Your church can owe back taxes right now. Here's what you need to know and how to protect your ministry.

The Hidden Tax Risks That Churches Face

Churches often think that being tax-exempt means they don't have to pay any taxes at all. However, many churches unwittingly build up past taxes and penalties because they don't keep track of their responsibilities, which are mostly connected to unrelated business income, payroll taxes, and mistakes in compliance.

If you don't pay these taxes, you could end up with a lot of money problems, legal issues, and risks to your ministry's reputation and activities.

We at Church Law and Strategy assist churches in finding, understanding, and settling their tax debts. We also help them come up with good tax plans to avoid problems in the future. This complete handbook talks about why your church can owe past taxes, how to spot dangers, and what to do to protect your ministry.

Knowing What Taxes Churches Have to Pay

What Taxes Could a Church Have to Pay?

• Unrelated Business Income Tax (UBIT): A tax on money you make from activities that aren't related to your exempt mission.
• Social Security, Medicare, and unemployment taxes are all payroll taxes that are taken out of the paychecks of employees.
• Excise taxes are fines for lobbying or making too many transactions that benefit you.
• State and local taxes include sales tax, property tax, and any other taxes that apply in your state.

Common Reasons for Tax Liabilities

• Running enterprises like thrift stores, cafes, or rental properties without paying the right taxes.
• Misclassifying workers so that they don't have to pay payroll taxes.
• Lobbying or running for office by accident.
• Not filing tax returns on time as required.

Why Churches Owe Back Taxes

Not Knowing Enough and Not Being Good at It

A lot of churches don't have full-time financial experts who know about nonprofit tax legislation.

Not Keeping and Reporting Records Properly

Bad paperwork can cause missed filings and money that isn't recorded.

Not Getting the IRS Rules Right

People don't understand the difference between taxable income and exempt activity.

Late Responses to IRS Notices

Not paying attention to tax notices makes penalties and interest go up.

Signs That Your Church Might Owe Back Taxes

• Notices or audits from the IRS or state tax agency.
• Tax returns that haven't been filed or that are late (Form 990-T, payroll filings).
• Bookkeeping problems that don't have an obvious explanation.
• Donors stopped giving money all of a sudden because of tax problems that were made public.

How to Find and Pay Your Taxes

• Do a full tax audit.
• Get legal and accounting specialists to look over your finances, tax returns, and business operations.
• Talk about payment plans or settlements.
• Get in touch with the IRS or state agencies to set up payments that are easy to handle.
• Put in place strong tax compliance practices.
• Make rules to make sure that reporting and paying taxes are always done correctly.

How Church Law and Strategy Help Ministries

• Consulting on Tax Strategy: We look at how you handle your money to help you pay less in taxes.
• Legal Advice and Representation: We help churches with audits, disagreements, and negotiations.
• Audits for Compliance: Our church legal audit and compliance report service finds risks that aren't obvious.
• Learning and Training: We give your leaders the most up-to-date information about tax law.

Questions That Are Often Asked

• Q: What kinds of activities bring in money that isn't tied to business? A: Activities that aren't closely related to your exempt purpose and are done on a regular basis.
• Q: Can we receive tax relief back if we didn't know? A: You may get lower penalties if you join a voluntary disclosure program, but you have to act quickly.
• Q: How often should churches check on their taxes? A: At least once a year or when big changes happen.

Keep Your Church Safe from Expensive Back Taxes

Back taxes are a big problem, but with the right help, they may be handled and avoided. Church Law and Strategy is ready to safeguard your ministry with full tax planning, legal advice, and compliance services.

Links Inside

• Church Tax Strategy Consulting
• Church Legal Audit and Compliance Report
• Church Legal Counsel Services

Links to Other Sites

• IRS Unrelated Business Income Tax: https://www.irs.gov/charities-non-profits/unrelated-business-income-tax
• IRS Payroll Tax Information: https://www.irs.gov/businesses/small-businesses-self-employed/payroll-taxes
• Tax Exempt Organizations FAQ: https://www.irs.gov/charities-non-profits/charitable-organizations/faqs-about-tax-exempt-organizations