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August 15, 2013

Q&A: Outside Groups and the Church Building

Potential tax pitfalls can trip up a seemingly straightforward arrangement.

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Q: We have several groups that call and ask to use the church building for meetings. If we set a price for rental, is that taxable income? If we suggest a donation or just ask for a tithe off their offering, does that affect our tax status? Also, what are things that we need to be careful with in having other groups use the building?

A: The payments may or may not be taxable depending on the detailed facts of the arrangement. You should check with a competent tax adviser. Also, do not forget to check on the property tax implications. Any use by an outside group can cost the property tax exemption in many states.

To your last question, you should require a written lease agreement for all outside groups.

Take a quiz for help in determining if your church is prepared to share its property. To learn more, Managing Church Facility Use offers guidance in developing policies and procedures that make facilities available for additional use, and yet keep all of its assets protected.

Frank Sommerville is a shareholder in the law firm of Weycer, Kaplan, Pulaski & Zuber, P.C. in Houston and Dallas, Texas. He received his bachelor's degree in business from Texas Wesleyan University. He received his masters in professional accounting with an emphasis on taxation from the University of Texas at Arlington. His law degree is from the University of Houston Law Center. He holds a license as a Certified Public Accountant. He is also Board Certified in Tax Law by the Texas Board of Legal Specialization. He is rated AV (highest possible) by Martindale-Hubbell Legal Directory.

Frank is an Editorial Advisor for Christianity Today's Church Law & Tax Group.

Related Tags: building, church building, facility, income, tax, tax exemption, unrelated business income

Comments

I thought I was going to gain some wisdom from this piece and it was not at all helpful. "May or may not be taxable...check with a competent tax adviser." Really? That's all you you could offer? Don't waste your reader's time with a topic for an article if you don't have anything worthwhile to say!

I second what Andrew said!

I have to agree this piece could use a lot more information. How about some guidelines to specific situations? What if we don't charge rent but allow donations? Our church is used constantly by many organizations. We never ask for or charge rent, nor do ask for specific donations as a way to shirk the rules. We let organizations know that we're glad to accept donations but it's up to them if and how much. Are we still open to any tax implications?

TJ--We posed your follow-up questions to Frank. Here is his response:
"Your facilities are dedicated to being used exclusively for exempt purposes. So you cannot allow anyone to use your facilities gratis that does not further your church's exempt purposes. Assuming the organization furthers your church's exempt purposes, is exempt from federal income taxes under Section 501(c)(3), and no arrangement is made or implied for rent, then the organization is free to bless you with whatever donation that they desire. Otherwise fair market rent must be charged."

Thanks for the response but I'm somewhat confused. I understand that allowing a for-profit to use our facility rent free would be a conflict for our tax exempt status. The organizations that use our space are all non-profits (like girl scouts, AA, and similar). But I'm confused about the last sentence. If we rented our facility for a purpose not a part of our exempt purposes then wouldn't we be tax liable for that rent? Where would something like allowing the use of our space for a wedding rent free fall?

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