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Key Tax Dates October 2023

Key tax dates for October 2023 include employees with six-month extensions for filing 2022 tax returns, among others.

Richard R. Hammar, Attorney, CPA
Bio

Key tax dates for October 2023 include monthly filing requirements related to payroll taxes, some semiweekly requirements, and a few deadlines unique to the month.

Monthly requirements

If your church or organization reported withheld taxes of $50,000 or less during the most recent lookback period (for 2023 the lookback period is July 1, 2021, through June 30, 2022), then deposit withheld payroll taxes each month. Monthly deposits are due by the 15th day of the following month.

Note, however, that if withheld taxes are less than $2,500 at the end of any calendar quarter (March 31, June 30, September 30, or December 31), the church need not deposit the taxes. Instead, it can pay the total withheld taxes directly to the IRS with its quarterly Form 941. Withheld taxes include federal income taxes withheld from the employee’s wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.

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Semiweekly requirements

If your church or organization reported withheld taxes of more than $50,000 during the most recent lookback period (for 2023 the lookback period is July 1, 2021, through June 30, 2022), then deposit withheld payroll taxes semiweekly.

For Wednesday, Thursday, or Friday paydays, deposit payroll taxes on or by the following Wednesday. This is a must.

For all other paydays—deposit payroll taxes on the Friday after the payday. This is also a must.

Note further that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day. The deposit days are based on the timing of the employer’s payroll. Withheld taxes include federal income taxes withheld from the employee’s wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.
Key Tax Dates October 2023Download

October 16, 2023: Form 1040 due for taxpayers who filed for a six-month extension

Last day to file a 2022 federal income tax return (Form 1040) for taxpayers who obtained an automatic six-month extension by filing a Form 4868 by April 18, 2023 (April 19 if you live in Maine or Massachusetts).

October 30, 2023: File employer exemption (Form 8274)

Churches hiring their first nonminister employee between July 1 and September 30 may exempt themselves from the employer’s share of FICA (Social Security) taxes by filing Form 8274 by this date. (After that, treat nonminister employees as self-employed for Social Security purposes).

Only churches that oppose paying the employer’s share of FICA taxes on the basis of religious principles can use this exemption.

October 31, 2023: File quarterly federal tax return (Form 941) with payment

Churches having nonminister employees (or one or more ministers who report their federal income taxes as employees and who have elected voluntary withholding) must file an employer’s quarterly federal tax return (Form 941) for the third calendar quarter by this date.

Enclose a check in the total amount of all withheld taxes (withheld income taxes, withheld FICA taxes paid by the employee, and the employer’s share of FICA taxes) if less than $2,500 on September 30, 2023.

For complete information, consult the 2023 Church & Clergy Tax Guide by Richard R. Hammar, JD, LLM, CPA. Visit ChurchLawAndTax.com for the expert insights you need to manage tax issues with confidence
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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Does Your Church Have Sexual Abuse Liability Coverage?

Understanding sexual abuse liability coverage is key to a building a strong ministerial insurance portfolio.

Charlie Cutler

These days, churches would do well to pay particular attention to sexual abuse liability coverage as child abuse cases involving churches and ministries are on the rise, especially as states look for ways to extend the time victims have to seek justice.

An essential step in the process is verifying insurance coverage and keeping up with changing laws and regulations.

Why your church needs an insurance check-up

Church insurance has become extremely complicated in recent years due to one reason: child abuse. Tragically, allegations of child sexual abuse remain the number one reason that ministries end up in court. Because of this, sexual abuse liability coverage provides a critical foundation to almost all ministry insurance programs.

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The statutes of limitation (SOL) that allows victims to pursue abuse cases also has been extended in many states—some temporarily, others for longer. Churches need to understand that they may be defending themselves against an allegation made decades from now.

For example, in New York, the statute of limitations (SOL) for filing a civil suit as a survivor has been extended. Previously, survivors could file up to the age of 23; now, they can do so until they reach 55 years old.

In California, the SOL has been increased from 24 years old to 40 years old, or within five years of the survivor discovering that the “psychological injury or illness occurring after the age of majority was caused by the sexual assault.”

The US Congress recently passed the Eliminating Limits to Justice for Child Sex Abuse Victims Act, eliminating statutes of limitation for filing civil lawsuits for numerous federal sex offenses.

While federal civil claims cases occur less frequently than ones filed in state courts, it’s possible this trend of eliminating statutes of limitation altogether may continue at the state level.

The bottom line: Ministries must ensure that their liability limits and coverage terms are adequate to address potential claims alleging abuses from decades ago—as well as ones arising decades from now.

By following the steps outlined here, your board can identify and rectify significant financial vulnerabilities facing your organization.

Caution. This article focuses on insurance coverage and financial vulnerabilities that churches and ministries face based upon abuse allegations. Leaders must also focus on training, screening, selection, and supervision policies and practices to prevent abuse, as well as ministering well when abuse victims come forward.  

Verify sexual abuse liability coverage

The first step to an insurance check-up is to confirm which, if any, of the ministry’s insurance policies contains sexual abuse liability coverage.

Under the list of coverages, you may find this insurance under the names “Sexual Misconduct Liability,” “Sexual Acts Liability,” “Sexual Abuse Liability,” or something similar. If the coverage is included, it is often listed beside directors and officers insurance.

When considering your coverage, it’s important to take note of the liability limit.

You must assess whether your liability limit provides adequate protection given both your involvement in youth activities and the assets you need to safeguard. Keep in mind that these types of allegations can take years or decades to come forward, meaning your ministry may be defending itself far into the future. Due to rising inflation, it’s crucial to recognize that a $300,000, $500,000, or even $1,000,000 liability limit may not hold the same value at the time of a future claim.

Also review your umbrella or excess policy and determine whether it goes over the sexual abuse liability limit. Review this policy’s combined coverage limits. It’s a good idea to review both items with your agent or broker.

How much does sexual abuse liability coverage cost?

Stand-alone abuse liability coverage typically isn’t available, but the coverage can be bundled with your other insurance coverages as part of a package policy. Pricing varies widely, from a few hundred dollars per year for a small ministry with a low limit, to thousands of dollars per year for a larger, more complex ministry with protection extending into the umbrella limits.

Sexual misconduct liability coverage written on an occurrence basis tends to be slightly more expensive due to its permanent protection. On the other hand, claims-made coverage costs less initially but may incur price increases over time as additional years of protection are added.

While price is important, church leadership must be careful when choosing between short-term cost savings and adequate long-term protection.

Claims-made vs occurrence-based coverage

It can take years, even decades, for a sexual abuse allegation to surface.

For this reason, it’s important to verify whether a policy purchased today will provide coverage 20 years from now. The key is knowing the difference between claims-made coverage and occurrence-based coverage.

Occurrence-based: Occurrence-based coverage is essentially ‘lifetime’ coverage. If a covered claim occurred during the policy period, the policy would respond regardless of when the claim was reported.

Claims-made: Claims-made coverage provides ‘temporary’ protection for covered claims during the policy period. To report a claim on this type of policy, the incident must have occurred during the policy period and the claim must have been reported to the carrier within the same period. This period can be adjusted based on a retroactive date (for occurrences before the policy period) or an extended reporting period (granting more time for reporting a claim after the policy expiration date).

It can be tempting for a ministry to purchase claims-made sexual abuse liability coverage for the cost savings. Sexual misconduct liability coverage written on an occurrence basis is typically a bit more expensive because it offers more permanent protection. On the other hand, claims-made coverage costs less initially, but the price may go up you add more years of protection.

However, purchasing claims-made coverage can be a costly mistake. Sexual abuse claims tend to come forward several years after the insurance policy expires. This isn’t a problem for occurrence-based policies; however, the later timing for a reported sexual abuse claim can void coverage under claims-made policies.

For the most adequate coverage, and to pass on a legacy of financial stewardship to the next generation, occurrence-based coverage is typically the better choice for this type of liability.

Legacy liability

At this point, your ministry should have a solid grasp on your current sexual abuse coverage and know where you stand regarding potential future claims. It’s now time to review legacy liability.

By legacy liability, we refer to the risk that your ministry could face a sexual abuse claim today, even though it occurred 5, 10, even 25 years ago.

Document, document, document

Unbroken coverage and good coverage records are crucial in keeping your church well-prepared to address a claim. Your ministry must maintain a file of every insurance policy from today back to its inception, a process sometimes referred to as “insurance archaeology.”

If a claim were to occur, the very first question would be, Who was our insurer back then? This will then raise a few questions:

1. Did we have the right coverage? Review each of your prior insurance policies to ensure that your church, in fact, carried some type of sexual abuse liability coverage.

2. Can we still report a claim? Confirm if your church’s prior policies were written on a claims-made or occurrence basis. If it was claims-made, review the policy to confirm if any coverage still applies.

3. Did we have additional liability coverage? Determine if your church carried any prior umbrella or excess coverage, and whether the sexual abuse liability coverage was an underlying insurance.

Finally, repeat this documentation process for any entities your ministry has acquired or merged with. Merging with or acquiring other organizations carries the risk that unknown liabilities will carry over to the parent entity. If someone sues you over the actions of an acquired organization, your church will want to make sure the absorbed ministry’s insurance will respond.

Retroactive coverage

After performing this exercise, your church may come to the unfortunate conclusion that your legacy insurance policies do not provide adequate coverage. If so, what options remain to avoid a catastrophic financial exposure?

Retroactive coverage provides protection for claims arising from incidents that occurred before the policy’s effective date, ensuring coverage against potential claims that occurred years, or even decades, prior. With retroactive coverage, churches can ensure that they have comprehensive protection for potential claims that may arise from past incidents, even all the way back to the ministry’s inception date.

As more and more sexual abuse claims come forward, this type of coverage is becoming increasingly hard to find. Often, insurance companies will not provide this coverage unless the church signs a statement denying any awareness of potentially pending claims. However, it is still possible to acquire this important coverage. Contact your church’s insurance agent or broker to find out whether your church can.

Your Church Insurance Check-Up Checklist

Regularly reviewing and updating your church’s insurance policies is essential. By following this checklist, you can leave a lasting risk management legacy for your congregation and ministry for years to come.

1. Verify current sexual abuse liability coverage
  • Confirm if your existing policies include sexual abuse liability coverage.
  • Check the terminology: It may be listed as “Sexual Misconduct Liability,” “Sexual Acts Liability,” or similar.

2. Assess liability limits
  • Evaluate whether your liability limit is adequate, considering your ministry’s involvement in youth activities and the assets you need to protect.
  • Account for future inflation and the potential for allegations to surface years later.

3. Review additional coverage
  • Examine your umbrella or excess policy to see if it extends over your sexual abuse liability limit.
  • Consult with your insurance agent or broker to confirm your combined coverage limits.

4. Evaluate coverage type
  • Given the long-term nature of sexual abuse allegations, strongly consider occurrence-based coverage over claims-made coverage.

5. Document previous policies
  • Perform “insurance archaeology” to compile all previous insurance policies, including those of acquired organizations.
  • Review each policy for its type of sexual abuse coverage, if any.

6. Legal consultation
  • Consult your attorney or a specialized church insurance agent regarding your jurisdiction’s statutes of limitations in the context of your insurance history.

7. Assess legacy liability
  • Document any acquired or merged entities, and review their insurance policies for evidence of prior sexual abuse liability coverage.

8. Explore retroactive coverage options
  • Review your legacy policies with the board and church leadership, and if needed investigate purchasing retroactive coverage.

9. Maintain comprehensive documentation
  • Keep all insurance policy records, both current and past, in a well-organized and accessible manner.

By taking these steps, you can ensure that your ministry is adequately protected against potential risks and liabilities, both now and in the future.

Charlie Cutler is managing partner, ChurchWest Insurance Services.
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How a Texas Church Navigated A Sticky Tax Situation

Navigating a sticky tax situation is a matter of patience, record-keeping, communication and above-all, due diligence.

Matthew Branaugh, Attorney and Editor
Bio

Matt Gillum, executive pastor at Austin Baptist Church in Austin, Texas, tells Church Law & Tax how his church patiently worked with city leaders to resolve a sticky tax situation.

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Q: Describe your church’s sticky tax situation—why did it receive an unexpected property tax bill?

In 2010, our church purchased 36 acres of vacant land. The land was divided into five sections—or “plats”—but all of it was purchased in one transaction. Before we bought it, a site plan was put together and passed by the city. We constructed a building on part of the property that opened in 2012.

A few years later, the assessor visited our property and noticed two of the plats remained undeveloped. The church hadn’t developed those two plats because the city of Austin is stringent about how certain types of brush can or can’t be cleared, as well as other environmental activities. The assessor determined the two plats weren’t being used for religious purposes and didn’t qualify for property tax exemption anymore.

Q: What was most surprising about this determination?

Church staff didn’t know we need to regularly show our eligibility for a property tax exemption. Staff also didn’t know how it needed to show the ways the two unused plats remained in unity with the rest of our property for religious purposes.

To the city, it could look like the church was holding on to the two plats and keeping them vacant to potentially sell them in the future. That was never our plan.

Q: Did your church appeal the assessor’s decision?

Yes. But once that happens, the situation remains in limbo unless something moves it forward toward a decision. Unfortunately, the property tax potentially owed continues to accrue in the meantime. We hired a lawyer to help move the process forward because the amount of money we needed to set aside to pay the accruing taxes in the event the appeal was denied was becoming sizable.

Q: What was the church’s approach to this sticky tax situation?

We did full due diligence. We pulled together photos providing evidence of how we use the property for church purposes. We dug up meeting minutes describing the master site plan the church developed in 2014, and how all of it worked toward the church’s religious functions. All of this proved to be extremely important in the process because it helped show what our church did, what it planned, and what it planned to do.

Q: How did the assessor respond?

It took five years, but we reached a compromise. The church agreed to pay a portion of the property tax for the year the assessment was made. But that was significant because the assessment in full could have been for four years’ worth of property taxes.

There was criticism within the church at times because of what we were spending to deal with this. I hated the idea of an ongoing property tax dispute sapping resources that could go toward ministry. The expenses did hinder growth in our missions, staffing, and other parts of the church.

It’s an albatross similar to debt.

In the end, though, the expenses proved to be worthwhile.

Dig Deeper: Attorney and Church Law & Tax Senior Editorial Advisor Midgett Parker explains why—and how—the property tax exemption process can honor God.

Q: As you navigated the appeal, what did you and your church learn?

We learned a lot. For instance:

Urgent action at the very beginning—when the bill first arrived—probably would have helped.

Find experts, such as lawyers and real estate developers, and call upon them right away. Some may even attend your church, and if they have the right expertise, it can be a way for them to serve, especially if they haven’t found another way to serve. We found individuals like this—that was my favorite part of this process.

Keep diligent records.

For a proceeding like this, you have to gather numerous legal and property documents. When they’re kept organized and accessible upfront, everything works more efficiently.

Keep good communication going with the church’s leadership and the congregation.

Leadership especially wants to know the ministry staff knows what’s happening and has a plan.

Don’t forget the big picture.

City leaders and officials are part of the mission field, too. Be respectful in public and in private. Don’t get angry or scared—look for solutions. Don’t attack city officials—work with them. Attacking only makes officials defensive and that doesn’t help anybody. We also know we will have to work with the city in the future, whether for building codes or other issues, so we need to maintain relationships. City officials are politicians who need to serve constituents, so it’s important we understand their job. It’s also important we understand their potential need for the gospel.

Be discreet.

We didn’t go to the media about this, either. We didn’t want to shame anyone. We didn’t want to be viewed as adversarial. We also didn’t want to trigger community debate about whether churches should even receive property tax exemptions.

Becoming contentious only works against you—and for those in your community who are already adversarial toward you, it only adds more fuel to the fire.

Pay attention to unused property.

Empty parts of your church’s property can appear to be unused or irrelevant to worship purposes. Remember that the entire property doesn’t have to have buildings to still be relevant for worship purposes.

As we examined those two plats, and the challenges we faced with environmental restrictions, we realized we could create trails, a picnic area, and a disc golf course—all of which we made available for neighboring residents to use. We still use those plats for religious purposes, too. We host outdoor events, worship services, and other gatherings.

This just goes to show what can be done when you think creatively. If we could have done that sooner, it would have maybe helped avoid all of this.

Above all, good due diligence, intentionality, and consistent communication are good ways to solve this faster.

Editor’s note: This interview was edited for length and clarity.
Matthew Branaugh is an attorney and editor for Church Law & Tax.
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Navigating Cyberliability Insurance

General liability and cybersecurity insurance are not the same thing, and church leaders do well to understand the differences.

Matthew Branaugh, Attorney and Editor
Bio

As church boards and pastors work to train staff members—and themselves—to spot cybersecurity scams before they take hold, cyberliability insurance may become part of the conversation.

And churches that assume general liability policies cover cyber-related claims could be in for a rude awakening.

It’s why insurance coverage for cyber-related incidents is a growing, albeit imperfect, coverage area. Church Mutual, for instance, offers cyber liability coverage limits that typically range from $50,000 to $1 million for a claim, according to a company spokesperson. 

Cyberliability insurance is expensive

However, leaders should note that the long-term sustainability of cybersecurity insurance remains in question.

The costs for insurers to provide coverage continue to climb, and so monthly premiums are climbing, too.

Marsh, one insurance broker, reported premiums jumped 28 percent at the end of 2022. They jumped another 11 percent at the beginning of 2023, according to business news site Raconteur. As rates climb and become less affordable, insurers are scaling back the scope of policies, according to the article.

Meanwhile, the federal government is considering federal insurance for organizations that maintain minimum security standards, according to the article.

About one-quarter of all cyber-insurance claims do not receive full coverage, due to policy exclusions, according to Today’s General Counsel.

Stay on top of coverage changes

As a result, churches should regularly review what is and isn’t covered with their cyberliability coverage, said Jonathan Smith, technology director for Indiana multi-site church Faith Ministry, and an advisor-at-large for Church Law & Tax

Smith, who also advises other churches and nonprofits in technology cybersecurity issues, said carriers also have been known to push back on claim coverage dates.

One church, in particular, ran into problems regarding whether the carrier would cover a claim based on the date the breach occurred or the date it was discovered, which was months later.

The losses suffered by the church between those dates were sizable, he added, so the carrier’s initial reluctance was a major concern.

Carrier also require policyholders to demonstrate cyber readiness and security to get coverage. Any shortcomings can jeopardize coverage of a future claim, noted Rusty Goodwin.

Goodwin is an organizational efficiency expert who co-presented a July 2023 webinar for the Evangelical Council for Financial Accountability (ECFA). 

Churches also should review their directors and officers insurance, Goodwin said.

The reason: claims brought against a church after an incident sometimes name the individual church leaders as defendants.

Create a culture of compliance

Prioritizing cybersecurity goes beyond insurance, though. Training and technology play a part, too.

Churches should view cybersecurity as a matter of urgency, and such urgency starts with church leadership, Goodwin said during the ECFA webinar.

Churches become more secure when their boards prioritize it, and failure to do so may even constitute a breach of fiduciary duty by board members, he said.

Sometimes church leaders protest the perceived costs associated with building a stronger “human firewall,” and beefing up technology, said Jay Cordova, Goodwin’s co-presenter.

When that happens, Cordova reminds leaders of the actual costs should a cybercriminal ransom a church’s most sensitive data.

While no organization can guarantee 100-percent safety, “compliance as a culture” can harden the defenses of churches, Goodwin said. 
Matthew Branaugh is an attorney and editor for Church Law & Tax.
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Hacking a Church Is About Exploiting Its Weakest Link

As generative AI improves communications, church hackers are refining their tactics.

Matthew Branaugh, Attorney and Editor
Bio

Email scams on churches in Florida, North Carolina, and Ohio led to millions of dollars in losses, but they also highlight the reality that hacking a church can be about human behavior as much as technology.

Contrary to Hollywood-produced stories, sophisticated work from a remote location to access a victim’s network or computer isn’t what leads to most breaches, says Jonathan Smith, technology director for Indiana-based Faith Ministries, a multisite church.

“‘Hacking’ is a misnomer,” Smith says. “It’s the user usually unwittingly enabling the bad actor.”

AI is making hacking a church easier

Phishing remains the most common tactic, but generative artificial intelligence (AI) is making it harder to spot. Using chatbots, bad actors create error- and typo-free messages, says Allison Ward, a partner with CapinTech.

“Bad actors follow what we do,” Ward tells Church Law & Tax. “They do what we do, and do what’s normal to us, to get us to fall victim.”

Part one and part two of a webinar Allison Ward co-presented on security controls is available from CapinTech.

“The tricks haven’t changed. The methods haven’t changed,” Smith adds. “But now, AI makes the playing field level.”

Phishing, Vishing, SMSishing …

Some of the more common tactics include:

Phishing

An email sent to the victim appears to come from a familiar sender. Examples include an online retail website or the security team of a social media platform. The message sounds dire, It also instructs the recipient to take immediate action by clicking on a link or opening an attachment. Either option might contain malicious code, potentially infecting the victim’s computer. Or the messages may redirect the victim to an official looking page that then captures sensitive information shared by the victim.

Spear Phishing

This is the same as a phishing attempt, except the email appears to come from someone the victim knows. The email may include specific instructions to coax the victim into doing something—send electronic gift cards, change routing information for making payments.

Vishing

A voice mail that uses similar messaging as a phishing email or spear phishing email. Generative AI can mimick the voice of someone the victim recognizes to make the message sound legitimate.

SMSishing

A phishing or spear phishing attempt sent via text message to a victim’s mobile phone instead of email.

Ransomware

A phishing or spear phishing attempt containing malicious code in a link clicked by the victim or an attachment opened by the victim. The code enables a criminal to access systems and files and hold them ransom. Generative AI now allows bad actors with little programming experience to create ransomware. This means increased attempts are likely to come.

Multifactor workarounds

A bad actor obtains the victim’s password to a site or system, either through a breach unrelated to the victim, or through a victim’s weak password. The victim’s church uses multifactor authentication (MFA), a commonly used best practice in which a code is sent via email or text to confirm the victim’s identity. The bad actor has the site or system send the victim repeated MFA requests. Then, the bad actor sends an email or text claiming to be from the church, asking the victim to send the MFA code.

Download and share this glossary of hacker tactics with your church staff, pastors and other key users:
Glossary of Hacker TacticsDownload
Matthew Branaugh is an attorney and editor for Church Law & Tax.
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Church Cybersecurity Starts With the Human Firewall

While external threats are real, church cybersecurity starts with strong internal processes and education, experts say.

Matthew Branaugh, Attorney and Editor
Bio

An attack on church cybersecurity rarely comes at the right time, is rarely designed to be easily spotted, and is likely geared at exploiting human vulnerabilities, not firewalls or technological safeguards.

At Lafayette, Indiana-based Faith Ministries, the threat arrived in a staff member’s email inbox a few minutes before an early-morning worship service one Sunday this spring.

“I’m praying with some people,” the pastor wrote, adding he needed the staff member to send him several electronic gift cards for the people he was praying with.

Suspicious, the staff member flagged the email. He later learned the email really came from an outside party attempting to defraud the multisite church.

The human firewall

Jonathan Smith, Faith Ministry’s technology director and an advisor-at-large for Church Law & Tax, says the attack revealed just how well-versed some cybercriminals are in the normal routines and rhythms of the local church:
  • The sender knew the pastor’s name to pose as him.
  • The email described activities commonly occurring on a Sunday morning.
  • The email arrived just before the service started, a moment many church staff members might rush a response rather than verify it.

Thankfully, Smith’s colleague thought twice.

And that’s the key lesson in the never-ending fight against cyber fraud: people, not just technology, are the best defense.

While hardware and software defenses, technological best practices, and even cyberliability insurance, play important roles, training and education can go furthest toward minimizing susceptibilities at every church, technology and security experts say.

“The human firewall is our only hope,” Smith says.

Attacks are on the rise

Several high-profile church cybersecurity breaches have made recent headlines.
  • The Florida Baptist Convention had $700,000 stolen in early 2023 after an email purporting to be from the Southern Baptist Church’s North American Mission Board instead proved to be fraudulent. The instructions in the email tricked convention employees into changing account information for routing funds.
  • In late 2022, a North Carolina church received an email containing a bill, along with new electronic payment instructions, from a party posing as its building contractor. Nearly $800,000 was lost.
  • Another email scam in 2019 cost an Ohio Catholic church $1.7 million after criminals accessed email accounts of parish employees and then sent emails instructing them to change payment information for a construction contractor.

Training and educating

Educating and training church pastors and staff members about these types of tactics—and how they continue to evolve—is critical, says Allison Ward, a partner with CapinTech, a division of church and nonprofit accounting firm CapinCrouse.

Part one and part two of a webinar Allison Ward co-presented on security controls is available from CapinTech.

Repeating this training and education frequently is needed, too, adds Nick Vaernhoej, chief information security officer for Church Mutual Insurance Company, the largest insurer of US houses of worship. While criminal tactics mostly remain the same, the methods for accomplishing them rapidly shift.

The ways the tactics are adapted to trick recipients “change month by month,” Vaernhoej says.

‘Low-tech’ solutions

Building a strong human firewall is about getting people to:
  • Stop before they respond
  • Evaluate what’s happening
  • Take steps to verify what’s being requested through some other form of communication

“In my experience, the best methods for addressing ‘high-tech’ threats are typically ‘low-tech’ in nature,” Vaernhoej says. “For instance, some type of manual verification system, such as placing a phone call to the requester before releasing the funds requested.”

Smith agrees, adding a live confirmation before changing a payment method or process or releasing any funds is a must. Churches should adopt policies requiring live verifications, he adds, noting a live call, live video call, or in-person conversation should be used.

“AI can now mimic voices, so don’t rely on a voicemail left in tandem with an email,” Smith says.

At Faith Ministries, ongoing training comes multiple ways. The church partners with an outside vendor who sends about four test messages per week to staff members. These message are designed to trick an employee into clicking a link or opening an attachment. Those who fail get follow-up messages and tips.

Periodic staff wide training sessions also occur, Smith says.

KnowBe4—the vendor Faith Ministries uses—charges $3 per user per month. As Smith—who also consults for churches and ministries through his company, MBS Inc.—advises other churches to do the same, he frequently encounters resistance.

“How do we communicate the urgency for this? It’s such a simple thing to solve, it’s inexpensive to solve, and yet few are willing to do it,” Smith says.

Setting solid standards

Meanwhile, established standards for good hardware, software, and security protocols are available through the National Institute of Standards and Technology (NIST). These are especially helpful for technical specifications related to firewalls, network security, virtual private networks, password management, and encryption.

Ward and Vaernhoej offer these best practices:
  • Take inventory of the devices and software your church uses. Take inventory of the people who possess them (as well as have access to networks).
  • Keep up on security patching released by hardware and software vendors.
  • Require regular password management and institute multifactor authentication (MFA) preferably through an app-based option from Okta, Microsoft, or Google. This cuts down on the multifactor workarounds that bad actors use with text- and email-based options.
  • Use an email filtering solution. Work to balance the sensitivity levels to screen out problem messages while still allowing legitimate ones. Microsoft’s Office365 and Gmail’s cloud email options, work well for small and large operations. Both offer in phishing and malware prevention techniques.
  • Use combinations of complementary tools to boost overall security. A good example? Pairing a content filtering firewall with antivirus software. This simple mix of foundational tools will stop many problems before they can cause any damage.
Matthew Branaugh is an attorney and editor for Church Law & Tax.

AG Investigations into Churches and Nonprofits Are on the Rise

AG investigations can lead to both civil and criminal penalties. What triggers such investigations, and how can your church be prepared?

Dustin Gaines, Attorney

While the Internal Revenue Service is seen as the primary watchdog to the nonprofit world, attorneys general also can investigate nonprofits, and AG investigations into nonprofits and churches are on the rise.

This may be surprising, but in most states, attorneys general not only have the power to investigate nonprofits and churches, but they also have the power to render civil and criminal penalties and prosecute and remove board members.

In one non-church nonprofit matter in Minnesota, the attorney general even petitioned to dissolve a nonprofit.

There is certainly an overlap between an attorney general and the IRS’s involvement in investigating churches and nonprofits for financial concerns, but it seems that the attorney general’s offices are picking up in areas where the IRS is not.

Under IRS regulations, the IRS must have a “reasonable belief”—with evidence—that wrongdoing is occurring.

However, “reasonable belief” is not a requirement for attorneys general.

In our law practice—exclusively devoted to representing churches and nonprofits—this has been the fastest-growing trend in years.

From 2010 through 2022, we only saw a handful of these investigations. They predominantly focused on non-church nonprofit organizations.

Since fall 2022, though, we have represented churches and nonprofits in more than a dozen attorney general investigations.

What triggers an attorney general investigation?

Just as Scripture refers to money as the root of all evil, in the nonprofit compliance world, money is indeed the root of all state attorney general investigations.

Due to the potential for fraud, state attorneys general are very interested in how church boards handle money provided by the citizens of their states.

The online complaint process is simple, and can trigger an investigation for reasons that include, but are not limited to, the following:
  • Loans to directors and officers: In many states—such as Florida, Tennessee, New York, and California—it is illegal for a church to loan any money to individual board members. This may even include using church credit cards for personal purchases and reimbursing the church later, which amounts to short-term loans. There are serious legal consequences here for what essentially amounts to the comingling of church and personal funds.
     
  • Misuse of ministry-owned housing: Problems occur in this area when a board member—most often a pastoral staff member—lives in ministry-owned property but does not have a housing allowance set up or in place, and the church does not report the value of the ministry-provided housing on individual tax returns.

  • Questionable expenditures potentially in violation of tax laws: When an attorney general receives a complaint that a board member is personally benefitting, the law treats this as “inurement” (improper personal financial gain from the nonprofit).

Red flags
  • Personal clothing purchases
  • Excessive travel expenses that appear to be personal
  • Personal expenses (food, medical treatment, and other similar items)

Impropriety Related to Unrelated Business Income (UBI): Revenue generated by your church that appears to be substantial and not closely related to its exempt purposes may trigger unrelated business income taxes. Correct legal and accounting counsel on how to properly set up and facilitate your ministry’sUBI is critical. Improperly structuring multi-entity ministries—especially if UBI is involved and board members are involved in the process—can have dire consequences and present the appearance that the church is funneling money to the personal business endeavors of the church’s directors.

What does an attorney general investigation look like?

With an increase in these investigations, church leaders may wonder what to expect if one arises.

At the preliminary stage, there is a unique and limited opportunity to directly refute charges and provide the necessary evidence to do so.

But suppose the investigator sees that the organizational and legal health of the church is in disarray. In that case, it is a sure bet that the attorney general’s office will begin to investigate. At this juncture, this could be a criminal investigation into individual board members. It could also be a civil matter against board members and/or the entity, or a combination of both.

In all matters, hiring competent legal counsel to represent your organization throughout the investigation is critical.

If the matter is potentially criminal, the attorney general will have the option to investigate and present the findings to a grand jury for indictment. In lieu of indictment, some states may allow the church the opportunity to hire its own forensic auditor (holding certified fraud examiner (CFE) and/or certified financial fiduciary (CFF) certifications) to provide an independent report as to whether financial malfeasance occurred.

These audits often require $50,000 to $100,000 to complete. It’s expensive, but it’s better than a criminal indictment. And the state may still choose to indict depending on the findings.

Train your staff on how to avoid—and spot—financial misconduct with the help of Church Law & Tax’s “Safeguarding Your Church’s Finances”— an online course led by CPA Vonna Laue geared for church board members, pastors, church administrators and financial leaders, and even volunteers.

How can my church be prepared for an attorney general investigation?

Our firm has yet to encounter a board involved in an attorney general investigation that had been properly trained on:

Focus on the following areas to reduce the risk of a lengthy investigation:

Board member training covering fiduciary duties, oversight responsibilities, and understanding your church’s governing documents and board policies. Every new board member should also receive this training. Proper board disciplines should include—but not be limited to—keeping accurate minutes and board member recusal of voting as it relates to conflicts of interest.

Written board policies and procedures that promote legal and financial integrity such as:
  • Conflict of interest policy
  • Independent compensation policy
  • Confidentiality policy
  • Restricted funds policy
  • Policy prohibiting cash structuring

Simply ensuring your board members have this information and understand their roles will virtually eliminate this risk.

Dustin Gaines is a pastor and a lawyer who is a partner with My Church Law Firm in Texas. Dustin specializes in litigation related to churches, schools, and religious non-profits.
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Wheaton Bible Church’s outside-the-box approach to compensation

Wheaton Bible Church’s compensation philosophy blends a competitive approach with a focus on employee well-being and development.

Scott Landon, Former Executive Pastor of Administration
Bio

Wheaton, Illinois-based Wheaton Bible Church is working to ensure all 114 pastors and employees feel valued and appreciated as it seeks to serve others.

As executive pastor of administration, I’m responsible for setting staff salary and benefit plans that help achieve that goal.

Toward that end, Wheaton Bible Church’s philosophy spells out how the church will attract, retain, motivate, and reward the most qualified people it can find while also encouraging those same people to grow in their ministry careers.

Follow CPA Elaine Sommerville’s four-step process for determining salaries

The compensation practice strives to be consistent with generally accepted biblical truths and practices.

To do this, the church sets salaries based on position classifications, which in turn are set based on job responsibilities, then compares those salaries to other, comparable evangelical churches each year.

Scott Landon shares a few helpful tips with Church Law & Tax’s Matt Branaugh related to setting church compensation:
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Staying competitive

The church’s goal is to remain competitive and, in the past two years, Wheaton Bible has been able to:
  • Give each employee a raise.
  • Give most employees a bonus in February 2022 and February 2023.
  • Give every employee a Christmas gift in December.
  • Provide each benefit-eligible employee an additional holiday in December 2022 and an additional holiday on July 3, 2023.
  • Maintain health care premium costs in 2022 and for two of our three health insurance plan options in 2023, and kept dental premium costs flat in both 2022 and 2023 for singles and couples, with just a $5 per month increase for family coverage.

Other “wins” include:
  • Increasing anniversary gift awards at the 5-year intervals.
  • Providing additional vacation days for 10-14 years of service.
  • Approving a long-term service retirement gift policy.

But, beyond all that, Wheaton Bible also offers other benefits to full-time employees, including:
  • Remote work one day per week.
  • Flexible schedules to allow better work-life balance.
  • Paid time-off for holidays, vacation, personal, and sick days.
  • Discounts at preschool and ministry events.
  • Health care and dental insurance. On average the church pays 80 percent of the premiums.
  • A Health Savings Account and Flexible Spending Account that allow the cost of medical and dependent care to be minimized through tax-free dollars.
  • The church contributes five percent of employee compensation and matches up to another two percent into a 403b account.
  • The church pays half of a full-time employee’s Social Security insurance and 100 percent of the cost of life, long-term disability, and workers’ compensation insurance.

Wheaton Bible Church: Shepherding the shepherds

In addition, Wheaton Bible’s board established a long-term service retirement gift policy, and a shepherding program whereby elders are assigned three staff members to care for on a quarterly basis.

The church also celebrates full- and part-time employees with benefits upon achieving five-year milestones by offering monetary bonuses and an additional day of paid time off (PTO) per five-year milestone. For a 15-year employee, that translates into a financial gift plus three additional days of PTO during the anniversary year.

Bonuses

Wheaton Bible has expanded bonus pools to all full-time employees and several part-time employees, along with a letter of appreciation for their work that includes a compensation and benefits summary reflecting the church’s investment in them.

Weekly prayer meetings

The church’s senior pastor doubled weekly staff prayer meetings to 60 minutes and includes singing and readings from the Psalms with time for individual reflection.

These meetings also include a time of prayer as tables come together to share ministry and personal needs, along with those offered from the congregation. Table assignments change every two months. A 15-minute time for fellowship and snacks follows each prayer meeting.

Monthly staff lunches

Monthly staff lunches offer individual staff members a chance to share their spiritual journeys. They’re also a good time to provide updates on church matters. Meanwhile, pastors meet monthly to read and discuss a specific book as part of an overall investment in theological growth.

The senior pastor is also engaging employees through lunch meetings with each ministry area. This is a time to ask questions, check-in, and receive input.
Scott Landon is the executive pastor of administration for Wheaton Bible Church in Illinois, where he oversees day-to-day operations.

Yes, Ministries Should Embrace AI

AI is a tool that, if used properly, can advance ministry.

Jonathan Smith, IT Director and Consultant
Bio

There is no doubt that artificial intelligence (AI) has been a significant technological advancement and will continue to revolutionize our lives, with some suggesting AI is to this generation what dial-up internet was to the prior generation. 

But with artificial intelligence comes many questions.

Is it safe?

Can it be trusted? 

And will AI lead to the destruction of life on our planet?

In many ways, our sci-fi imaginations get the better of us: Is AI the Terminator come to life? Have we finally built Mr. Data from Star Trek: The Next Generation? When can I order my first C-3PO droid from Amazon?

Plug in and listen to Church Lawyer Erika Cole tackle how AI intersects with the church.

Think critically about AI

But the more constructive question for church leaders is this: How will AI affect churches and ministries? 

One thing to remember: Artificial has been around for a while and has been used in the form of algorithms to process data and determine outcomes. Algorithms determine our social media feeds, protect our bank accounts and personal information, and even help with traffic management.  

As the algorithms get “smarter,” the appearance of intelligence emerges. Add to that the ability to tackle more complex, subjective questions, such as “Which national park is the best?” and the algorithms behind AI begin to give it the appearance of discernment.

But AI can’t discern. Remember, the data from which it draws its conclusions was provided by humans that may not always agree and are often filled with biases. So, while artificial intelligence does its best with what it has, we’ve found it to be extremely flawed.

You remember the adage, Garbage in equals garbage out? It’s still true. But with AI, the scale makes finding the garbage a challenge, and the subjective nature of what one human programmer views as garbage compared to another programmer’s view further complicates the effectiveness.

It harkens to the early days of the internet when we emphasized that not everything you read online is true. 

Now, the emphasis is on reminding people that, not only is the internet not the ultimate source of truth, but neither is social media—and neither is AI.

Embrace AI, do not fear it

How does all of this affect ministries? 

First, there is no need to be scared. Artificial intelligence is not life—only God can create life. No amount of programming or algorithms can change that. AI can only mimic the creative process.

Second, you can’t always trust it.   Phishing scams and get-rich-quick schemes flourish because we believe what we see online. You don’t know if there is another human trying to scam you or another human using AI to make the scam more complex, but you can’t naively trust AI. 

Third, ministries should embrace AI.  (Yes, you read that correctly.)

Churches and ministries should not run and hide just because AI poses risks. Instead, they should use AI, as they hopefully use other technology, for ministry effectiveness.

Convene conversations around AI

AI offers numerous ministry opportunities. Instead of fearing it, use it as a discipleship opportunity.

Sure, your theology will come into play when evaluating artificial intelligence, but is your church teaching about it with any theological depth? 

Does all this talk of gen AI have you thinking about other IT-related issues? Consider picking up a copy of Nick Nicholaou’s “Church IT.”

Have you considered community events to teach the good and the bad? What about teaching basic online safety, including code words to avoid child voice scamming, or that using AI—or any other method—to cheat on one’s homework is a sin?

I assure you: I typed what you are reading here. But how do you know? How would a school know? Even AI tools used to detect AI-created content had to be shut down because the tools failed more than 60 percent of the time.

In many cases, AI should be an opportunity for the church to look deeper at itself, both beneath the steeple and outside the walls.

AI’s undeniable power

Meanwhile, the power of AI is undeniable and creates questions and concerns.

Its ability to generate lifelike videos is amazing. 

The benefits to church production in not having to record your pastor literally saying every word, but rather, setting up an AI version so you can improve efficiency is incredible.

The sin-cursed side of this is, what happens when the pastor leaves and the church holds on to the likeness and makes it say things the pastor would never say? This side of heaven, powerful technology must be applied through the lens of the Bible.

At a more individual level, what happens when artificial intelligence is used to fake the voice of one of your children calling for help when your child is safe? Social media is another powerful technology that can be used for good and evil. The video you posted of your child giving a speech can also be used to get a sample of a child’s voice that, in turn, could be used to scam you through emotional distress. 

The world is constantly changing. We need to teach that the Bible is forever, providing a strong theological foundation so that, whatever comes next, our people are ready to handle it in a Godly manner. None of these technological developments surprised God, but do we really believe and teach that? The Bible teaches the need to discern right from wrong, and yet we are not teaching that same discernment online.

Using AI to strengthen ministry

Other benefits for churches involve data collection and analytics. I’ve written about the data that churches collect and how to keep it safe, but what about using AI to better evaluate that data? Data is fine, but it’s what you do with the data that really matters.

Artificial intelligence can be an ally in this effort by going through data and providing useful information from which to make decisions.

Using AI to help close the proverbial “ministry back door”where people stop attending before leaders realize it. AI can help us better evaluate attendance patterns and changes in involvement, even comparing attendance with giving trends. This information might help us understand who is at risk for leaving the church or struggling in a manner that a call or visit might prove fruitful. What used to be complex and take hours can now be simplified and assessed in real time. 

Copyright and defamation concerns

We have a long way to go to catch up with the advancements artificial intelligence has provided and the law lags these advancements, too. AI has quickly outdated copyright laws. Personal privacy and intellectual property lawsuits are just starting to head to court. Defamation cases are being filed. But in these cases, who’s to blame? The AI? Or those who programmed the AI? The decisions to come will reshape how we know and understand the use of this technology even in church contexts.

Stewarding AI for good

I’m excited about AI’s potential for affecting the Kingdom. 

But, whether with AI, social media, digital projectors, microphones, cameras, or anything else, all new technology requires responsible use. 

Microphones are great, but if you don’t know what you are doing, they will cause piercing feedback. artificial intelligence is also great, but if you don’t know what you are doing, and you aren’t willing to learn, the scale of the feedback could be destructive. 
Jonathan Smith is director of technology for Faith Ministries in Lafayette, Indiana. He is also president of MBS, Inc., a provider of technology services that exclusively serves churches and ministries. He is a published author and a frequent speaker at conferences.
Image: Vasil Nazar

Key Tax Dates September 2023

Key tax dates for September 2023 include quarterly estimated payments and monthly or semiweekly requirements.

Richard R. Hammar, Attorney, CPA
Bio

Monthly requirements

If your church or organization reported withheld taxes of $50,000 or less during the most recent lookback period (for 2023, the lookback period is July 1, 2021, through June 30, 2022), then withheld payroll taxes are deposited monthly. Monthly deposits are due by the 15th day of the following month.

Note, however, that if withheld taxes are less than $2,500 at the end of any calendar quarter (March 31, June 30, September 30, or December 31), the church need not deposit the taxes.
Download your .pdf copy of the 2023 Church & Clergy Tax Guide today!

Instead, it can pay the total withheld taxes directly to the IRS with its quarterly Form 941. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.

Semiweekly requirements

If your church or organization reported withheld taxes of more than $50,000 during the most recent lookback period (for 2023, the lookback period is July 1, 2021, through June 30, 2022), then the withheld payroll taxes are deposited semiweekly.

This means that for paydays falling on Wednesday, Thursday, or Friday, the payroll taxes must be deposited on or by the following Wednesday. For all other paydays, the payroll taxes must be deposited on the Friday following the payday.

Also note that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day.

The deposit days are based on the timing of the employer’s payroll.

Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.
Download and print a copy for your records.Download

September 15, 2023: Quarterly estimated tax payments for certain employees and churches

Filing for certain ministers and self-employed workers

Ministers (who have not elected voluntary withholding) and self-employed workers must file their third quarterly estimated federal tax payment for 2023 by this date. A similar rule applies in many states to payments of estimated state taxes.

Nonminister employees of churches that filed a timely Form 8274 (waiving the church’s obligation to withhold and pay FICA taxes) are treated as self-employed for Social Security, and as a result are subject to the estimated tax deadlines with respect to their self-employment (Social Security) taxes unless they ask their employing church to withhold an additional amount of income taxes from each paycheck that will be sufficient to cover self-employment taxes. Use a new Form W-4 to make this request (the additional withholding is reported on line 4(c)).

Payments for unrelated business income tax liability

A church must make quarterly estimated tax payments if it expects an unrelated business income tax liability for the year to be $500 or more. Use IRS Form 990-W to figure your estimated taxes. Quarterly estimated tax payments of one-fourth of the total tax liability are due by April 18 (April 19 if you live in Maine or Massachusetts), June 15, September 15, and December 15, 2023, for churches on a calendar-year basis. Deposit quarterly tax payments electronically using the Electronic Federal Tax Payment System (EFTPS).

Note: If a date listed for filing a return or making a tax payment falls on a Saturday, Sunday, or legal holiday (either national or statewide in a state where the return is required to be filed), the return or tax payment is due on the following business day.

Note: You must use electronic funds transfer to make all federal employment tax deposits. This is generally done using the Electronic Federal Tax Payment System, a free service provided by the US Department of Treasury. If you don’t wish to use EFTPS, you can arrange for your tax professional, financial institution, or payroll service to make deposits on your behalf. Failure to make a timely deposit may subject you to a 10-percent penalty.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
Image: Getty/Westlight

How Churches Can Leverage Higher Interest Rates

Higher interest rates offer churches an opportunity to adopt new cash- and debt-management strategies.

Tim Samuel, CPA and Church Chief Financial Officer
Bio

In an era of higher interest rates, it is essential for churches to adopt new cash- and debt-management strategies. 

Seek an increase in savings, money market interest rates

A good first step for churches is to request an increase in the interest rate on their bank’s savings or money market accounts.

By negotiating better rates, churches can see higher yields in support of their mission. 

Beyond that, reassessing cash management strategies is key when interest rates are high.

Get strategic about cashflow

One effective approach is to redirect cash held in an operating account to savings or money market accounts.

Try to place all cash not needed to pay bills in the next 14-30 days into accounts that gain a higher interest rate. Strategically managing cash flow means a church can strike a balance between accessible funds for day-to-day expenses and maximizing the interest earned on their reserves.

Pick up a copy of “Church Finance: The Church Leader’s Guide to Financial Operations,” today at the Church Law & Tax store.

Beef up reserves

Churches looking to build up reserves for future projects should consider investing in bonds or bond mutual funds.

The Federal Deposit Insurance Corporation (FDIC) insures deposits of up to $250,000 per depositor, per insured bank.

If the church leaves its cash reserves in one bank, though, it exposes them to risk without the benefit of a higher potential interest rate (banks do not typically pay high interest on cash savings). Instead, investing in bonds or bond mutual funds enables the church to possess investments with a low risk profile but higher returns than cash.  

Bonds typically offer higher interest rates compared to traditional savings accounts, making them attractive investment vehicles.

By carefully selecting bonds based on risk tolerance and investment objectives, churches can secure steady income streams and potentially grow their money to keep up with the rising cost of construction.

Before investing in bonds, be sure you have your board write an investment policy with the advice of a financial professional.

Higher interest rates and debt paydowns

Some churches enter swap agreements with financial institutions—contractual arrangements that typically exchange cash flow or liabilities from two different financial instruments.

For churches with existing swap agreements on their loans, higher interest rates may present an opportunity to pay down debt. Analyze the terms of the swap agreement and consider reducing the outstanding debt if it is advantageous.

In some cases, churches may find themselves in a favorable position, allowing them to receive payments from investors when paying down their debts.  

Again, though, be sure to seek professional advice before moving forward with such a strategy. 

A word of caution

Though higher interest rates may be advantageous for certain financial strategies, it is crucial for churches to exercise caution when taking on additional debt. Rather than focusing on increasing debt, it is advisable to undertake projects that align with the congregation’s regular patterns of giving. 

Capitalizing on higher interest rates will require some strategic thinking and execution. However, it is essential to remember that every church’s financial situation is unique, and professional advice is crucial for tailoring strategies to specific needs. 

Tim Samuel is a CPA and the chief financial officer of Bridgeway Community Church, a nondenominational, multicultural church in Columbia, Maryland, that draws more than 4,000 people each week.
Image: Getty/imaginima

Tackling Big-Ticket Repairs on a Housing Allowance

So, you’ve done the hard work of setting a housing allowance and, SURPRISE!, the septic tank fails. What now?

Ted Batson, CPA and Tax Attorney
Bio

Q: Unplanned repairs are part of homeownership. What can a church do to help with a big-ticket repair that wasn’t anticipated when designating the pastor’s housing allowance?

Let’s assume we’re talking about an $8,000 septic tank replacement. Let’s say the church agrees to increase the housing allowance for the remainder of the year by $8,000. Either the church can designate an additional $8,000 out of the pastor’s salary as housing or the church can give the pastor the $8,000 and call it housing-related.

From a tax perspective, it’s unlikely either approach will actually help.

Why? To understand, it’s necessary to understand how the housing allowance works.

A calculation game

The amount a pastor is allowed by the Internal Revenue Service (IRS) to exclude from income tax as a housing allowance is the smaller of three separate numbers:
  1. The amount the church designates as a housing allowance;
  2. The actual amounts expended on housing during the year, including mortgage payments, property insurance, property tax, utilities, repairs and maintenance, and furnishings; and
  3. The annual fair rental value of the home, plus utilities, plus furnishings.

Returning to the example above, assume that, regardless of which way the $8,000 is handled, the church designated a total housing allowance for the year, including accounting for the septic tank, of $40,000.

Other assumptions

Let’s further assume that, at the end of the year, the pastor adds up all of his or her actual housing expenses and the total is $31,000, plus the $8,000 septic tank repair, for total actual housing expenses of $39,000.

Finally, the pastor consults with a local real estate agent and determines that the annual fair rental value of his or her home, including the effect of the new septic system, is $25,000. Add to this amount an additional $3,600 in utilities and $2,400 in furnishings, and the fair rental value, plus utilities, plus furnishings is $30,000. This amount is well below the actual expenditures (when the septic tank is factored in) and the designated housing allowance amount.

The moral of the story is that the fair rental value, plus utilities, plus furnishings is always going to be a hard cap in terms of how much a pastor can exclude from income tax. That’s because this calculation usually comes in as the lowest of the three figures that need to be calculated. As this example illustrates, designating an additional amount as the housing allowance had no impact on the amount the pastor could actually exclude from tax.

‘Better than a stick in the eye’

Here’s another common example: A pastor wants to add a second story to a home at a cost of $60,000. Let’s say this pastor is making $150,000 a year, of which $40,000 is designated as housing allowance. The pastor comes back to the church and asks the church to bump up that housing allowance from $40,000 to $100,000. That may help to a degree, because a two-story house is going to have a higher fair rental value than a one-story house.

But the pastor is not going to get the full benefit that he or she anticipated getting because the fair rental value calculation still will come in below $100,000.

So, does this mean a big ticket expense is not going to really benefit a pastor?

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As my dad would say, it’s better than a stick in the eye.

But the pastor ordinarily is not going to be made whole in the process from a tax benefit perspective. Subject to the general requirement that a church (or any nonprofit organization) not pay its key employees excessive compensation, the church can still provide more money to the pastor in response to the need. It just means the pastor will pay income tax on the added amount.

Also, in the above example, the church must also consider the reasonableness of the pastor’s overall compensation before providing more money.

Timing also matters

Remember a couple of additional things about how the housing allowance works.
  1. The housing allowance is always a prospective thing. The church must always award or pass a resolution to give a pastor a housing allowance on a prospective basis. It can never be applied retroactively.
  2. When changes to the allowance are needed mid-year, those changes also only take place going forward.

Something attorney and senior editor Richard Hammar deals with in the annual “Church and Clergy Tax Guide” is that we don’t have a lot of guidance from the IRS that explains whether a pastor has to have a match between the time he or she incurred expenses and the time he or she gets paid the allowance.

So, consult with a tax advisor.

Hypothetical scenario:

Let’s say a large church adds a new pastor midway through last year. Unfortunately, the church forgets to formally set the new pastor’s housing allowance for the first three months of the new year. In that scenario, the pastor has made several mortgage payments in the new year without the benefit of the allowance. So, the question becomes whether those mortgage payments are countable in the housing costs for the year. The answer? Consult your tax advisor.

Either way, the pastor should understand the mortgage payments may not be able to be claimed.

Again, that’s something the pastor and the pastor’s tax advisor must work out.

On the church’s side, I always tell the church, ‘Hey, you were going to give this (pastor) a $20,000 housing allowance and you didn’t do it in the first six semi-monthly pay periods of the year … let’s take that $20,000 and divide it into the remaining payrolls.’

By doing that, we’re giving the pastor the opportunity to decide, in consultation with a tax advisor, whether he or she wants to include those three months of housing expenses.

Q: Can a church declare 100 percent of a pastor’s compensation to be a housing allowance?

There is no legal impediment to do so, although it’s not advisable.

That’s because you’re relying on the pastor and his or her tax advisor to know the rules and exclude the proper amount. You’ve set them up to make a mistake.

In addition, if you offer benefits, such as health insurance for which the pastor must pay a portion, a healthcare flexible spending account, or a 403(b) plan with elective deferrals, the pastor must have cash salary, not housing allowance, from which to deduct these withholdings.

So, as a practical matter, declaring 100 percent of a pastor’s compensation to be a housing allowance would compromise participation in these benefit programs.
Ted R. Batson Jr. is a CPA and tax attorney, and serves as a partner and Professional Practice Leader – Tax for CapinCrouse LLP, a national CPA and consulting firm. He speaks and teaches frequently for national conferences and organizations on exempt organization and charitable giving matters.
Image: Vasil Nazar

Key Tax Dates August 2023

Key tax dates include filing Form 941, and meeting certain monthly or semiweekly filing requirements.

Richard R. Hammar, Attorney, CPA
Bio

Monthly requirements

If your church or organization reported withheld taxes of $50,000 or less during the most recent lookback period (for 2023, the lookback period is July 1, 2021, through June 30, 2022), then withheld payroll taxes are deposited monthly. Monthly deposits are due by the 15th day of the following month.
Download your .pdf copy of the 2023 Church & Clergy Tax Guide today.

Note, however, that if withheld taxes are less than $2,500 at the end of any calendar quarter (March 31, June 30, September 30, or December 31), the church or organization need not deposit the taxes.

Instead, it can pay the total withheld taxes directly to the IRS with its quarterly Form 941. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.
Key Tax Dates Aug. 2023Download

Semiweekly requirements

If your church or organization reported withheld taxes of more than $50,000 during the most recent lookback period (for 2023, the lookback period is July 1, 2020, through June 30, 2021), then the withheld payroll taxes are deposited semiweekly.

Tip: Wondering if you’ve missed any key tax dates so far this year, visit our Tax Calendar to read (and download) each of our 2023 key tax date updates. all 2023 key tax dates.

This means that for paydays falling on Wednesday, Thursday, or Friday, the payroll taxes must be deposited on or by the following Wednesday. For all other paydays, the payroll taxes must be deposited on the Friday following the payday.

Note further that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day. The deposit days are based on the timing of the employer’s payroll. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.

August 10, 2023: Employer’s quarterly federal tax return—Form 941

Churches having nonminister employees (or one or more ministers who report their federal income taxes as employees and who have elected voluntary withholding) may file their employer’s quarterly federal tax return (Form 941) by this date instead of July 31 if all taxes for the second calendar quarter have been deposited in full and on time.

Note: If a date listed for filing a return or making a tax payment falls on a Saturday, Sunday, or legal holiday (either national or statewide in a state where the return is required to be filed), the return or tax payment is due on the following business day.

Note: You must use electronic funds transfer to make all federal employment tax deposits. This is generally done using the Electronic Federal Tax Payment System, a free service provided by the US Department of Treasury. If you don’t wish to use EFTPS, you can arrange for your tax professional, financial institution, or payroll service to make deposits on your behalf. Failure to make a timely deposit may subject you to a 10-percent penalty.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
Image: Getty/Constantine Johnny

Crafting a Church Employee Discipline Process

An employee discipline process is a solid first step addressing performance-related issues.

Frank Sommerville, Attorney, CPA
Bio

Last Reviewed: February 3, 2025

Crafting and implementing an employee discipline process at your church is does not demonstrate poor confidence or some admission of anticipated failure. Rather, it is a way of building solid ground rules for when employee performance issues inevitably arise.

Every employer has the best of intentions when they hire someone, and employers always try to hire the most qualified individuals who will fit within the employer’s culture and immediately exceed expectations. Churches are no exception.

But the reality is some new employees do not perform—or fit in—as expected. Other employees miss the mark even years after their start dates.

Whether the “nirvana” of a new hire fades, a veteran employee begins repeatedly falling short, personality conflicts arise, or an outside factor—such as an arrest—surfaces, the employer must address poor performance or missed behavioral standards.

Here’s what to do when discipline is needed.

Employee discipline requires solid ground rules

A church should first clearly communicate the rules it intends to enforce against employees who fail to meet expectations.

The job description and employee handbook establish these expectations. The job description describes performance expectations of the position, while the employee handbook describes the behavioral rules applicable to all employees.

Caution. When the church communicates through job descriptions and an employee handbook, it must be careful not to unintentionally create a contractual obligation with employees.

The employee handbook should also contain the disciplinary rules applicable to all employees.

Employee discipline begins by addressing minor infractions and progresses to more serious ones.

A typical employee handbook provision might say:

Violation of church policies and rules might warrant disciplinary action. Forms of discipline that the church may elect include verbal corrections, written warnings, final written warnings, and/or suspensions and terminations. The system is not formal, and the church may, in its sole and absolute discretion, deviate from any written disciplinary policy and utilize appropriate forms of discipline under the circumstances, including immediate termination. The church’s disciplinary policy does not limit or alter the employee’s at-will status.

Disciplinary systems

While a progressive discipline system remains the most popular disciplinary system, smaller employers frequently favor a corrective disciplinary system.

In other words, the supervisor selects the type of discipline based on the facts and circumstances of the situation. While this system is more flexible than the progressive discipline system, churches must use extra caution to ensure that similarly situated employees get treated similarly.

Read more about how a religious school could be sued for unlawfully terminating the employment of an unmarried pregnant teacher after the court determined the school lacked a policy regarding sex outside marriage and failed to investigate past treatment of similarly situated employees accused of similar conduct.

The disciplinary system also should avoid certain words that require a church to act in a certain way.

When an employee fails to meet expected levels of performance or behavior, the church typically uses one of four types of discipline.

Verbal counseling. This method allows the supervisor to address the issue immediately with the employee. In every case, the supervisor should create a written memo or note for placement in the employee’s file. This documentation is critical. If it is not in the employee’s file, it is as if the issue never happened.

Written warning. The supervisor should meet with the employee and another employer representative to discuss the issue. The church should allow the employee to review the formal written warning. The written warning should have a place for the employee to sign, demonstrating that the employee received a copy. If the employee refuses to sign, the other employer representative should sign as a witness that the employee refused to sign the written warning.

A written warning should include, at a minimum: the date of the warning, the employee’s name, the name of the supervisor, a factual description of the misconduct or inadequate performance, the exact date of the misconduct or inadequate performance, the signature line for the employee, the signature line for the supervisor, and the signature line for the witness. 

As a separate document, the supervisor may attach an action plan for correcting the issue.

The action plan should include a statement of the policy or practice that was violated, the steps the employee agrees to take to correct the problem, any commitments the supervisor makes to assist the employee in achieving the correction, the timeframe for correcting the problem, and the consequences for failing to correct the problem within the set timeframe.

Suspension. If the suspension is the prelude to a subsequent termination, the supervisor should include a written warning and an action plan with the notice of suspension.

Termination. Before terminating an employee, senior management should review the entire personnel file of the employee. Under some limited circumstances, the church should immediately terminate the offending employee.

For example, if the employee exhibits violent behavior or drug or alcohol use while working, the employer should immediately terminate the employee. Termination should occur through an in-person meeting.

Senior management and the supervisor should be present. Senior management should request that the information technology team change all of the employee’s passwords and computer and network access during the meeting.

In the meeting, senior management should request the return of all the church’s property. Ideally, senior management should present the employee with his or her final paycheck during the meeting.

Selecting the right discipline

When selecting a course of disciplinary action, the supervisor should consider the facts and circumstances surrounding the need for discipline. The supervisor should evaluate both mitigating and aggravating factors.

Mitigating factors may include:
  • Long tenure
  • Long history of satisfactory performance
  • Prior commendations or awards
  • Any excuses offered by the employee

Aggravating factors could include:
  • Short tenure
  • History of unsatisfactory performance
  • Prior discipline
  • The degree to which the employee has responded with a denial of responsibility

The supervisor should check with senior management or the human resources department, if applicable, before disciplining an employee.

Senior management should review the employee’s prior disciplinary history, if applicable.

Employee discipline should be as consistent as possible for similar infractions. Senior management should search the church’s records to determine how it has addressed similar situations with other employees, past and present. 

Senior management should consider any harm associated with discharging or severely disciplining the employee for a particular offense.

They should also consider whether the employee is part of a protected class of employees and whether the employee might have a claim that the discipline is retaliation for protected activities, such as whistleblowing.

If any of these factors are present, senior management should consult with an attorney.

Releases

If the termination option is selected, the church should consider whether the release agreement is appropriate. A release is probably unnecessary if the employer has appropriately executed and documented the discipline. 

If severance pay is provided, the church should consider a release.

Frank Sommerville partnered with Church Law & Tax to develop a seven-part series dedicated to helping you navigate several employee issues that are unique to churches. Find them all here:
Frank Sommerville is both a CPA and attorney, and a longtime Editorial Advisor for Church Law & Tax.
Iconography of a generative AI digital wormhole.
Image: Getty/BlackJack3D

Generative AI Is All the Rage. Handle With Care.

Generative AI is all the rage and church leaders may want to dive right in. But be cautious–there are a lot of unknowns.

Matthew Branaugh, Attorney and Editor
Bio

Not long ago, few knew the term “generative AI (artificial intelligence).”

Fewer could define it.

Today, it’s leading the conversation. OpenAI’s fast-spreading ChatGPT and DALL-E, Google’s Bard, Meta’s LLaMA, and Microsoft’s ChatGPT-powered Bing have quickly put these language-based chatbots into the mainstream.

Exponential growth

ChatGPT surged past 100 million users less than two months after its November 2022 debut. Facebook, by contrast, took four-and-a-half years to surpass the same mark.

Even with preliminary signs of slowing growth, many agree these chatbots are here to stay. As one technologist observed in Harvard Business Review, “We are at the beginning of another technological revolution.”

With such a revolution underway, church leaders should keep some legal and risk management considerations in mind, including intellectual property, misinformation, privacy, defamation, cybersecurity—and even hiring.

Another tool—but not just any tool

Technology in ministry has evolved a lot over the past 25 years. Some leaders recall debating how their churches should build their websites.

From there, text-based messaging and church management software appeared.

Soon after, social media sites and online giving tools popped into focus.

A Pastor’s Take: Lead Not Your Church into Fear of AI

Then came smart phone apps to handle anything from communications to donations to administrative tasks.

Generative AI is different not only for what it does, but also in how quickly it evolves.

“Generative AI systems fall under the broad category of machine learning,” notes global consulting giant McKinsey & Company. McKinsey then asked ChatGPT to describe itself: “This nifty form of machine learning allows computers to generate all sorts of new and exciting content, from music and art to entire virtual worlds,” the resulting response said.

Learning as it goes

In other words, chatbots learn from questions and information submitted by users through a simple chat box, the chatbots’ own online searches, and user feedback. They then create new and better content for future queries.

The process is a self-perpetuating, iterative loop.

For instance, ChatGPT 3.5—launched in November of 2022—was already significantly inferior when ChatGPT 4 released just four months later.

To illustrate, ChatGPT 3.5 scored in the 10th percentile for the Uniform Bar Exam used by many states to license attorneys. ChatGPT 4 scored in the 80th percentile.

Such rapid change has triggered much wonder regarding storytelling, art, music, and more.

It also has generated much concern, ranging from cybersecurity threats (such as more sophisticated phishing and malware) to school cheating to existential threats to humans.

Does all this talk of gen AI have you thinking about other IT-related issues? Consider picking up a copy of Nick Nicholaou’s “Church IT.”

Church leaders should start thinking now about how these content-creating chatbots will shape their ministries, whether driven through their own initiatives or thrust upon them by outside forces.

Here are some early considerations to note:

Intellectual property

Churches and pastors create lots of original content. Sermons. Children’s plays. Worship music. Website fodder. Social media posts.

Looking to generative AI chatbots for help requires extreme caution, though. Chatbots aren’t necessarily pulling together fully original creations. As they scour sources provided by a user, as well as readily available information online, they can easily grab material verbatim as they go.

Think About It: Christians are asking ChatGPT about God. Is this different than Googling?

That means chatbots most likely are grabbing and using pieces of works owned by other people or companies. Any resulting uses very likely violate copyright law—and courts have found that can be true even if duplications involve only a few notes or phrases.

Leaders must recognize the potential perils involved with instructing a chatbot to create a sermon about, say, The Beatitudes. Or to orchestrate a worship song based on the influences of current chart-setters. Or to generate a script for a Christmas pageant.

Not a ‘super search engine’

In a white paper, OpenAI openly discusses the way ChatGPT “hallucinates” as it works—another way of saying the chatbot sometimes creates fictitious details to support the task it was given.

One New York lawyer learned this the hard way. He asked ChatGPT to write a brief on behalf of a client suing an airline. He submitted the document. When the airline’s lawyers couldn’t locate any of the cases, the court asked for more information. Turns out, the brief cited fabricated cases and statutes to try and support the client’s case.

The attorney, facing sanctions, said he believed ChatGPT operated like “a super search engine.” It doesn’t. Leaders again must carefully vet what a chatbot produces for most any task.

Subtle inaccuracies are as much a threat as outright fabrications, too.

Here’s an example:

We asked ChatGPT 4 to write about NFL quarterback John Elway’s greatest game. The chatbot quickly answered Super Bowl XXXII, the hall-of-famer’s first championship win. It supported its response with his game statistics, but erroneously listed ones he earned a year later during his team’s Super Bowl XXXIII victory.

Defamation

Generative AI also poses potential defamation concerns.

In June of 2023, a Georgia radio host sued ChatGPT. A journalist-generated query produced a ChatGPT response that included a legal complaint about the host, and allegations he embezzled from a gun-rights group. The legal complaint, though, was fake, another example of a chatbot providing unpredictable—if not false—information.

This situation also reveals other ways churches and pastors may encounter less-than-ideal situations with the technology, says Jonathan Smith, president of technology consulting firm MBS, Inc., and director of technology for Faith Ministries in Indiana.

A generative AI query using your church’s name, or your pastor’s name, will draw from myriad sources, including negative posts, comments, or social media across the web.

It also could do damage in unexpected ways. “Generative AI has no intuition, no understanding,” Smith says, adding “it will draw the conclusion your church or your pastor is bad.”

Privacy

OpenAI discovered a bug with ChatGPT that exposed user chat histories along with payment and contact information for some of OpenAI’s premium subscribers. The problem was fixed. But when users now sign up, they see an onscreen message warning them about the sharing of any sensitive or personal information.

For churches, this again provides an important reminder about getting consent from congregants before publicly sharing prayer requests.

A well-meaning pastor or staff member, crafting the next church website update or e-newsletter, might contemplate pouring the text of requests into a chatbot to create the message. Doing so places potentially sensitive information about individuals into the chatbot. The public disclosure of private facts is the basis of an “invasion of privacy” lawsuit.

Lack of user support and feedback

There isn’t an immediate remedy available.

A user can submit feedback indicating a response contains faulty or false information. But, as Smith points out, other platforms like Facebook, Twitter, and Instagram struggle to keep up with user feedback, and ChatGPT and its peers likely will, too.

But leaders should still note this added concern from generative AI’s unpredictability. Exercise extreme caution especially before using any AI-generated responses containing information about other church and ministry leaders.

Cybersecurity

The powerful learning fostered by generative AI offers possibilities for good, including medical imaging and weather forecasting. There are also possibilities for more sophisticated crime. One cybersecurity company executive told the ABA Journal “you’re going to see phishing emails that are so believable you don’t know you’re talking with a machine.”

These schemes use an email to impersonate someone with authority and trick the recipient to click a malicious link or transfer funds to an unauthorized bank account. A misstep can prove costly. Education, training, and best practices can help pastors and staff thwart these attempts.

On the positive side, new generative AI tools are available to determine whether a message originated from a person or a chatbot, including one from OpenAI (note, however, that it requires a minimum of 1,000 characters to analyze).  

Job applications, references, and schoolwork

Does your church ask job applicants for responses to short-answer questions? What about recommendations from past employers or professional references?

Does your church run a school and regularly grade schoolwork?

Note the developing tools for sorting out original content from computer-generated content, which is becoming an industry unto itself.

Editors’ Note: We updated this content on July 25, 2023, with additional information along with comments from Jonathan Smith, president of technology consulting firm MBS, Inc., and director of technology for Faith Ministries in Indiana.

Matthew Branaugh is an attorney and editor for Church Law & Tax.
Image: AdobeStock/Tadeusz

A Pair of Noteworthy Supreme Court Decisions For Church Leaders

A pair of Supreme Court decisions are noteworthy for church leaders and bivocational pastors.

The Editors

A pair of noteworthy Supreme Court decisions are worth reviewing for church leaders, and bivocational pastors and church planters working secular jobs.

—Access our entire legal library with a Church Law & Tax Advantage Membership—

The first, Groff v. DeJoy, represents a significant shift in the way employers treat religious accommodation requests under Title VII of the Civil Rights Act of 1964. Bottom line? Employers face a higher standard when rejecting such requests, meaning employees enjoy greater protection when they come across work situations that clash with their religious beliefs and convictions.

Meanwhile, the Supreme Court ruled 6-3 in favor of a Colorado web designer who worried the state would use its anti-discrimination laws to force her to create websites celebrating marriages she does not endorse (303 Creative LLC v. Elenis). It’s an outcome that underscores the possible ways a church can assert First Amendment defenses if the church falls under a state or local public accommodations law and gets penalized for violating the law due to its religious activities.

For members, Church Law & Tax Co-Founder and Senior Editor Richard Hammar, and Church Law & Tax Editor and Attorney-at-Law Matthew Branaugh joined forces to highlight what these important cases mean for churches and church leaders, alike:

The Freedom to Say ‘No.’

Lorie Smith worried Colorado would use its anti-discrimination laws to force her to create websites celebrating marriages she does not endorse.
Image: Getty/Anna Moneymaker

The Freedom to Say ‘No.’

Lorie Smith worried Colorado would use its anti-discrimination laws to force her to create websites celebrating marriages she does not endorse.

Richard R. Hammar, Attorney, CPA
Bio

The First Amendment’s guaranty of free speech prohibits a Colorado public accommodations law from forcing a website designer with Christian beliefs to create messages with which she disagrees, the United States Supreme Court ruled.

A 6-3 majority favored the designer in its decision published in June of 2023 (303 Creative LLC v. Elenis, 600 U.S. 570). Although the ruling drew from speech—rather than religious—protections found in the First Amendment, the outcome represents another in a long line of victories for religious liberty proponents dating back more than a decade.

Churches and church leaders will find the 303 Creative ruling important in at least one way. It demonstrates the possible ways a church can assert First Amendment defenses if the church falls under a state or local public accommodations law and gets penalized for violating the law due to its religious activities.

‘A credible threat’ of penalty

The Colorado Anti-Discrimination Act (CADA) bars places of public accommodation from discriminating based on disability, race, creed, color, sex, sexual orientation, gender identity, gender expression, marital status, national origin, or ancestry in the provision of goods and services to the public.

The law first drew attention from the Supreme Court several years ago. That’s when Colorado’s civil rights division sanctioned a bakery owner for refusing to make a cake for a same-sex couple’s wedding. Lower courts affirmed the state’s actions.

But in 2018, a 7-2 ruling from the Supreme Court reversed the lower court decisions and returned the case to Colorado for reconsideration. The court said the record showed the civil rights division exhibited hostility toward the baker’s religious beliefs, violating his constitutional rights (Masterpiece Cakeshop, Ltd. v. Colo. Civil Rights Comm’n, 138 S. Ct. 1719 (2018)).

During the Masterpiece Cakeshop litigation, the website designer filed her lawsuit. She became worried CADA would require her to create wedding websites for same-sex couples, which goes against her religious beliefs.

The state had yet to sanction her. But her lawsuit was allowed to proceed because she established “a credible threat that . . . Colorado will invoke CADA to force her to create speech she does not believe or endorse,” wrote Justice Neil Gorsuch in the Supreme Court’s majority opinion.

Threat of forced speech violated free speech rights

Such a threat violated the designer’s free speech rights, the Court decided.

“[I]n this particular case Colorado does not just seek to ensure the sale of goods or services on equal terms,” the Court held. “It seeks to use its law to compel an individual to create speech she does not believe.”

The Court also ruled that “no public accommodations law is immune from the demands of the Constitution . . . and when a state public accommodations law and the Constitution collide, there can be no question which must prevail.”

Creating customized messages

The designer operates a graphic design business. She wanted to expand it to include services for couples seeking websites for their weddings. Her websites will provide couples with text, graphic arts, and videos to “celebrate” and “convey” the “details” of their “unique love story.”

A created website will be “expressive in nature,” designed “to communicate a particular message.” That message includes how the couple met, their backgrounds, and their families. It also includes their future plans and information about their upcoming wedding.

All text and graphics will be “original,” “customized,” and “tailored” creations.

The designer’s company name will also appear on every web page created.

The designer said her graphic design business is open to customers regardless of their race, creed, sex, or sexual orientation.

But by expanding her company’s services to include wedding websites, she worried Colorado’s public accommodations law would “force her to convey messages inconsistent with her belief that marriage should be reserved to unions between one man and one woman,” the Court noted.

The designer acknowledged her views about marriage may be unpopular.

But, the Court said, she insisted the Constitution protects such a view.

A district court rejected the designer’s claims. A federal appeals court affirmed the district court’s decision. The designer then appealed to the Supreme Court.

The Supreme Court’s decision

The Supreme Court began its majority opinion by noting if there is any “fixed star in our constitutional constellation,” it is the principle that the government may not interfere with “an uninhibited marketplace of ideas.” West Virginia Bd. of Ed. v. Barnette, 319 U. S. 642 (1943).

The Court continued:

The First Amendment protects an individual’s right to speak his mind regardless of whether the government considers his speech sensible and well-intentioned or deeply “misguided,” and likely to cause “anguish” or “incalculable grief.” And equally, the First Amendment protects acts of expressive association. . . . Generally, too, the government may not compel a person to speak its own preferred messages.

The Court noted the designer’s unique, customized wedding websites qualified as “pure speech,” entitling her to the maximum protection under the First Amendment guarantee of free speech, and concluded:

In this case, Colorado seeks to force an individual to speak in ways that align with its views but defy her conscience about a matter of major significance. In the past other States … have similarly tested the First Amendment’s boundaries by seeking to compel speech they thought vital at the time. But, as this Court has long held, the opportunity to think for ourselves and to express those thoughts freely is among our most cherished liberties and part of what keeps our Republic strong. Of course, abiding the Constitution’s commitment to the freedom of speech means all of us will encounter ideas we consider “unattractive,” “misguided, or even hurtful.” But tolerance, not coercion, is our Nation’s answer. The First Amendment envisions the United States as a rich and complex place where all persons are free to think and speak as they wish, not as the government demands. Because Colorado seeks to deny that promise, the [district court’s] judgment is reversed.

Why church leaders should take notice

This case protects Christian business owners from potential liability under public accommodations laws when goods or services involve speech.

But there is another aspect of this ruling that may be of even greater importance to churches. The Court majority emphasized that constitutional protections will prevail anytime they “collide” with a state public accommodations law. This is especially notable, given the uncertainties that often arise for churches whose activities may or may not fall under state and local public accommodations laws.

The first public accommodations laws were enacted by a few states in the late 19th century. That number has steadily increased and by 2023 most states have enacted such a law.

Public accommodations laws vary by state

But public accommodations laws vary by state. To illustrate:
  • All public accommodation laws bar places of public accommodation from discriminating against patrons based on several enumerated categories, including some, or all of, the following: race, color, national origin, gender, religion, disability, marital status, and sexual orientation.
  • In recent years, a growing number of state public accommodation laws have banned discrimination based on marital status, sexual orientation, and sexual identity. According to the National Conference of State Legislators, “18 jurisdictions prohibit discrimination based on marital status, 25 prohibit discrimination based on sexual orientation, [and] 24 prohibit discrimination based on gender identity.”
  • Some state laws exempt religious organizations, but others contain no explicit exemption.

Many pastors employed by conservative congregations worry public accommodations laws may be used to compel them to accommodate persons who do not share the church’s biblical worldview or values.

Learn more: Search public accommodations laws, including ones affecting your church, through Church Law & Tax’s 50-State Public Accommodations Laws Report, a downloadable resource.

An oft-mentioned concern among church leaders

An oft-mentioned concern pertains to the use of church property. To illustrate, assume that a church with an orthodox view of marriage and human sexuality rents its sanctuary to the public as a means of raising revenue.

A gay couple contacts the pastor requesting use of the sanctuary for their wedding.

Does the fact that the church rents its sanctuary to the public make it a place of public accommodation and subject the church to liability if it rejects the gay couple?

After the 303 Creative decision, if a state or local public accommodations law is defined to include churches, or if such a law is construed by a court or administrative agency to include them, churches now can assert a constitutional defense to coverage based on the First Amendment’s free exercise or nonestablishment of religion and free speech clauses.

Dig Deeper: “Public Accommodations Laws”—part of Church Law & Tax’s series on “15 Things Richard Hammar Wants Pastors to Know,” looks more closely at the application of public accommodations laws to churches and clergy.

Consider these seven questions

Prior to any actions taken by a court or administrative agency, though, church leaders should review the following seven questions, preferably in consultation with qualified legal counsel. Doing so will help identify potential legal liabilities, and possible ways to minimize those liabilities:

Is there a public accommodations law in my city or state?
  • If so, what types of discrimination does it prohibit?
  • Does the law provide an exemption for churches?
  • If the law provides an exemption for churches, are there any conditions that must be satisfied?
  • If the law does not contain an explicit exemption for churches, what is the official position of the civil rights agency tasked with enforcement of the law? Does the agency take the position that churches are exempt? And if so, do any conditions apply? For example, does the exemption apply to churches that rent their properties to raise revenue?
  • If a state or local civil rights agency tasked with enforcement of a public accommodations law claims that it applies to churches that are engaged in commercial or other activities unrelated to exempt religious purposes, does church coverage only apply during the use of church property for the unrelated purpose, or more broadly to include all uses of church property?
  • Does the church’s constitutional rights of religion and speech take priority over a public accommodations law?

303 Creative LLC v. Elenis, 600 U.S. ___ (2023)

Matthew Branaugh, attorney and editor of Church Law & Tax, contributed to this report.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
Image: Getty/Bloomberg Creative

Supreme Court’s ‘Groff’ Decision Makes It Harder to Reject Religious Accommodations Requests

Bivocational pastors and church planters working secular jobs should pay attention to what the Groff decision means.

Matthew Branaugh, Attorney and Editor
Bio

Last Reviewed: July 16, 2025

Employers must now make a stronger case before denying religious accommodation requests under Title VII of the Civil Rights Act of 1964.

The U.S. Supreme Court clarified, through a unanimous decision in 2023, that denials must be based on a “substantial burden” to the employer’s business—not just a minimal inconvenience.

What Title VII Protects

Title VII prohibits employment discrimination based on:
  • Race
  • Color
  • National origin
  • Gender
  • Religion

It also requires employers to “reasonably accommodate” an employee’s religious practices, unless doing so causes undue hardship to the business.

A Stronger Standard for Religious Requests

For more than four decades, lower courts allowed employers to reject religious accommodations using a low threshold: the “de minimis” standard—meaning any small burden was enough.

But in Groff v. DeJoy (2023), the Supreme Court changed that. The justices made clear that employers must now demonstrate a substantial, real burden if they want to deny a religious accommodation.

This decision offers stronger protections for religious practices in the workplace, including:
  • Wearing religious attire
  • Observing a Sabbath
  • Other sincerely held beliefs

This is especially meaningful for bivocational pastors and church planters working both in ministry and secular jobs.

Who Is Covered?

This ruling only applies to employers subject to Title VII, which means they are:
  • Engaged in interstate commerce, and
  • Have 15 or more employees

📚 Many state civil rights laws provide similar protections, often with lower employee thresholds.

The Court’s Clarification

Writing for the Court, Justice Samuel Alito emphasized:

“Most lower courts have incorrectly latched on to ‘de minimis’ as the governing standard.”

He noted that the 1977 case Hardison v. Trans World Airlines used “undue hardship” as the core concept—but lower courts focused instead on the fleeting mention of “de minimis.”

Even the Equal Employment Opportunity Commission (EEOC) has moved away from “de minimis,” acknowledging that the law requires more than a minor cost.

Alito warned that prior interpretations made it harder for minority faiths to seek fair treatment:

“The ‘de minimis’ test … has blessed the denial of even minor accommodation in many cases.”

The Groff Case: Sundays Off

Gerald Groff, an Evangelical Christian, worked for the U.S. Postal Service (USPS) in Pennsylvania.
  • In 2013, USPS began delivering Amazon packages on Sundays.
  • Groff transferred to a location that didn’t yet require Sunday work.
  • When that location later began Sunday deliveries, Groff sought a religious accommodation.

Groff’s lawyer said the request wasn’t formally rejected—but in practice, Groff was disciplined for not working Sundays.

The USPS argued Groff’s request created staffing conflicts and caused disruption. Eventually, Groff resigned and sued.

What the Court Decided

The Supreme Court did not decide whether USPS met the new “substantial burden” standard. Instead, it sent the case back to lower courts to reconsider under the clarified rule.

The Court also didn’t define a precise test for employers—but pointed back to the original Title VII language:

“A hardship is, at a minimum, something hard to bear,” Alito wrote.

He added that relevant considerations include:
  • The specific accommodations requested
  • The nature, size, and costs of the business
  • The practical impact of granting the request

Bias Is Not a Justifiable Burden

The Court made clear that prejudice or hostility toward a religious accommodation extended to an individual, such as severely diminished staff morale or staff conflicts, cannot be used to claim hardship.

“A hardship that is attributable to employee animosity to a particular religion … cannot be considered ‘undue,’” Alito said.

Real-World Examples

Example 1:
Pastor Craig applies to be a delivery driver for Amazon. He can’t work Sundays due to his church responsibilities.
  • Old rule: Amazon could argue that even a small inconvenience was enough to deny his request.
  • New rule: Amazon must now show that giving Craig Sundays off would cause substantial difficulty or cost to the company.

Example 2:
Same situation—but this time, Craig applies at a local business with only 10 employees.
  • Title VII does not apply, since the business has fewer than 15 workers.
  • However, state laws may still protect Craig, depending on the jurisdiction.

Contributing Author: Richard R. Hammar, Church Law & Tax Co-Founder and Senior Editor

We’ve used a combination of AI and human review to make this content easier to read and understand.
Matthew Branaugh is an attorney and editor for Church Law & Tax.
Image: Getty/Adventure_Photo

Colorado Supreme Court Overturns Part of Sexual Abuse Claims Law

The Colorado Supreme Court says the Child Sexual Abuse Accountability Act goes against the state’s constitution.

Richard R. Hammar, Attorney, CPA
Bio

In June of 2023, the Colorado Supreme Court ruled that a portion of the state’s Child Sexual Abuse Accountability Act (“CSAAA” or “the Act”) violates the state’s constitution.

The court specifically struck down a portion of the law allowing certain lawsuits otherwise barred by the statute of limitations.

Prior to CSAAA’s passage, Colorado law only permitted claims for six years after they occurred or for the six years after a victim either turned 18 or discovered (often through counseling) that they had been abused.

Law expanded victims’ rights

Colorado lawmakers passed the CSAAA in July of 2021 for victims of sexual misconduct while participating in a youth-related activity or program. It took effect on January 1, 2022.

Victims can bring civil claims for damages against their abusers and the organizations that managed the activities or programs if the organizations knew or should have known about the risk of sexual misconduct.

CSAAA also established a three-year window for victims to bring forward claims that allegedly occurred between January 1, 1960, and January 1, 2022. The Act said claims could be made between January 1, 2022, and January 1, 2025, regardless of whether previously available causes of action were barred by a statute of limitations.

Additionally, the law established other significant rights.

First, the Act said “(t)here is no limitation on the time to bring a claim for sexual misconduct that occurs on or after January 1, 2022.” Second, the law voids “purported pre-incident waivers” as a matter of public policy, meaning victims no longer can be asked by an alleged abuser or organization to waive their rights to bring civil actions. And third, the act waives immunity for any claims brought under it against government employees and government entities.

Victims can seek up to $387,000 against public entities and up to $1 million against private entities.

‘New right of relief’

Some lawmakers found that many civil claims brought by adults who were sexually abused as children are often dismissed due to the statute of limitations. The Colorado Attorney General estimated that most adult survivors don’t come forward on average until the age of 53, according to the Associated Press.

Key Point: The statute of limitations specifies the deadline for filing a civil lawsuit. Lawsuits cannot be brought after this deadline has past.

In drafting the law, lawmakers wanted the CSAAA to create “a new right for relief for any person sexually abused in Colorado while the person was participating in a youth-related activity or program as a child,” while not attempting to revise “any common law cause of action that is time-barred.”

The latter issue raised concerns during the lawmaking process.

Questionable constitutionality

Before CSAAA’s passage, a law professor told Senate Judiciary Committee members the bill was, in his opinion, unconstitutional, retrospective legislation.

“By creating a whole new cause of action,” the professor testified, the bill “imposed new obligations on past actions, which is literally what the Supreme Court has said is forbidden.”

CSAAA supporters pointed to the need for giving victims a remedy, despite questions about the law’s constitutionality.

Almost instantly challenged

Soon after CSAAA took effect, plaintiffs “A.S.” and her husband, “B.S.,” brought a claim against a former high school athletic coach and a school district. The plaintiffs alleged the coach sexually abused A.S. between 2001 and 2005, when A.S. was a minor.

Without CSAAA, the claim would have otherwise been time-barred by the statute of limitations.

A lower court ruled against the plaintiffs. The plaintiffs appealed to the Colorado Supreme Court.

Supreme Court expresses concerns about retrospective legislation

The Colorado Supreme Court ruled that the CSAAA violates article II, section 11 of the Colorado Constitution (the “retrospectivity clause”). This section prohibits the legislature from passing any law “retrospective in its operation.” CSAAA, the supreme court continued, “amounts to unconstitutional retrospective legislation as applied to the plaintiffs’ claims under the Act against the defendants [and] and accordingly, we affirm the district court’s order granting the defendants’ motions to dismiss.”

The Court observed:

We certainly understand the General Assembly’s desire to right the wrongs of past decades by permitting such victims to hold abusers and their enablers accountable. But the General Assembly may accomplish its ends only through constitutional means.

The retrospectivity clause of the Colorado Constitution prohibits retroactive legislation that creates a new obligation, imposes a new duty, or attaches a new disability with respect to past transactions or considerations. By creating a “new right for relief” that attaches liability for conduct predating the Act and for which any previously available cause of action would be time-barred, the CSAAA does just that. The CSAAA is therefore unconstitutional as applied to the plaintiffs’ claim in this case. Accordingly, the district court’s order granting the defendants’ motions to dismiss is affirmed.

The supreme court also noted that other portions of the law remain valid:

We do not hold that the CSAAA is unconstitutional in its entirety, or that all claims made under the CSAAA are precluded by the retrospectivity clause. Our holding does not affect claims brought under the CSAAA for which the previously applicable statute of limitations had not run as of January 1, 2022.

Extender laws have widespread support

In recent years, several states have passed laws eliminating or extending the statute of limitations for child abuse claims that were time-barred under prior law.

The purpose is clear and compelling—to provide a “second chance” to victims of childhood sexual abuse who, for whatever reason, were unable to bring a civil claim against their abuser prior to the expiration of the statute of limitations.

These laws have widespread public support.

But these same laws might put churches and denominations into an indefensible position.

In decades-old abuse claims, memories have faded, and personnel have changed. Often few if any staff or members are even aware of the alleged incident or the perpetrator. Moreover, church leaders don’t know if the church had liability insurance coverage at the time of the incident that may be implicated.

With this trend in state laws, this case demonstrates that, in some cases, the equities still may tip in favor of defendants.

This case also demonstrates the ways that states are more aggressively pursuing rights for victims. The Colorado Supreme Court emphasized the CSAAA was not struck down in its entirety. The law still includes language effectively attempting to eliminate time bars for alleged acts occurring after January 1, 2022. It also voids any waivers signed by victims that attempt to take away their rights to seek civil remedies.

Church leaders should understand state laws

Church leaders should be aware of any extension or amendment of the statute limitation for sexual abuse claims in their state. They also should note the increased efforts by legislatures to afford more rights to victims. This means the church may have to defend against cases that are many years and even decades in the past.

Church leaders should also recognize expanded rights to victims for acts perpetrated in the recent past and in the future.

Sound risk management, and permanent retention of all liability insurance policies, are imperative practices.

Aurora Public Schools v. A.S., (Colo. 2023).
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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Off-Campus Liability and Churches

Off-campus liability is an ongoing question for churches and church leaders to address in light of these key cases.

Richard R. Hammar, Attorney, CPA
Bio

Last Reviewed: July 27, 2025

Church events often happen beyond the building’s walls. That’s why understanding legal risks tied to off-campus activities is critical.

Courts have weighed in on this issue in both church-related and non-religious charity cases. These examples offer key insights for ministry leaders.

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Why This Matters

Church leaders should:
  • Review the facts of each legal case
  • Understand court decisions
  • Identify practical takeaways and risk factors

Doing so helps churches evaluate their potential liability for off-site activities.

Case Study 1: Church Picnic ATV Accident

A Sunday School teacher organized a picnic on a member’s property. While the pastor attended, he did not help plan the event.

Key facts:
  • Invitations were shared during Sunday School.
  • Church members brought food and recreational equipment, including rifles and an ATV.
  • A 15-year-old drove the ATV on a public road, injuring a passenger.

The injured party’s parents sued the driver’s parents and the church. The court ruled:
  • The church’s insurance policy did not cover the incident.
  • Policy language clearly limited coverage to activities performed on behalf of or at the direction of the church.
  • The church had no role in authorizing the ATV’s use.

Key takeaway: A church may be liable only when an activity is directed, requested, or carried out for its benefit.

Case citation: ASI Insurance Company, 2022 WL 2760479 (N.D. Fla. 2022)

Case Study 2: Halloween Hayride Injury

A woman was seriously injured while preventing a child from falling off a church-sponsored hayride.

The appellate court reversed a trial court dismissal based on:
  • Overloading: The church allegedly decided ride precautions, lighting, and passenger limits.
  • Negligent Supervision: Poor lighting and a lack of control over rowdy children on the trailer.

The court found the church owed a duty of care to children it was supervising.

Key takeaway: Inadequate supervision, overloading, and poor planning can create church liability.

Case citation: Clontz v. St. Mark’s Evangelical Lutheran Church, 578 S.E.2d 654 (N.C. App. 2003)

Case Study 3: Deadly After-School Party

A church-operated school faced a lawsuit after two students died following an off-campus, unsanctioned party where alcohol was consumed.

Verdict Breakdown
  • The school and its principal settled for $1.1 million.
  • A jury assigned 25% fault to the school and awarded $55+ million in damages.
  • The appellate court ruled the party was neither school-sponsored nor school-related.

Key takeaways:
  • Liability requires more than just awareness of an off-campus event.
  • Courts distinguish between sponsored and related activities.

Case citation: Archbishop Coleman F. Carroll High School, Inc. v. Maynoldi, 30 So.3d 533 (Fla. App. 2010)

Case Study 4: Youth Soccer Club Carpool Crash

A 16-year-old, at a coach’s direction, transported teammates to practice and caused a major crash.

Court Decision
  • Though 83% of fault was assigned to the driver, the soccer club was ordered to pay the full verdict due to the coach’s control over logistics.
  • The court confirmed the legal principle of respondeat superior—an organization may be liable for the actions of volunteers acting under its authority.

Key takeaway: Direction and control over a volunteer’s actions can trigger liability—even without formal employment.

Case citation: Bartell ex rel. Hoesel v. Mesa Soccer Club, 2010 WL 502993 (Ariz. App. 2010)

Additional Cases Highlighting Liability Factors

Baseball Game Carpool Tragedy

A 16-year-old volunteer driver caused a fatal crash. The court said a jury must decide if the sponsoring organization (the American Legion) was liable.

Case: Daniels v. Reel, 515 S.E.2d 22 (N.C. App. 1999)

A church volunteer struck a motorcyclist while delivering cookies. The court found the church may be liable due to its control over the volunteer’s actions.

Case: Trinity Lutheran Church, Inc. v. Miller, 451 N.E.2d 1099 (Ind. App. 1983)

School Officials Aware of Underage Drinking

A student died in a crash after an unsanctioned party. Although school officials were aware of the drinking, the court ruled the school had no duty since the party was not officially sanctioned.

Case: Rhea v. Grandview School District, 694 P.2d 666 (1985)

Hazing at Club Meeting

A student was injured during a hazing incident at a school-sponsored, off-campus club meeting. The court found the school liable.

Case: Rupp v. Bryant, 417 So.2d 658 (Fla. 1982)

Unauthorized Teacher Excursion

A college was not liable when a teacher led a student outing after classes had ended. The outing was not authorized or affiliated with the school.

Case: Fernandez v. Florida National College, Inc., 925 So.2d 1096 (Fla. App. 2006)

Final Takeaways for Church Leaders

Liability for off-campus activities isn’t automatic—but it’s possible.

When Is a Church More Likely to Be Liable?
  • The activity is directed, requested, or benefits the church.
  • The church officially endorses, promotes, or provides resources for the event.
  • Staff or leaders attend in an official capacity.

Questions to Ask Before Off-Site Events
  1. Was the event planned by a recognized church committee or group?
  2. Did planners seek permission or resources from the church?
  3. Has the church helped coordinate logistics?
  4. Was the event promoted in church channels?
  5. Will staff attend as official representatives?

If the answer to any of these is “yes,” the event may be viewed as church-related—and liability increases.

Risk Mitigation Strategies

To reduce risks during off-campus events:
  • Assign trained staff or volunteers.
  • Ensure adequate lighting and safety precautions.
  • Limit crowd size or participation.
  • Screen and select drivers carefully.
  • Hire professionals for high-risk activities.

Consult with legal counsel and your insurance provider before the event.

Consider a Non-Sanctioned Event Policy

A clear policy stating the church will not be liable for events it does not officially sanction may help demonstrate your position.

While not a complete legal shield, it may reduce exposure—especially when coupled with:
  • A formal event approval process
  • Guidelines for requesting sponsorship
  • Leadership training in liability awareness

Further Reading: This church was found not liable for injuries sustained by a teenager at an off-campus church event. Click here to find out the specifics.

We’ve used a combination of AI and human review to make this content easier to read and understand.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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