Vol. XXIII - Issue II Apr/Jun 2016
Will the churches in America be destroyed through regulation and taxation?
The first controversy that arose in the early days of the fledgling church had to do with an issue of discrimination. The church was primarily a Jewish church but comprised of two kinds of Jews, Hebrew Jews, who could speak Hebrew and Grecian called Hellenists, foreign born Jews, and even before becoming Christians had their own Synagogues. The event is explained at Acts Chapter six.
And in those days, when the number of the disciples was multiplied, there arose a murmuring of the Grecians against the Hebrews, because their widows were neglected in the daily ministration. Then the twelve called the multitude of the disciples unto them, and said, It is not reason that we should leave the word of God, and serve tables. Wherefore, brethren, look ye out among you seven men of honest report, full of the Holy Ghost and wisdom, whom we may appoint over this business. But we will give ourselves continually to prayer, and to the ministry of the word. (Acts 6:1-6)
Interestingly this is the only time this word “business” is mentioned in reference to the church in the New Testament. The word in this context means “necessity” or that which is their duty. So when this problem arose, the Apostles recognized it as a serious breach and it was their duty and necessary to the peace of the body to settle the matter of the Grecian widows being neglected in the daily distribution of food which they solved by having the congregation, which chose out seven Spirit filled men to take care of “this business.”
Now let us compare the early church to the present day church in America, that for benefits and privileges, has prostrated itself before the altar of government, and has put on the robe of a non-profit tax exempt “business corporation” and is operating as a legal entity under the Internal Revenue Code at 501 (c )(3) or if not incorporated at 508 (a) as an unincorporated association. As churches they are tax exempt, as members they receive tax deductions for their gifts, and the preachers receive special clergy tax benefits. However to receive these, the church must espouse Federal Public Policy, their head is the head of the non-profit division of the IRS, not Christ, and the pastor must be ordained by the IRS for these tax goodies, which are quite lucrative, especially compared to the average laymen in the pew, creating a clergy class of state-clergy as we had in the beginning of our nation before we had a First Amendment.
Now with nearly all of the churches and church denominations firmly under their control, the IRS as a tool of government and of course Satan, is being used to eliminate the churches of America altogether just as they are eliminating all businesses through the strangulation of regulation and red tape. An organization called Start Church, Inc. that is one of the most prolific organizations that aids churches in organizing and maintaining their non-profit status has recently sent their constituent churches a check list so that they can make sure that their business corporation is up to date. Here are their words, “This checklist contains 28 items that your church should consider before bringing in the New Year.” Following is the check list with a few irrelevant omissions.
Item #1: notify members of giving deadline
Notify members of giving deadline: Whether you publish it in a church bulletin,announce it from the pulpit, and/or publish it on the church website, you should remind your members to be aware of two things:
- Any member wanting to make a large contribution, desiring to get tax-deductible credit for this tax year, must give it to the church on or before midnight of December 31st or mail it to the church so that it is postmarked on or beforeDecember 31st . Remind members that in order for their tithes and offerings to betax-deductible, they must have possession of the church’s giving statement.
- Additionally, members must have (in their possession) a separate, written receipt for each individual contribution of $250 or more if they want those contributions to be tax-deductible. This brings us to item #2 on the checklist.
Item #2: know the $250 rule
Section 170(f) of the Internal Revenue Code requires that a written acknowledgmentbe given to the donor for any contribution in the amount of $250.00 or more.
Item #3: practicing printing year-end statements
Many software programs have complicated year-end statement printing processes.
Item #4: update W-4’s
Have all employees review their W-4 forms. This is the form each employee must fillout before beginning employment at the church.
Item #5: gather bank statements
All of the church’s bank accounts need to be reconciled and gathered into one notebook. Many banks no longer send the actual cancelled checks with the bank statements.
Item #6: properly report love offerings
Love offerings and gifts given to the pastor by the church or sanctioned by it, must be counted and reported on the pastor’s W-2 form as taxable income. If there were any gifts given to volunteers, the same rules apply. Be sure that the recipient is alerted that he must report any gifts on his tax return. If the church’s gift to a volunteer reaches or exceeds $600.00 or more, the church must issue a 1099-MISCto the volunteer. One group that is far too often overlooked when it comes to this stipulation is guest speakers are subject to this rule in the same way as volunteers. Be sure to follow the instructions on the next checklist item for any individual who is issued a 1099-MISC.
Item #7: make a list of all contractors
Make a list of the independent contractors/service providers. If the church had any of the following people render services to the church, you must do two things: 1) each person must fill out a W-9 form and give it to the church and, 2) your church must give each contractor/service provider a 1099-MISC form stating how much he earned from the church if the amount of income received from the church was $600.00 or more for services or rent, and $10.00 if the person was paid royalties.
Below is a list of contractors for you to consider:
- A board member who, as an officer, gets any type of compensation of over $600.00
- Guest speakers
- Lawn service providers
- Pest control providers
- Landlord for rent collected
- Attorneys /doctors (even if the attorney/doctor is incorporated)
- Guest singer/musicians
- Hired cleaners
- Carpet installers
- Piano repairmen
- Computer service providers
- Growth consultants
- Hired stewardship campaign advisors.
Item #8: prepare W-2 information
Each year churches pay their ministers, musicians, nursery workers, and other ministers for their services. Make sure that you have the exact names, addresses, and Social Security numbers of each employee and get ready to finalize the year-end totals for their W-2’s. The Affordable Care Act has changed some of the requirements for the way that W-2s are filled out. Employers must now report the cost of health care coverage under an employer sponsored group health plan.
Item #9: prepare fourth quarter 941 forms
By the end of December, your church will have all of the information it needs to prepare its 4th quarter Form 941 report. This is a quarterly federal tax return to be completed by employers, and the report is due by January 15th.
Item #10: prepare for your annual board meeting
Each church must have an annual board meeting in order to comply with the minimum state and federal requirements.
Item #11. Properly add new board members
Many churches list their board members in the state’s annual reports so that they show up online.
Item #13: sign conflict of interest (#11 & 12 were the same)
Make sure that each board member signs a conflict of interest statement. The potential for a conflict of interest arises when a person on the board of directors who is responsible for promoting the interests of the church has a reason to also promote a personal interest. Therefore, to comply with best non-profit practices, each board member should sign a conflict of interest statement each year.
Item #14: prepare Form 8282
If the church received any donated non-cash items valued at $5,000.00 or more and it disposed of them within three years, it is required to file Form 8282 with the IRS.
Item # 15:
File Form 1098-C for donation of car, boat or airplane Order IRS Form 1098-C. This is a special triplicate tax form that must be ordered and received by mail. This form is required if someone makes a donation of a car, boat, or airplane to the church.
Item #16: get compliant with section 4958
Become familiar with IRS section 4958. Board members may be held personally responsible for approving excess benefit transactions unless they can demonstrate their approval was “not willful and due to reasonable cause.” Below is an example.
The IRS has defined an intermediate sanction as a penalty being assessed against the pastor, board members or other related parties for infractions against section 4958, otherwise known as “excess benefit transactions”. The penalties for excess benefit transactions are at 10%, 25% or 200%. See the example below:
Pastor Tom goes on a salary of $20,000.00 a year and the board of directors does not put it in writing by creating a salary compensation agreement or by issuing to him a W ‐2 at the end of the year. Section 4958(a)(1) requires that an excise tax penalty be levied against the pastor personally in the amount of $5,000.00 and that each board member that partook in the transaction also be liable to pay a penalty of 10% jointly and severally. This means that each board member would have to pay a fine of $2,000.00. However, if the IRS performs an inquiry or an audit of the church’s finances and the IRS discovers an excess benefit transaction, the fine will be 200% of the excess benefit transaction. Remember, it does not matter if the salary was fair or not, IRS Code requires that the salary be put in writing and a W-2 be issued (Reg. 53 4958).
Item #17: improve your chart of accounts
In any accounting system that you choose, establishing the chart of accounts is essential to the success of the system.
Item #18: review all reimbursements
Early December is the best time of year to review all reimbursements issued by the church to staff, volunteers, officers, and board members.
Item #19: create and update employee file
Create and/or maintain a file for each employee:
Item #20: calculate unrelated business income tax
Determine if the church owes unrelated business income tax. Under IRC section 512, if the church earns any income from unrelated business activities, then it must file Form 990-T to report such income. In short, the church must report any gross income of $1,000.00 or more earned from unrelated business activities. Such activities are: ‣ Sales from a bookstore that is open during non-worship service hours ‣Rental income from a building that is debt financed ‣ Income from any activity that is not specifically associated with the tax-exempt purposes of the church.
Item #21: locate your 501(c)(3) approval letter
Many churches that have received official 501(c)(3) status lose track of their determination letter. This letter is evidence of your tax-exempt status and should be maintained at all times.
Item #22: review your church insurance policy
In preparation for the annual board meeting, now is the time to review your insurance policies.
Item #23: review your bank accounts
How much is your church paying for banking?
Item #25: review your health insurance payments
The Health Care Act gives a refundable tax credit of 25% of the cost of health care insurance that the church pays for its employees. In order for the church to qualify for the tax credit, it has to meet three requirements.
Item #26: consider a section 74 gift
The Internal Revenue Code provides that the church or ministry can give a gift to an employee, including the pastor, so long as it meets the requirements of a qualified employee achievement award set forth in section 74 and 274(j)(B).
Item #27: rebuild lost tithe records
It happens every year; churches of all sizes and backgrounds lose their tithe and offering records.
Item #28: prepare housing/parsonage allowance
The regulation of section 107 requires that a housing/parsonage allowance be set up in advance of any salary being paid to the minister. The housing allowance is one of the most beneficial tax benefits offered to ministers and should be taken advantage of as often as possible.
If the church is a legal entity that church is responsible to abide by these rules and regulations to the letter. According to IRS Publication Publication 1828 – Tax Guide for Churches and Other Tax-Exempt Organizations: “Churches and religious organizations may be legally organized …under state law, including as un-incorporated associations, non-profit corporations, corporations sole and charitable trusts.” Corporations sole is the Catholic model and un-incorporated associations are churches that are not incorporated. These are legal entities that have waved their first Amendment guarantees and have to comply to the same rules and regulations that the corporate churches have to meet. The important thing to understand is that the New Testament church is not a legal organization but rather a lawful organism the body of Christ.
The true “business” of the church is spiritual not these carnal things. The Lord Jesus gave the church its commission at Matt. 28:18-20. It didn’t come close to including anything of this sort. This is for a business corporation not a New Testament assembly. Now if a church has fallen into the Devil’s trap and has become a legal entity then they are responsible to these corporate regulations. Compare this to Paul’s instruction to the church at Corinth, “If then ye have judgments of things pertaining to this life, set them to judge who are least esteemed in the church. There is no way, the “least esteemed could serve on the official Board of Trustees of a church today. Some years ago, David Gibbs, Jr. then the head of Christian Law Association said that there is a different breed of Trustees out there, we now have college graduates and they are not going to allow pastors to just pastor churches as the pastors did in the past generations did. (Paraphrase) Even though churches were incorporated the older pastors operated as if they didn’t know what a corporation or Constitution or By Laws were. But now preachers are going to jail and board members are becoming personally responsible. This is a new day.
According to Start Church, “When it comes to legal compliance, the church has much ground to make up. According to our internal review, over 80% of churches in America would not do well in an audit. In other words, more than 80% of churches have business practices that fail to ensure the churches’ financial information is being reported correctly and in accordance with tax laws. Moreover, our research indicates that many churches are losing their assets in lawsuits simply because their legal structure is out of date.”
Also Start Church declares, Churches have not stayed up with the new laws pertaining to non-profits. For instance, “Most churches are not aware that the housing allowance has been rewritten by congress. Under the new rules, most churches are no longer doing it right. This can be costly to ministers across America!”
The Devil is smart, the preachers and church leaders are dumb. Like the three little pigs who said, “Who’s afraid of the Big Bad Wolf?” They thought they could get in bed with the state and take the Old Whore’s benefits without consequences. Well they forgot that “COME SHEKELS-COME SHACKLES!
There is only one remedy, the Lord Jesus said, “Remember therefore from whence thou art fallen, and repent, and do the first works; or else I will come unto thee quickly, and will remove thy candlestick out of his place, except thou repent.
(The Biblical Law Center, helping churches since 1884 stands ready to help any church to organize or reorganize so as to operate as a New Testament church, rather than a State 501 (c) (3) non-profit Organization. Please contact us at Rev. Greg A. Dixon firstname.lastname@example.org. Visit our web site: http://biblicallawcenter.com/