Are we breaking the law when it comes to taxes?

Churches typically have good intentions and are more focused on mission and service than following the law. But you could accidentally break tax regulations, which could put your church's tax-exempt status at peril, cost you money, and hurt your reputation. It's very important for pastors, church leaders, and administrators to know about the most prevalent mistakes and how to stay compliant.

Understanding the Risks of Tax Compliance for Churches

Pay for Pastors and Other Workers

• Keeping pay at a fair level
• Proper management of housing allowances
• Classification of employees and contractors
• Written contracts for employment

Unrelated Business Income Tax (UBIT)

• Reporting unrelated business income that is taxable
• Separating acts that are exempt from those that are not
• Keeping records and reporting
• Filling out the right tax forms
• Correct thank-you notes for donations
• Filing requirements for state and local governments

Common Mistakes That Break the Law

• Reimbursements that are taxable as not taxable
• Mistakes with payroll taxes
• Unreported business income that isn't related
• Incomplete paperwork for donations
• No official board approvals

How to Find and Fix Compliance Gaps

• Legal audits within the company
• Reviews of income classifications
• Evaluations of payroll practices
• Evaluations of documents

Avoiding Breaking Tax Laws

• Policies and decisions on governance
• Plans that are accountable to be put into action
• Financial separation of tasks
• Keeping records that are clear
• Hiring a lawyer with experience

Tier 2: Support for the Foundation Plus Plan

• Full legal audits
• Reports on how to save money on taxes
• Services for trademarks
• Elite network of experts
• Changes to the rules
• Examples that work

Penalties for Not Filing Form 990-T

• Back taxes because of mistakes with the housing allowance
• Audit started because of undocumented pastor bonuses

Questions That Are Often Asked

• Not knowing is not a defense
• Audits every year are a good idea.
• Early advice for new income

Disclaimer of Legal Responsibility

This is only for information; please talk to a professional lawyer for advice.

Links Inside

• Church Legal Audit and Compliance Report
• Foundation Plus Plan Overview
• Pastoral Compensation Legal Strategy

Links to Other Sites

• IRS Tax Compliance Guidance: https://www.irs.gov/charities-non-profits
• ECFA Accountability Standards: https://www.ecfa.org/Content/Accountability
• Nonprofit Quarterly Compliance Resources: https://nonprofitquarterly.org