Transcript The Church And I.R.S.

The Church And
I.R.S.
Presented by
Rev. Dr. Robert L. Peoples
WINSTON SALEM GREENVILLE DISTRICT
CLEVELAND STATE UNIVERSITY
SHELBYVILLE NORTH CAROLINA
CHRISTIAN METHODIST EPISCOPAL CHURCH, INC
PRESIDING ELDER DR. JAMES RUSSELL
BISHOP THOMAS HOYT JR.
Introduction
In view of the unique relationship between
the United States Government and the
religious community, Congress has
provided special tax rules to certain
religious groups
Definitions
The words “church” and “minister” are not used by all
faiths. To make this presentation understandable,
the terms “Church” and “minister” are used.
The rules contained in this publication come from the
Internal Revenue Code, the Income Tax
Regulations, court decisions, and the IRS
interpretation of the Code, regulations, and court
decisions.
Section 501 (c) (3)
This section of the Internal Revenue Code
describes charitable organizations,
including churches and other religious
organizations that qualify for exemption
from federal income tax and are eligible
to receive tax-deductible contributions.
Section 501 (c) (3)
Section 501 (c) (3) provides that an
organization must be organized and
operated exclusively for religious or other
charitable purposes.
Section 501 (c) (3) Organization: This term
refers to any organization, including a
church or other religious organization, that is
tax exempt because it meets the
requirements of 501(c ) (3).
Minister
A minister is an individual who is duly
ordained, commissioned, or licensed by a
religious body constituting a church or
church denomination.
A minister is considered to be a religious
leader by his or her church or denomination.
Minister
A minister has the authority to conduct
religious worship, perform sacerdotal,
functions, and administer ordinances or
sacraments according to the prescribed
tenets and practices of that church or
denomination.
Generally, an individual who is a minister of
music or education is not considered to be a
minister for federal tax purposes.
Integrated Auxiliary Of A
Church
Refers to a class of organizations that are related to a
church or convention or association of churches but
are not such organizations themselves.
The IRS will treat as an integrated auxiliary of a
church any organization that meets two tests: 1)
affiliation with a church or convention or association
of churches, and 2) financial support primarily from
internal church sources as opposed to public or
governmental sources.
Church
The term "church" is not specifically defined in the
Internal Revenue Code.
However, because special tax rules apply to churches,
it is important to distinguish churches from other
religious organizations.
Certain characteristics are generally attributed to
churches. These attributes have been developed
by IRS and by court decision. They include:
Church
a)A distinct legal existence
b)A recognized creed and form of worship
c) A definite and distinct ecclesiastical
government
d)A formal code of doctrine and discipline
e)A distinct religious history
f) A membership not associated with any other
church or denomination
Church
g) An organization of ordained ministers
h) Ordained ministers selected after completing
prescribed courses of study
I) A literature of its own
j) Established places of worship
k) Regular congregations
1) Regular religious services
m)
"Sunday schools" for the religious instruction of
the young
n) Schools for the preparation of its ministers
Recognition By The IRS
That The Church Is TaxExempt
Does a church have to contact the Internal
Revenue Service in order to be exempt from
income taxes? No
Is there any reason why a church would
contact the IRS for formal recognition of the
church as tax-exempt? Yes
Recognition By The IRS
That The Church Is TaxExempt
What if the church has a parent that is tax-exempt? A
church or other organization may wish to contact the
parent to see if the parent has a “group exemption
letter.”
Does a religious organization other than a church have
to apply for recognition that it is tax-exempt? Yes
Recognition By The IRS
That The Church Is TaxExempt
What notice does The service provide when it has found
an organization to be tax-exempt? Organizations that
file Form 1023 and satisfy all requirements of section
501(c)(3) will be notified in writing of their status, any
requirement to file an annual information return (see
below), and of eligibility to receive deductible.
contributions.
Recognition By The IRS
That The Church Is TaxExempt
Generally, a letter from the IRS is the only evidence
provided to the organization as to the organizations
exempt status.
Is there A cost To An organization that applies For
exemption? Yes. The IRS is required to collect a fee
from any organization seeking a determination of its
tax-exempt status under the Internal Revenue Code.
Restrictions That Apply If A
Church Is
To Remain Tax-Exempt Under
Section 501 (c) (3)
All organizations that are exempt under Section 501
(c)(3), including churches, must be engaged in
activities that further exclusively public purposes,
rather than private interests.
The organization must not be operated for the benefit of
designated individuals or the persons who created
them.
Restrictions That Apply If A
Church Is
To Remain Tax-Exempt Under
Section 501 (c) (3)
What is prohibited inurement?
What is prohibited private benefit?
What are the restrictions on legislative activity
that may be engaged in by churches?
Restrictions That Apply If A
Church Is
To Remain Tax-Exempt Under
Section 501 (c) (3)
What constitutes “attempting to influence
legislation”?
What constitutes “legislation”?
May a church use other than the
“substantial part” test?
Restrictions That Apply If A
Church Is
To Remain Tax-Exempt Under
Section 501 (c) (3)
What are the consequences that result from
excessive legislative activity? An organization
that continues to lobby on an excessive basis
may lose its tax exemption under section 501
c (3).
Restrictions That Apply If A
Church Is
To Remain Tax-Exempt Under
Section 501 (c) (3)
If an organization loses its status as a taxexempt charitable organization because it
engages in excessive legislative activity, it
may not thereafter qualify for exemption as a
social welfare organization under section
501(c)(4).
Restrictions That Apply If A
Church Is
To Remain Tax-Exempt Under
Section 501 (c) (3)
What are the Restrictions on Political Activity that may be engaged
in by Churches?
All section 501(c)(3) organizations, including churches, their
integrated auxiliaries, conventions or associations of churches,
are prohibited from participating in, or intervening in (including
the publication or distribution of statements), any political
campaign on behalf of (or in opposition to) any candidate for
public office. Violation of this prohibition results in denial or
revocation of exempt status and the imposition of certain excise
taxes.
Restrictions That Apply If A
Church Is
To Remain Tax-Exempt Under
Section 501 (c) (3)
What constitutes prohibited political activity?
Whether a particular activity, action, or expenditure
constitutes the conduct of prohibited political activity
depends on all the facts and circumstances. For
example, certain voter education activities (including
the presentation of public forums and the publication
of voter. education guides) conducted in a nonpartisan manner may not constitute prohibited
political activity, while other so-called voter education
activities may.
Restrictions That Apply If A
Church Is
To Remain Tax-Exempt Under
Section 501 (c) (3)
Contributions to political campaign funds, public
statements of position (verbal and written) in
favor of or in opposition to candidates for
office, or provision of a forum for expression
of candidates' views on a partisan basis,
however, would clearly violate the prohibition
against political activity.
Restrictions That Apply If A
Church Is
To Remain Tax-Exempt Under
Section 501 (c) (3)
Ministers and others who commonly speak or
write on behalf of religious organizations
should clearly indicate, at the time they do
so, that public comments made by them in
connection with political campaigns are
strictly personal and are not intended to
represent their organization.
Restrictions That Apply If A
Church Is
To Remain Tax-Exempt Under
Section 501 (c) (3)
Partisan comments by the employees or other
representatives of an organization regarding
political candidates must be avoided in
official organization publications and at
official church functions.
Excise Tax
An initial tax is imposed on the organization at the rate
of 10% of the political expenditures. Also, a tax at
the rate of 2.5% of the expenditures is imposed
against the organization's managers (jointly and
severally) who, without reasonable cause, agreed
to the expenditures knowing they were political
expenditures.
The tax on management may not exceed $5,000.
Excise Tax
In any case in which an initial tax is imposed against
an organization, and the expenditures are not
corrected within the period allowed by law, an
additional tax equal to 100% of the expenditures is
imposed against the organization.
In that case, an additional tax is also imposed against
the organization's managers jointly and severally)
who refused to agree to make the correction.
Correction
Correction of a political expenditure requires the recovery of the
expenditure, to the extent possible, and establishment of
safeguards to prevent future political expenditures.
Possible Injunction: Where a section 501(c)(3) organization has
flagrantly participated in a political campaign, the IRS may go to
court for an injunction to prevent further abuse and to ensure
that the organization's funds are preserved for charitable
purposes.
In that case, an additional tax is also imposed against the
organization's managers jointly and severally) who refused to
agree to make the correction.
Is A Church Subject To Tax On Any
Income From An Activity Unrelated
To Its Exempt Purposes That
Constitutes A Trade Or Business?
Yes. Churches, like other tax-exempt organizations,
may engage in income producing activities unrelated
to their tax-exempt purposes. However, the net
income from such activities may be subject to
unrelated business income tax.
Is A Church Subject To Tax On Any
Income From An Activity Unrelated
To Its Exempt Purposes That
Constitutes A Trade Or Business
When is Income Subject To the Unrelated Business
Income Tax?
What Are Some Exceptions to the Taxation of
Unrelated Trade or Business Income
Examples of Unrelated Trades or Businesses
Special Rules Regarding
Audits
Special restrictions placed on the internal revenue
service when it examines A church
What organizations are covered under these special
rules?
Do the restrictions apply to all IRS inquiries to a
church?
Must a Church maintain books and records?
Special Rules Applicable To
Compensation Of Clergy
What rules apply to a Parsonage or Rental Allowance?
Are there limitations on the amount that is deductible by
a minister as to expenses allocable to tax free
income? Yes
Does the Parsonage allowance apply to home
ownership? Yes
How do you get further information? See Publications
517 and 525
Special Rules Applicable To
Compensation Of Clergy
What is the treatment of reimbursement payments to
ministers and other church employees?
What is an accountable plan?
How are automobile expense reimbursements treated?
Church Responsibilities For
Employment Taxes
Are churches liable for employment taxes?
When are churches and other religious organizations
not liable for Social Security and Medicare taxes?
How do you determine whether a worker is an
employee?
Church Responsibilities For
Employment Taxes
What is the treatment of compensation paid to
ministers for purposes of employment tax
and income tax withholding?
For additional information: See Publications
334, 939, and 517.
FundRaising Rules
Are there special rule relating to fundraising and
charitable contributions? Yes
What are the new substantiation rules?
What are “Quid Pro Quo contributions” and what new
rules apply to such transactions?
Filing Requirements
Does a church have to file an annual income
tax return with the IRS? No
Does a religious organization other than a
church have to file an annual income tax
return with the IRS?
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Key Point
The new regulation does not relieve churches of the duty of noting; on
receipt that no goods or services were provided to donors who make on or
more individual contribution of at least $250.
If a charity provides a donor with no goods or services in connection with
a contribution of $250 or more, the charity’s receipt must still say so. The
new regulations simply permits charities to use this same rule when they
provide such donors with goods or services of insubstantial.
A charity provides only intangible religious benefits. What if a religious
charity only provides intangible religious benefits in connection with a
charitable contribution? Must the receipt say so? According to Mr.
Rutstine, the answer is yes. Once again, the sole purpose of the new
regulation was to permit charities that provide goods or services of
insubstantial value in connection with a contribution of $250 or more, to
say on the receipt issued to the donor that no goods or services were
provided. The regulation had no effect on the requirement that is a church
provides “intangible religious benefits” in connection with a contribution of
$250 or more its receipt must say so.
FUNDS ACCOUNTABILITY
The procedure for validating or authenticating all funds received on behalf of the church that
will meet Internal Revenue Services regulations are as follows: (This information is for those
who handle the church finances- re: Stewards of Finance Committee count the money)
1. Have a sign in roster which includes the names of those who are to count the
Funds and a place for them to initial.
2. Have these persons use red pens to circle or note the date and the amount of
The donation on each envelope before opening.
3. Upon opening the envelope, write in red ink whether it is cash or check and if
It is a check verifies the check number.
4. If there is an error on the envelope notate the correct amount that is in the in
Red and initial a second time or have a second person to initial.
5. Provide by mail a receipt of all contributions that are $250.00 or greater.
6. Be sure that treasurer receipt the stewards or finance committee for the
Money.
(The treasurer should not count the funds but simply deposit and let the receipt from the
bank determine if there are any errors. This will keep the check and balance system in line
and when the treasurer and recording steward meet to reconcile the bank statement as per
the discipline, it will create a stronger check and balance.)
7. Be sure to bind all envelopes. Make envelopes for any persons who put in
Checks without envelopes. Signify the envelope with a red initial. For all loose
Monies make one envelope and call it Mr. or Ms. Miscellaneous use the same
Name for every time you count fund and there are loose donation, which
Cannot be attributed to any one person.
8. At the close of the fiscal year, distribute year-end receipts to church members
(And other donors) so they may validate their contributions.
Contribution Forms
Each member should receive a contribution form. It is believed that the best form
is a small card that has the basic information preprinted on it and can be typed or
hand written for each taxpayer. It requires three signatures: the Recording
Steward (Financial secretary), treasurer and pastor. The pastor must sign as the
Chief Executive Officer of the local church.
Forms should be in the members’ hands by January 20th of each year, since this is
the beginning of the tax-filing year. The ledger or computer printout should show
their contributions as received; however the form will sum-up the amounts by
category. (A copy of these forms will be shown at the end of this book.)
Is a church subject to tax on any income form an activity that is unrelated to its
exempt purposes and that constitutes a trade or business?
Yes, churches, like other tax-exempt organizations, may engage in income
producing activities unrelated to their tax-exempt purposes. However, the net
income from such activities may be subject to unrelated business income tax. If a
church or other exempt organization has gross receipts of $1,000 or more from the
conduct of any unrelated trade or business, it is required to file Form 990-T,
Exempt Organization Business Income Tax Return. The Form 99-T is due on the
15th of the fifth month following the end of the church’s tax year.
“Quid pro quo”
“A quid pro quo contribution is a payment made
to a charity by a donor as a contribution
and/or for goods or services provided to the
donor by the charity.”
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Statements
“Quid pro quo” donations must be accompanied by a
disclosure statement. “A quid pro quo contribution is a
payment made to a charity by a donor as a contribution
and/or for goods or services provided to the donor by the
charity.” The charitable organization must provide a
written disclosure statement to donors of a quid pro quo
contribution in excess of $75. For example, if a donor
gives a charity $100 and receives a ticket to go on a bus
trip which is valued at $40, the donor has made a quid
pro quo contribution. In this example, the charitable
contribution portion of the payment is $60. Even though
the part of the payment available for deduction does not
exceed $75, a disclosure statement must be filed because
the donor's payment (quid pro quo contribution) exceeds
$75 The required written disclosure statement must:
Statements
1. Inform the donor that the amount of the contribution that
is deductible for
Federal income tax purposes are limited to the excess of
any money (and the
value of any property other than money) contributed by
the donor over the
value of goods or services provided by the charity, and
2. Provide the donor with a good faith estimate of the value
of the goods or
services that the donor received.
Statements Continued
The church as all other charities must furnish the
statement in connection with either the solicitation
or the receipt of the quid pro quo contribution. This
means that if the tickets you are selling furnished
the disclosures so that the tickets provide the
necessary disclosure information or statement in
connection with a particular solicitation, it is not
necessary for the organization to provide another
statement when the associated contribution is
actually received.
Filing Requirements
No statement required when:
 1. The goods or services given to a donor meet the standards
for insubstantial value set out in Rev. Proc. 90-12, 1990-1
C.B. 471, and Rev. Proc. 92-49, 1992-1 C.B.987 (as
updated);
 2. There is no donation element involved in a particular
transaction with a charity when one purchases an item from
the church (for example, there is generally no donation
element involved when a member purchases a tape after
Sunday morning worship); or
 3. There is only an intangible religious benefit provided to the
donor. The intangible religious benefit must be provided to
the donor by an organization organized exclusively for
religious purposes, and must be of a type that generally is not
sold in a commercial transaction. Outside the Donation
Context.
Filing Requirements
A penalty is imposed on a charity (including churches) that
does not make the required disclosure in connection with a
quid pro quo contribution of more than $75. The penalty is $10
per contribution, not to exceed $5,000 per fund-raising event
or mailing. The charity can avoid the penalty if it can show that
the failure was due to reasonable cause. Under a new record
keeping rule effective for all cash, check, electronic funds
transfers, credit card charges, or other monetary contributions
of any amount made in taxable years beginning after August
17, 2006, the donor must obtain and keep a bank record or a
written communication as a record of the contribution. Written
records prepared by the donor (such as check registers or
personal notations) are no longer sufficient to support
charitable contributions.
Filing Requirements
Bank records for this record-keeping requirement include bank
or credit union statements, canceled checks, or credit card
statements. They must show the date paid or posted, the
name of the charity, and the amount of the payment.
Taxpayers who claim charitable contributions made by payroll
deduction can satisfy the record keeping requirement if the
donor has :(1) a pay stub, W-2, or other document furnished
by the employer that states the amount withheld for payment
to charity, or (2) a pledge card or other document prepared by
or at the direction of the charity that shows the name of a
giver. An organization described in section 170(c) of the
Principal Combined Fund Organization for purposes of the
Combined Federal Campaign, will be treated as a donating
organization for purposes of the new record keeping provision.
Filing Requirements






The procedure for validating or authenticating all funds received on
behalf of the church that will meet Internal Revenue Services
regulations are as follows: (This information is for those who handle the
church finances- re: Stewards or Finance Committee count the
money)
1. Have a sign in roster which includes the names of those who are to
count the funds and a place for them to initial.
2. Have these persons use red pens to circle or note the date and the
amount of the donation on each envelope before opening.
3. Upon opening the envelope, write in red ink whether it is cash or
check and if it is a check verifies the check number.
4. If there is an error on the envelope notate the correct amount that is
in the in red and initial a second time or have a second person to initial.
5. Provide by mail a receipt of all contributions that are $250.00 or
greater.
Filing Requirements
Continued



6. Be sure that treasurer receipt the stewards or finance committee for
the
money. (The treasurer should not count the funds but simply deposit
and let the receipt from the bank determine if there are any errors. This
will keep the check and balance system in line and when the treasurer
and recording steward meet to reconcile the bank statement as per the
Discipline, it will create a stronger check and balance.)
7. Be sure to bind all envelopes. Make envelopes for any persons who
put in checks without envelopes. Signify the envelope with a red initial.
For all loose monies make one envelope and call it Mr. or Ms.
Miscellaneous use the same name for every time you count fund and
there are loose donation, which cannot be attributed to any one person.
8. At the close of the fiscal year, distribute year-end receipts to church
members (and other donors) so they may validate their contributions.
FREEMAN CHAPEL C. M. E. CHURCH
REV. DR. ROBERT PEOPLES
DR. MARTHA GRANGER
THE RTE. REV. E. LYNN BROWN
PASTOR
PRESIDING ELDER
PRESIDNG PRELATE
ACKNOWLEDGMENT FOR CONTRIBUTIONS OF $250.00 OR MORE
CONTRIBUTOR:
_______________________
ADDRESS:
________________________
_________________________
TOTAL AMOUNT OF CONTRIBUTION (S):
Cash_________
Check________
Check # _______
DATE OF CONTRIBUTION (S)
DESCRIPTION OF ANY PROPERTY CONTRIBUTED:
_____________________________________________________________________________________
_____________________________________________________________________________________
WERE GOODS AND SERVICES GIVEN IN EXCHANGE OF THE CONTRIBUTION (S) LISTED ABOVE?
YES _____ NO______
IF SO, GIVE AN ESTIMATE OF THE VALUE OF THE GOODS AND SERVICES.
* If the benefit received was an intangible religious benefit that is generally not sold in a commercial transaction
outside the donative context, please state, but there is no need to describe or estimate the Value of the benefit.
_____________________
_____________________
_____________________
___________________________
___________________________
___________________________
DATE ISSUED. ______________________
OFFICER: _____________________
137 VIRGINAI STREET HOPKINSVILLE, KY 42240 TELEPHONE (270) 885-2186
ELIZABETH CHURCH OF CHRIST WRITTEN IN HEAVEN
POST OFFICE BOX 274
CHATTAHOOCHEE, FL 32324
INCOME TAX STATEMENT _______________________________
NAME ________________________________________________
DUES/TITHES __________________________________________
BENEVOLENT _________________________________________
SUNDAY SCHOOL ______________________________________
SPECIAL OFFERING ____________________________________
TOTAL _______________________________________________
PASTOR ______________________________________________
RECORDING SECRETARY________________________________
TREASURER ___________________________________________
There were no goods or services exchanged for the contribution
Filing Requirements
What other reporting requirements must be met by a
church?
Employee Identification Number
Information Return Filing Requirements
Forms 1099-MISC
Form 1099-INT
Form W-2G
Form 8282
Helpful Internal Revenue
Publications
Publication 334, Tax Guide for Small Business
Publication 517, Social Security for Members of the
Clergy and Religious Workers
Publication 525, Taxable and Nontaxable Income
Publication 557, Tax-Exempt Status for Your
Organization
Publication 561, Determining The Value of Donated
Property
Helpful Internal Revenue
Publications
Publication 571, Tax-Sheltered Annuity Programs for
Employees of Public Schools and Certain Tax
Exempt Organizations
Publication 586, Charitable Contributions
Publication 598, Tax on Unrelated Business Income for
Exempt Organizations
Publication 937, Business Reporting (Employment
Taxes, Information Returns)
Helpful Internal Revenue
Publications
Publication 1391, Deductibility of Payments
Made to Charities Conducting Fund-Raising
Events
Publication 1771, Substantiation and
Disclosure Requirements
Employer’s Tax Guide Circular
The Church And
I.R.S.
Produced by:
Dr. Robert L. Peoples