig into these same five topics in the Essential Guide to Church Finances (Christianity Today), co-authored by Vonna Laue, CPA, and partner for Capin Crouse, the nonprofit accounting firm, and Richard Vargo, MBA, PhD, and a professor of accounting in the Eberhardt School of Business at the University of the Pacific, Stockton, California.
Here are five additional resources by Christianity Today to help you manage your ministry’s resources:
Continue reading 5 Tools for Managing Your Ministry’s Money...
October 4, 2012
Questions to ask when your church is considering a new building.
I was so locked into my own idea of growth when we started this gig that I couldn’t imagine the opportunities God would reveal through our need. I had always equated big ministry with big buildings. If God had given us that right off the bat through our first planned building project, I don’t think we ever would have discovered what He really wanted us to do. Going big doesn’t have to mean building a new building. Therefore, there are several strategically important questions to ask before you plan to break ground:
Continue reading Is It Time to Build?...
October 2, 2012
Petition by Driscoll denied by High Court.
The U.S. Supreme Court denied a petition on Monday to take up an appeal by a minister who claimed an income tax exclusion for two homes.
In late 2010, the U.S. Tax Court ruled that federal tax law does not limit the number of homes for which a minister can receive special, tax-free benefits. The federal government appealed the Tax Court decision, and the 11th Circuit Court of Appeals reversed the Tax Court earlier this year. The appeals court said the clergy housing exclusion is limited to a single home.
The minister, Philip Driscoll, then filed a petition to have the case considered by the U.S. Supreme Court. The denial issued on Monday by the Supreme Court leaves the issue where the IRS and the vast majority of clergy have understood it to be for decades–that the clergy housing exclusion is limited to a single home.
This guest post first appeared in The Nonprofit Watchman, a free e-newsletter published by Batts Morrison Wales & Lee, P.A., that covers significant state and federal developments for nonprofits and their executives. Reprinted with permission.
For a comprehensive explanation of the housing allowance and how it works, check out Chapter 6 of Richard Hammar's 2012 Church & Clergy Tax Guide.
October 2, 2012
10 steps for overcoming the most common challenges churches face.
When Christianity Today and Brotherhood Mutual Insurance Company sponsored a webinar featuring Richard Hammar on Prevent Payroll Mistakes: What Churches Need to Know, a record number of church leaders registered for the event. That's likely because payroll taxes present complex and unique challenges for churches.
"It comes as a surprise to some churches that there are many reporting obligations that apply to them," Hammar says. "For instance, churches have to submit an annual corporate report to their Secretary of State office, and sales tax reports to the state. Plus now there are the new hire reporting requirements. Under federal law, if you generate unrelated business income, you're required to report it. But by far, the most important filings churches need to make are the payroll and tax reporting obligations."
Unfortunately, many churches are non-compliant with these filings. Unique circumstances for churches, such as the dual tax status of ministers, lead to common payroll errors.
Continue reading Preventing Payroll Mistakes...