What Every Ministry Needs to Know About What the IRS Is Watching in Churches

Why the IRS Is More Interested in Churches Than Ever Before

Churches need to keep their 501(c)(3) tax-exempt status so they can do their jobs and carry out their missions without having to pay federal income tax. But the IRS has been paying more attention to churches in recent years, focusing its resources on certain areas of compliance to make sure they follow the law. Church Law and Strategy has been helping churches all around the country figure out how to deal with these IRS key areas for decades. Our knowledge makes sure that ministries stay compliant, ready for audits, and able to keep doing their important work without any problems. This complete book shows the IRS's top three areas of concern in churches, the legal consequences of not following the rules, and how Church Law and Strategy helps congregations face these difficulties with confidence.

1. Campaigning for Office

What the IRS Sees When It Watches Political Activities

501(c)(3) groups, including churches, are not allowed to take part in or interfere with any political campaign for or against any candidate for public office, according to the IRS.

What is considered political campaign activity?

• Supporting or opposing candidates
• Giving money to campaigns
• Holding candidate forums or handing out campaign materials in a way that favors one party over another

What happens when you break the rules

• Tax-exempt status lost
• Big fines and excise charges on the group and the people in charge
• Bad press hurting the ministry's reputation

How Churches Can Follow the Rules

• Make clear rules that say no political campaigning
• Teach workers and volunteers about the law's boundaries
• Keep records that show you are following the rules

Church Law and Strategy's church 501(c)(3) compliance attorney services help churches write political activity policies that follow the law and give legal training.

2. Income from Unrelated Businesses (UBI)

Getting to Know UBI

When a church does business that has nothing to do with its exempt purposes, it makes unrelated commercial income. The IRS taxes UBI so that businesses that pay taxes don't have an unfair advantage.

Where churches get their UBI from

• Running thrift stores or cafes without following IRS rules
• Renting out church property for events that aren't related to the church
• Selling ads or sponsorships that have nothing to do with ministry work

Tax and Reporting Issues

Churches have to fill the IRS Form 990-T and pay taxes on any UBI they make that is above the exemption limit. Not reporting UBI might lead to audits and fines.

How to Handle and Lower UBI

• Plan activities so that you can get exceptions
• If you need to, split up your business activities into separate legal entities
• Keep detailed track of your finances

Church Law and Strategy does legal audits and compliance reports for churches to find UBI risks and come up with ways to lower them.

3. Good Record-Keeping and Governance

Why Governance Is Important

To show the IRS that a church mostly serves exempt purposes and follows the law, it needs to have good governance.

Governance Elements Under Close Examination

• Bylaws that are legal and up to speed with state law
• Board meetings that are run well and have minutes taken
• Clear rules for conflicts of interest and money management
• Financial records that are correct and clear

The dangers of bad governance

• IRS questions about tax-exempt status
• More likely to be audited
• Disputes over the law and distrust of donors

Best Ways to Follow the Rules

• Regular reviews of government and the law
• Training for the board and clear lines of power
• Policies for keeping documents

Church Law and Strategy's church governance attorney services make sure that your governance arrangements can stand up to IRS inspection.

How Church Law and Strategy Helps Churches When the IRS Looks at Them

Full Compliance Audits

To avoid problems with the IRS, our audits look at political activities, UBI, governance, and other risky areas.

Legal Advice and Representation

We help churches with audits, investigations, and making things right.

Training and Making Policies

We give church leaders the information and tools they need to stay in compliance.

Questions That Are Often Asked

Q: Is it okay for a church to back political candidates in private?

No, 501(c)(3) groups can't do any political campaigning, whether it's in public or private.

Q: How can we tell if money is UBI?

UBI is money you make from a trade or business that isn't related to your exempt reasons and that you do on a regular basis.

Q: What records do we need to retain to show that we are following the rules of governance?

Minutes from meetings, financial statements, disclosures of conflicts of interest, and policy documents.

Conclusion

Get expert help to stay ahead of IRS scrutiny. The IRS is likely to keep an eye on churches' political activities, unrelated commercial income, and governance. Your strongest defenses are proactive legal advice and full compliance. Church Law and Strategy is the trusted partner that helps ministries all throughout the country stay in compliance, avoid fines, and carry out their important missions without any problems.

Links Inside

• Church 501(c)(3) Compliance Attorney
• Church Legal Audit and Compliance Report
• Church Governance Attorney

Links to Other Sites

• IRS Political Campaign Restrictions: https://www.irs.gov/charities-non-profits/charitable-organizations/political-campaign-activities
• IRS Unrelated Business Income Tax Information: https://www.irs.gov/charities-non-profits/unrelated-business-income-tax
• Nonprofit Governance Best Practices: https://www.councilofnonprofits.org/tools-resources/board-governance