Part 4 of 4: The ‘Discovery Rule’ and What It Means for Abuse Victims and Churches

The discovery rule is an exception to the statute of limitations with far-reaching implications for both abuse victims and churches.

Editor’s Note: Child abuse scandals continue to garner widespread media attention as well as the attention of lawmakers nationwide. As more victims come forward, often years or decades after suffering alleged abuses, they learn their state’s statute of limitations prevent them from seeking damages from the perpetrator or, when relevant, the perpetrator’s employer through civil lawsuits. These time bars have become subject to changes—and in some instances, outright removals—by state legislatures in an effort to help victims.

This four-part series focuses on this continuing trend, helping churches and church leaders understand the potential ramifications. This part looks specifically at the “discovery rule,” an exception to statutes of limitation long available to victims—and especially relevant to churches in states where extensions or removals of statutes of limitation have not occurred. This rule also applies in states where extensions have been granted, but deadlines still exist.

Some states have adopted, either through legislation or court decision, a limited exception to the statute of limitations known as the discovery rule.

Under this rule, the statute of limitations does not begin to run until a person “discovers” that his or her injuries were caused by a particular event or condition, or, with the exercise of reasonable vigilance, should have discovered the connection. It does not matter how long ago the injury occurred.

The discovery rule has been applied most often in the following three situations:

1. Medical malpractice. In some cases, medical malpractice is difficult, if not impossible, to recognize until after the statute of limitations has expired. To illustrate, if a surgeon inadvertently leaves a scalpel in a patient’s body during an operation, and the patient does not discover this fact until after the statute of limitations for medical malpractice has expired, the patient should not be denied his or her day in court. Under the discovery rule, the statute of limitations begins to run not when the malpractice occurred, but when the patient knew or should have known of it.

2. Child molestation. Some courts have applied the discovery rule in cases of child sex abuse. These courts have concluded that young children may “block out” memories of molestation and not recall what happened for many years. The statute of limitations does not begin until the victim’s eighteenth birthday, or until the victim knew or should have known that his or her emotional or physical injuries were caused by the acts of molestation. Some courts that have applied this rule have limited it to victims who were very young at the time of the molestation. Adults who claim that they repressed memories of abuse occurring when they were adolescents often have a difficult time convincing juries that they are telling the truth.

3. Seduction of adult counselees. Some courts have applied the discovery rule in cases of sexual contact between a minister and an adult counselee. These courts have concluded that adults who engage in such acts with a minister may attempt to repress their memory of them or be so intimated by the authority of the minister that they lack the capacity to file a lawsuit.

Key point. Any rescission or extension of the statute of limitations in child sex abuse cases, or any “revival” of child abuse claims barred under prior law, presents extraordinary difficulties for a church that is sued as a result of an alleged incident of sexual misconduct that occurred many years ago. In some cases, church leaders cannot even remember the alleged wrongdoer, much less the precautions that were followed in selecting or supervising this person.

Several courts have been reluctant to apply the discovery rule in cases of child abuse because of the difficulty of repressing knowledge of such events, especially for victims who were adolescents at the time the alleged abuse occurred. As one court noted, “The discovery rule does not generally apply to claims from a violent assault because the plaintiff is usually aware of the assault.” Doe v. Jesuit College Preparatory School, 2022 WL 2352953 (Tex. App. 2022).

Example. A federal court in Vermont ruled that an adult who claimed to have been sexually abused by a nun some 40 years earlier could sue a Catholic diocese for his alleged injuries. 

An adult male (the plaintiff) began receiving intensive psychotherapy for what he alleges were severe emotional problems. As a result of this therapy, the plaintiff claimed that he discovered he was the victim of “childhood sexual abuse, physical abuse and psychological abuse” allegedly occurring 40 years ago when he was a resident of a church orphanage.

The plaintiff filed a lawsuit against “Sister Jane Doe,” the alleged perpetrator (whose identity was unknown) and various religious organizations allegedly responsible for hiring and supervising Sister Jane Doe.

The plaintiff alleged in his lawsuit that he had “used all due diligence, given the nature, extent, and severity of his psychological injuries and the circumstances of their infliction, to discover the fact that he has been injured by the sexual abuse.” The diocese urged the court to dismiss the case on the ground that the statute of limitations had expired long before.

Under Vermont law, when a plaintiff sues to recover damages for injuries “suffered as a result of childhood sexual abuse,” the lawsuit must be brought within “six years of the act alleged to have caused the injury or condition, or six years of the time the victim discovered that the injury or condition was caused by that act, whichever period expires later.”

The diocese claimed that since the alleged abuse occurred over forty years ago it is reasonable to assume that the plaintiff should have discovered the cause of his injuries long ago. It also argued that forcing it to defend against an alleged injury occurring so long ago violates the very purpose of a statute of limitations—relieving defendants of the difficult if not impossible task of defending against such claims.

The court rejected these arguments and ruled that the statute of limitations had not expired on any of the plaintiff’s claims (except for assault and battery, which the court deemed to be unrelated to childhood sexual abuse). The court observed that under Vermont law, the test is when the plaintiff in fact discovered that his injuries were caused by childhood abuse, and not when he reasonably could have made this discovery. Barquin v. Roman Catholic Diocese, 839 F. Supp. 275 (D. Vt. 1993).

‘Active Concealment’ and fraud can also extend statutes of limitations

Some courts have permitted the statute of limitations to be suspended in limited circumstances, including fraud or the “active concealment” of the existence of a civil claim against a wrongdoer.

Example. A Tennessee appellate court ruled that in a lawsuit alleging that church entities were negligent regarding the sexual abuse of minors by a pastor, the trial court erred in dismissing the complaint based on the statute of limitations when the victims alleged that efforts were made by certain of the church defendants to hide the sexual abuse and a “whitewash” ensued because the victims alleged fraudulent concealment, and that statute of limitations did not begin to run until after the lawsuit was filed. Doe v. Presbyterian, 2022 WL 1837455 (Tenn. App. 2022).

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Part 3 of 4: A New Federal Law May Expand Abuse Victims’ Rights to Pursue Damages

The Eliminating Limits to Justice for Child Sex Abuse Victims Act of 2022 places no time limits on when victims can sue.

Editor’s Note: Child abuse scandals continue to garner widespread media attention as well as the attention of lawmakers nationwide. As more victims come forward, often years or decades after suffering alleged abuses, they learn their state’s statute of limitations prevent them from seeking damages from the perpetrator or, when relevant, the perpetrator’s employer through civil lawsuits. These time bars have become subject to changes—and in some instances, outright removals—by state legislatures in an effort to help victims.

This four-part series focuses on this continuing trend, helping churches and church leaders understand the potential ramifications. This part looks specifically at changes made by Congress as a way to offer victims a path to seek legal remedies if their states’ statutes of limitations have not been extended.

In 2022, Congress enacted the Eliminating Limits to Justice for Child Sex Abuse Victims Act. This Act provides that “there shall be no time limit” for filing civil lawsuits for any of the following federal sex offenses:

Federal offenseCitation
Forced labor18 USC 1589
Trafficking for forced labor18 USC 1590
Sex trafficking18 USC 1591
Aggravated sexual abuse18 USC 2241(c)
Sexual abuse18 USC 2242
Sexual abuse of a minor18 USC 2243
Sexual exploitation of children18 USC 2251
Selling or buying children18 USC 2251A
Certain activities relating to material involving the sexual exploitation of minors18 USC 2252
Certain activities relating to material involving the sexual exploitation of minors18 USC 2252A
Production of sexually explicit depictions of a minor for importation into the United States18 USC 2260
Transportation generally18 USC 2421
Coercion and enticement18 USC 2422
Transportation of minors18 USC 2423

It remains to be seen how effective this legislation will be since most sex abuse claims are brought in state court. However, it likely will benefit victims of child sexual abuse whose claims are barred by state statutes of limitation.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Part 2 of 4: Is Your Church Prepared for a Decades-Old Abuse Claim?

Pastors, church boards and everyday church members should understand the liability that can come with a decades-old abuse claim.

Editor’s Note: Child abuse scandals continue to garner widespread media attention as well as the attention of lawmakers nationwide. As more victims come forward, often years or decades after suffering alleged abuses, they learn their state’s statute of limitations prevent them from seeking damages from the perpetrator or, when relevant, the perpetrator’s employer through civil lawsuits. These time bars have become subject to changes—and in some instances, outright removals—by state legislatures in an effort to help victims.

This four-part series focuses on this continuing trend, helping churches and church leaders understand the potential ramifications. This part looks specifically at the legal, financial, and administrative tolls a church may face if a civil lawsuit dating back years or decades moves forward in the courts.

Church leaders must understand that their church is probably not in a financial position to respond to an abuse claim reaching back several decades, and that in some cases, liability for an abuse claim could extend to board members or even individual members.

The motivation behind states extending victims’ rights when it comes to abuse involving churches is both understandable and laudable: Legislators want to “give voice” to persons sexually abused as minors who, for whatever reason, were reluctant or unwilling to bring their claims in court.

After all, several studies have demonstrated that most child abuse victims find it difficult to seek remedies for their claims in civil court. This is often due to one or more of the following factors:

  • Repressed memory of the abuse.
  • Shame and embarrassment.
  • An unwillingness to publicly disclose in court the details of the abuse.
  • An unwillingness to testify in court regarding the details of the abuse.
  • An unwillingness to confront one’s abuser in court.
  • A reluctance to disclose the details of the abuse to family and friends who may know nothing about it.

But church leaders need to understand that if a church’s assets are below the amount a victim is seeking in court, and a church’s insurance coverage is insufficient to cover the claim, then the victim’s attorney may seek to recover damages against the personal assets of church board members.

Churches are financially ill-prepared to meet new claims

But many churches, schools and other defendants are not adequately positioned to answer for abuse that happened before current staff and members were born.

Unfortunately, insurance policies that are several years or decades old are often discarded by church staff who see no point in keeping them and adding to the general “clutter” in the church office, and most churches do not have liability insurance providing coverage for claims of sexual abuse alleged to have occurred years or decades in the past.

Even if liability insurance is available and no exception applies, the policy often will provide low limits of coverage for providing a defense and paying toward any damages awarded.

In any event, if a liability insurance policy for the year that a case of child abuse occurred is not available, then bankruptcy must be considered. This would involve identifying all church assets that are available to pay a sex abuse claim, including buildings, vehicles, bank accounts, and so on.

Furthermore, liability might extend to board members or even individual members if a church’s assets are far below the amount a victim is seeking in court.

Federal law and the laws of most states protect volunteers and uncompensated board members of tax-exempt corporations (including churches) from personal liability for their decisions as members of the board.

However, there are exceptions.

  • In most states, the immunity of uncompensated church board members does not extend to willful and wanton acts or gross negligence, or to board members of unincorporated churches. To illustrate, if an old claim of child abuse occurred because of a failure by the board to institute reasonable protective policies and procedures, it is possible that this will constitute gross negligence. This will expose the board members to the personal liability exception.
  • Immunity statutes providing limited relief to church board members only apply to uncompensated directors. This is an important point for church leaders to understand. Some churches provide limited amounts of compensation to board members. These may include a gift or stipend at Christmas, or non-accountable expense reimbursements. Even limited forms of compensation jeopardize the significant protection that uncompensated directors enjoy from personal liability, making it important for church leaders to review any future examples of compensation provided by the church to its board members.

Also note that some courts have suggested that members of an unincorporated church may be personally liable for the acts and obligations of other members, or the church itself, opening the door for victims to recover damages from individual members if the church cannot pay out of its own assets and insurance.

Understanding insurance is key

Clergy and church leaders evaluating possible abuse claims past or present need to understand the insurance coverage their churches possess (or possessed in the past). Of particular importance is whether a church secured an occurrence policy or a “claims made” policy.

Claims made and occurence insurance policies

“Occurrence” policies only cover injuries that occur during the policy period, regardless of when a claim is made.

Advantages to an “occurence” policy:

  • Covers any injury that occurs during the policy period, regardless of when a lawsuit is filed
  • No “prior acts” coverage needed if a church maintains a succession of “occurrence” policies


  • Does not cover lawsuits filed during the policy period for injuries occurring prior to the policy period.
  • Insurance premiums usually higher than for a “claims made” policy.

A “claims made” policy covers injuries for which a claim is made during the policy period if the insured has continuously been insured with claims made policies with the same insurer since the injury occurred.

Advantages to a “claims made” policy:

  • Covers any lawsuit filed during the policy period, regardless of when the injury occurred
  • Coverage limits are the current limits, not the limits in effect when the injury occurred
  • Insurance premiums often are lower than for an occurrence policy  


  • Must have carried “claims made” insurance continuously with the same insurer from the date of the injury to the date of the claim, or have purchased “prior acts coverage,” which can be costly.
  • A brief lapse in insurance coverage for any reason can result in no “claims made” coverage
  • Coverage for prior claims is lost if a church switches from a “claims made” to an “occurrence” policy
  • When a policy expires or is terminated, for any reason, coverage ceases (even for claims that are later made for injuries occurring during the policy period)
  • Claims for injuries occurring in more than one year may be filed during the same year, meaning that the policy’s “aggregate” coverage limit is more quickly reached (the aggregate limit is the total amount the insurer will pay out during that year for all covered claims)
  • Claims must not only be made during the policy period to be covered—they also must be reported to the insurer (a technicality that is sometimes overlooked)

“Prior acts” coverage, available for an additional cost and at the insurer’s discretion, covers claims made during the current policy period for injuries occurring in the past when the insured carried insurance with another insurer.

Example: A church purchases “claims made” counseling insurance from Company A each year for several years. It switches to an “occurrence policy” with Company B this year.

A lawsuit is brought against the church this year for an alleged act of counseling malpractice that occurred three years ago. The church’s policy with Company A will not cover this claim since the claim was not “made” during the policy period (even though it occurred during the policy period). Had the church not switched insurers this year, the claim would have been covered. Does the policy with Company B cover the claim? No, since the injury did not occur during the policy period.

As a result, there is no coverage for this claim. Note that the result would have been the same had the church purchased a claims made policy from Company B, unless it also purchased “prior acts” coverage.

This example illustrates an important point. Churches should not switch from a claims made to an occurrence policy (with the same or a different insurer), or switch claims made insurers, without legal counsel.

Church leaders should ensure that liability insurance policies are never discarded. Policies often are the only means of establishing the existence and availability of insurance for old claims—both now and in the future.

Church leaders should periodically review the policies and procedures the church has adopted to address the risk of child abuse and ensure both their adequacy and consistent application.

Insurance ‘archeology’

If a church cannot locate an insurance policy covering a case of child abuse occurring many years in the past, the services of an “insurance archaeologist” may be helpful. Insurance archaeologists are trained to locate missing insurance policies. Even if successful, conditions may apply. Further, the coverage limits under old policies often will be far below the damages sought, making the services of an archaeologist of limited value in many cases.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Part 1 of 4: More States Expand Victims’ Rights to Sue for Abuse

New laws extend, and in some cases, eliminate statutes of limitations for filing civil lawsuits in connection with abuse cases.

Editor’s Note: Child abuse scandals continue to garner widespread media attention as well as the attention of lawmakers nationwide. As more victims come forward, often years or decades after suffering alleged abuses, they learn their state’s statute of limitations prevent them from seeking damages from the perpetrator or, when relevant, the perpetrator’s employer through civil lawsuits.

These time bars have become subject to changes—and in some instances, outright removals—by state legislatures in an effort to help victims.

This four-part series focuses on this continuing trend, helping churches and church leaders understand the potential ramifications. This part looks specifically at how many states are changing statutes of limitation, and court cases illustrating how those changes affect the legal process.

Most states have several statutes of limitations specifying the deadline for filing a civil lawsuit seeking a legal remedy (such as compensation) for an injury that can range from a breach of contract to a personal injury to property damage. Different deadlines apply for different types of claims.

Key point 10-16.4 The statute of limitations specifies the deadline for filing a civil lawsuit. Lawsuits cannot be brought after this deadline has passed.

There are a few exceptions that have been recognized by some courts:

(1) The statute of limitations for injuries suffered by a minor begins to run on the minor’s eighteenth birthday.

(2) The statute of limitations does not begin to run until an adult survivor of child sexual molestation “discovers” that he or she has experienced physical or emotional suffering as a result of the molestation.

(3) The statute of limitations does not begin to run until an adult with whom a minister or church counselor has had sexual contact “discovers” that his or her psychological damages were caused by the inappropriate contact.

(4) The statute of limitations is suspended due to fraud or concealment of a cause of action.

Persons who do not file a lawsuit by the deadline specified by law generally have no legal recourse.

But state lawmakers, federal lawmakers, and courts have come up with a variety of ways to extend the statute of limitations for injuries to minors, particularly as it relates to sexual abuse and molestation.

A report released in 2022 by CHILD USA notes:

  • 50 states have eliminated the statute of limitations for child abuse criminal claims.
  • 18 states have eliminated a statute of limitations for some or all child abuse civil claims.
  • 27 states have enacted “revival statutes” that “revive” child sex abuse claims that expired under prior law.

Case Studies

North Carolina

An adult male sued a religious denomination in 2022 for injuries he sustained as a result of being sexually abused by a house parent at a denomination–run orphanage. A North Carolina appeals court observed:

The Sexual Assault Fast Reporting and Enforcement Act (“the Act”) was enacted in 2019 to “strengthen and modernize” our sexual assault laws. Among other revisions, the Act extended to ten years the statute of limitations for a civil action based on sexual abuse suffered while a minor.

Further, it provided that “a plaintiff may file a civil action within two years of the date of a criminal conviction for a related felony sexual offense against a defendant for claims related to sexual abuse suffered while the plaintiff was under 18 years of age.”

The Act also contained a provision, effective from 1 January 2020 to 31 December 2021, that revived “any civil action for child sexual abuse otherwise time-barred under [prior law] as it existed immediately before” the Act’s passage. Doe v. The Western North Carolina Conference of the United Methodist Church, 871 S.E.2d 877 (N.C. App. 2022).

New York

Example 1: The plaintiff, a 69 year old male, sued a church and others for sexual abuse from 1960 to 1964 by two persons associated with his Boy Scout troop, the suit was not time-barred because the Child Victims Act … extended the statute of limitations to bring a civil action based on sexual abuse until the child victim reached the age of 55, and … created a one-year revival window for time-barred claims, which was later extended by the Governor for an additional year regardless of the victim’s age. LG 67 Doe v. Resurrection Lutheran Church, 164 N.Y.S.3d 803 (N.Y. App. 2022).

Example 2: A federal district court in New York made the following comments regarding a sex abuse case:

On February 14, 2019, former New York Governor Andrew Cuomo signed into law the Child Victims Act. … The Child Victims Act allows individuals who were sexually abused as children to assert civil claims that had previously been barred by the statute of limitations. Specifically, the CVA extends the statute of limitations for actions against ‘any party whose intentional or negligent acts or omissions are alleged to have resulted in the commission of child sexual offenses.’

Those actions must be brought before the plaintiff reaches the age of 55. The CVA also created a ‘window of time’ during which previously time-barred claims alleging child sexual abuse could be brought. … After the CVA became law, more than 200 previously time-barred actions alleging child sexual abuse were brought against the Diocese and certain individuals and organizations affiliated with the Diocese.

Together, these suits allege acts of sexual abuse dating back more than six decades. The Diocese provided notice to its former insurers and requested that they defend and indemnify the Diocese in accordance with the requirements in the individual policies. The filing of more than 200 claims, and the possibility of additional claims, led the Diocese on October 1, 2020, to file for bankruptcy protection pursuant to Chapter 11 of the United States Bankruptcy Code. Roman Catholic Diocese of Rockville Ctr. v. Certain Underwriters at Lloyds, 2021 WL 4027020 (S.D.N.Y. 2021).

Old abuse claims pose challenges for both victims, churches

While the motivation behind such laws is understandable, churches will likely struggle to defend themselves against claims arising from decades-old abuse cases.

This is due to several factors, including:

  • memories have faded,
  • witnesses are dead,
  • alleged living witnesses have no recollection of the abuse,
  • few, if any, church members have any knowledge or recollection of the abuse,
  • no documentary evidence exists pertaining to the alleged abuse,
  • the victim has no corroborating physical evidence pertaining to the abuse, such as letters, email, social media posts, and photographs,
  • the victim cannot identify the alleged perpetrator,
  • a lack of evidence that the victim reported the abuse to parents, friends, or church staff.

Some courts have noted that the following factors tend to corroborate claims of child abuse occurring many years or decades ago:

  • an admission by the abuser,
  • a criminal conviction for the abuse,
  • a victim’s documented medical history of childhood sexual abuse,
  • contemporaneous records or written statements of the abuser, such as diaries or letters,
  • photographs or recordings of the abuse,
  • an objective eyewitness’s account,
  • evidence the abuser had sexually abused others,
  • “… proof of a chain of facts and circumstances having sufficient probative force to produce a reasonable and probable conclusion that sexual abuse occurred. …” Moriarty v. Garden Sanctuary Church of God, 534 S.E.2d 672 (SC 2000).
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

4-Part Series: Expanding Abuse Victims’ Rights and What It Means for Churches

As state and federal lawmakers understandably expand abuse victims’ rights, Church Law & Tax examines what it all means for churches.

Child abuse scandals continue to garner widespread media attention as well as the attention of lawmakers nationwide. As more victims come forward, often years or decades after suffering alleged abuses, they learn their state’s statute of limitations prevents them from seeking damages from the perpetrator or, when relevant, the perpetrator’s employer through civil lawsuits. These time bars have become subject to changes—and in some instances, outright removals—by state legislatures in an effort to help victims.

This four-part series focuses on this continuing trend, helping churches and church leaders understand the potential ramifications.

Part 1: More States Expand Victims’ Rights to Sue for Abuses

Part 2: Is Your Church Prepared for a Decades-Old Abuse Claim?

Part 3: A New Federal Law May Expand Abuse Victims’ Rights to Pursue Damages

Part 4: The ‘Discovery Rule’ and What It Means for Victims and Churches

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Key Tax Dates May 2023

Along with monthly and semiweekly requirements, May includes several quarterly filings and forms for churches, ministries, and church-run schools.

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.

Tip: The 2023 Church & Clergy Tax Guide is available—order a print copy today (while supplies last) or download the .pdf version now.

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 or organization need not deposit the taxes.

Instead, it can pay the total withheld taxes directly to the Internal Revenue Service (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 (7.65 percent of wages), and the employer’s share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

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.

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 (7.65 percent of wages), and the employer’s share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

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

Churches having non-minister 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 April 30 if all taxes for the first calendar quarter have been deposited in full and on time.

May 15, 2023: File forms 990, 990-T, and 5578

Information return—Form 990

An annual information return (Form 990) for tax-exempt organizations is due by this date for tax year 2022. Form 990 summarizes revenue, expenses, and services rendered. Organizations exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code must report additional information on Schedule A.

Note. Churches, conventions, and associations of churches, “integrated auxiliaries” of churches, and church-affiliated elementary and secondary schools are among the organizations that are exempt from this reporting requirement. Organizations not exempt from this reporting requirement must file Form 990 if they normally have annual gross receipts of $50,000 or more.

Unrelated business income tax return—Form 990-T

An unrelated business income tax return (Form 990-T) must be filed by this date by churches and any other organization exempt from federal income tax that had gross income from an unrelated trade or business of $1,000 or more in 2022. Learn more about unrelated business income on this Recommended Reading page.

Certificate of racial nondiscrimination—Form 5578

Annual certification (for calendar year 2022) of racial nondiscrimination by a private school exempt from federal income tax (Form 5578) must be filed by this date by schools that operate on a calendar-year basis.

This form must be filed by preschools, primary and secondary schools, and colleges, whether operated as a separate legal entity or by a church.

Richard R. Hammar further explains Form 5578, including the steps for filing one, in this article.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Part 4 of 5

Taking Minutes at a Church Business Meeting

How to properly document the official actions taken at a meeting.

If you’re reading this article, you’ve likely found yourself in a position where you need an explanation of business meeting minutes.

That’s where this article will come in handy. Here you’ll find answers to four common questions related to taking minutes.

What are business meeting minutes and why do they matter?

Business meeting minutes are the official record of a group’s action. Taking minutes is important for at least two reasons.

First, the law expects that organizations will keep an official record of the proceedings of a group’s members, committees, and governing bodies.

The Internal Revenue Service (IRS) requires tax-exempt organizations that file a Form 990 to verify that, as an organization, they have documented their actions. Even though the IRS does not require churches to file a Form 990, state nonprofit laws often include a requirement that nonprofit organizations located in that state keep an official record of actions taken.

Second, and arguably more important on a practical level, properly taken minutes eliminate confusion and disagreement about what occurred at a meeting.

Ask most church members what occurred at a business meeting and the odds are low that they will remember the actions taken with any precision. They may remember topics discussed and comments made, especially if there was any controversy, but their memory of the wording of motions made and adopted will not be reliable. Carefully taken minutes provide clarity when a member cannot remember what happened.

Who should take business meeting minutes?

In general, it is important to have a designated minutes-taker. Most commonly, this responsibility falls to the individual elected or appointed to the office of secretary, and this person may be different than the individual employed as the church secretary.

The minutes-taker has two important duties: (1) to ensure the minutes actually get taken, and (2) to ensure that the minutes are stored in a designated place that’s easily accessed by those who need them now and in the future.

So, if achieving these goals means that someone other than the elected or appointed secretary takes the minutes, that is completely allowable. It is better to go this route than to have no minutes taken at all or to be unable to find them later.

What should business meeting minutes include?

Very simply, business meeting minutes should include a record of what was done, not what was said. In other words, minutes should include a record of the actions taken on various items of business, but they need not (and should not) include a record of which individuals discussed those items of business or what those individuals said.

Even with the best of intentions, any attempt to summarize the comments made tends to result in inaccuracies or biased presentation. If there’s a reason for the church to have a record of the discussion on various items, the best course of action is to hire a court reporter so that you have a reliable transcript.

If you are the person charged with taking minutes, the first part of the record should include a paragraph containing the following information:

  • the type of meeting (e.g., regular, special, continued);
  • the name of the group that is meeting;
  • the date, time, and place of the meeting;
  • an acknowledgement that the person in charge of the group (e.g., chairman, president, pastor) and the secretary were present; and
  • an acknowledgement that a quorum was present, and in a smaller group (a dozen or fewer), a list of the members who were present.

Here’s an example:

A regular meeting of the Deacon Board of the One and Only Church was held on January 15, 2022, at 7 p.m. at the church building. Chairman Smith and Secretary Brown were present. A quorum was present.

After the opening paragraph, the minutes should follow the same order as the meeting agenda and should contain a separate paragraph for each item on the agenda.

  • If the agenda item is a report, the minutes can state under the report heading that a certain individual presented a report.
  • If the agenda item results in a main motion or several, the minutes should state the final wording of the motion as stated just before the vote, and then note whether the motion was adopted, defeated, or otherwise disposed of (e.g., referred to a committee or tabled).
  • If the motion was amended before it was put to a vote, the minutes can say as much, but they only need to state the final wording of the motion and do not need to include all the iterations that occurred from the time the motion was initially proposed until the vote. It is generally wise to include the name of the individual who made the motion in the minutes, but there’s no need to include the name of the person who seconded it.

Here’s an example of an action recorded in meeting minutes:

After presenting a report on the status of the church property, Deacon Dave, Chairman of the Building Committee, moved on behalf of the Building Committee that the church request proposals from three architecture firms for the design of a new addition to the sanctuary. The motion was adopted as amended.

How are business meeting minutes approved or corrected?

Minutes become the official record of a group’s actions when that group approves them. Typically, minutes are presented for approval at the next regular meeting after they were taken, and they are circulated to the group in a reasonable amount of time before the meeting so that the members can review them ahead of the meeting if they choose to do so.

At the meeting where the minutes are presented for approval, there’s generally no need to read them aloud to the group unless someone specifically requests that they be read. Instead, the chairperson should simply ask, “Are there any corrections to the minutes from the January 15, 2022, meeting as distributed?” If there is no response after a brief pause (three to five seconds), the chairperson should say, “Hearing no corrections, the minutes are approved as distributed.”

If there’s a correction to fix the minutes so that they accurately reflect what occurred during the previous meeting, the chairperson should ask if there is any objection to that correction. If not, the chairperson should state that the correction will be incorporated into the circulated draft.

As long as any requested correction is truly that—meaning, it is an adjustment that fixes the minutes so that they are an accurate reflection of what occurred during the meeting—then, objections to that correction should be rare. But if there is disagreement, the group should take a vote on the proper wording.

Note. It is important to remember that making a correction to the minutes is not a way to change what occurred during the meeting where the minutes were taken. What happened at the meeting is in the past, and changing the action taken there can happen only if the group takes a vote to that effect. Approving the minutes is simply a way to confirm that the record of what happened is accurate.

Return to the series homepage.

For related infographics and downloadable resources from the author, visit The Law of Order blog at

Sarah E. Merkle is a professional parliamentarian and presiding officer. One of five lawyers worldwide to have earned the credentials Certified Professional Parliamentarian-Teacher (CPP-T) and Professional Registered Parliamentarian (PRP), she helps boards, associations, corporations, and public bodies navigate rules applicable to governance and business meetings.

Part 3 of 5

Voting at a Church Business Meeting

Four primary methods of voting that members and leaders should understand.

Whether you’re casting a vote, taking a vote, or calculating a vote at a church business meeting, it is valuable for both members and leaders to understand the voting process and feel confident about how the result of a vote is determined.

To equip you with the skills needed to take and count a valid vote, this article will explain the four primary voting methods and define three important terms.

What are the different methods of taking a vote?

There are four primary methods for taking a vote: general consent, voice, raised hand or standing, and ballot. No one voting method is inherently better than another although some tend to work better than others in certain circumstances.

First, it is important to understand that no vote must be counted or be secret unless a group has decided that a count or a secret ballot should be used for a specific vote or category of votes.

  • For example, a church’s bylaws may include a provision that requires all elections to be conducted by ballot. If so, all election votes will necessarily be counted and secret, even if only one person is running.
  • Or, a church may decide at a business meeting that it wants (or needs) a record of the number of votes in favor of or opposed to a specific motion rather than simply a record of whether the motion passed or failed.In that case, the members would need to take a vote directing that the vote on the substantive motion be counted. Unless the members give that type of directive, votes do not need to be counted, even if they are taking a vote by raised hand or by standing.

The rationale here is that counting votes takes time, and a group’s time shouldn’t be used to count votes unless the group has agreed to it.

Here, then, are the primary methods for voting.

Voting Method #1: General or unanimous consent vote

A general consent or unanimous consent vote is a vote used for decision-making on noncontroversial matters. The goal of taking a vote by unanimous consent is efficiency. This type of vote skips the discussion portion of the motions process and eliminates the need for the chairperson to say, “All those in favor. … All those opposed. …” Instead, the chairperson can simply ask if there are any objections to the action proposed by the motion.

For example, if the proposed action is approval of the meeting agenda, the chairperson would ask, “Are there any objections to approving the meeting agenda as distributed?”

After pausing briefly (three to five seconds) to listen for any objections, the chairperson would then say, “Hearing none, the agenda is approved as distributed,” and would move to the next item of business. If there is an objection, the chairperson would say, “There is an objection,” and would move to the discussion portion of the motions process as described here.

Voting Method #2: Voice vote

A voice vote asks members to state whether they are in favor of or opposed to a motion by saying “aye” or “no.” When taking this type of vote, the chairperson determines the winner by listening to which side is louder.

Sometimes, there is need for clarification of the results of this type of vote.

  • If the result is not clear to the chairperson, he or she can retake the vote by asking the members to raise their hands or stand (the next voting method listed in this article). If necessary, the chairperson can take a count of the vote.
  • If the result is clear to the chairperson but not to one or more of the members, a member can call out, “Division,” which is the parliamentary procedure term for requesting that the chairperson retake the vote by another method that more clearly indicates the result.

This scenario is not uncommon, especially in a large group, because an individual may be sitting in a section of the room in which the side (ayes or noes) that is louder differs from the side that is louder overall.

As discussed above, calling out “Division” does not require a counted vote—a raised hand or standing vote can clarify the result.

Voting Method #3: Raised hand or standing vote

A raised hand or standing vote is a good way to take a vote if the results are too close to call through a voice vote, or if a counted vote is needed or required. This is also a helpful method for taking votes when individuals with voting privileges are seated together with individuals who do not have voting privileges.

For example, some churches allow visitors or regular attenders to stay for business meetings or may allow families to attend business meetings even if not all of them are members. Taking a voice vote in this type of setting may not allow for confidence in the result, especially if the result is close. A raised hand or standing vote can provide a good alternative.

A raised hand or standing vote can be easily counted by having the members count off, starting at the front of the room and working row by row to the back. The chairperson or a teller (a designated vote counter) can cue the first person in the front row to say “1” and lower their hand or sit down, and then cue the person next to them to say “2” and lower their hand or sit down—working all the way through the room until all votes have been counted.

This may sound time consuming, but it doesn’t take much, if any, more time than having a teller go row by row and count all of the votes. The advantage is that the members are involved in the counting and are less inclined to question whether the votes have been accurately tabulated.

Voting Method #4: Ballot vote

A ballot vote is a secret vote by default unless the bylaws require that a ballot be signed. Ballots are generally used for elections and votes on very consequential matters (e.g., a vote to consider a large expense, dissolve a church, merge with another church, or ask an individual to be a pastor, and so on).

When ballot votes are counted, at least two tellers should work together to count them. In the case of an election, each candidate may appoint one representative in addition to the tellers to oversee the counting.

After the ballots are counted, the tellers should prepare a report that includes the total number of ballots cast, the number of votes necessary for election or for adoption of a motion, and the number of votes received by each candidate or votes in favor and opposed to a motion.

The tellers should give the report to the chairperson for announcement of the results and give the ballots to the secretary or a designated person to keep until the time for ordering a recount has passed.

What do the terms majority, two-thirds, and plurality mean?

Various terms are commonly used within bylaws to describe the number of votes needed for a motion to be adopted or for an individual to be elected. It’s important to know the requirements for each vote taken and how to calculate results for that type of vote.

Majority vote

In voting contexts, the term majority is defined as more than half. If a church’s governing documents or rules use the term majority without qualification, the baseline or denominator from which a majority is calculated is the number of votes cast. For example, if 120 individuals are present, but only 100 individuals cast a vote, at least 51 votes would be required for the adoption of the proposal.

Qualifiers can be added to the term majority, however, to change the calculation. For example, to adopt any proposal or to adopt proposals on certain topics, governing documents can require a majority of those present or a majority of the entire membership.

Two-thirds vote

In voting contexts, the term two-thirds generally means at least two-thirds of the individuals present and voting. But as with the term majority, two-thirds can be qualified to mean at least two-thirds of the individuals present or at least two-thirds of the entire membership.

It is also important to understand that two-thirds is not necessarily the same as 66.6 percent or 67 percent. The best way to calculate two-thirds is to multiply the total number of individuals of which two-thirds is needed times 2, then divide that number by 3, and then round the result to the nearest whole number.


The term plurality means more votes than any other option but not enough votes to constitute a majority. Here’s an example of a plurality vote calculation: Three candidates are running for office. There are 100 members present and voting. Candidate #1 receives 40 votes; candidate #2 receives 41 votes; candidate #3 receives 19 votes. If bylaws specify that the winning candidate must receive a plurality of the votes, candidate #2, in this case, would be the winner.

Return to the series homepage.

For related infographics and downloadable resources from the author, visit The Law of Order blog at

Sarah E. Merkle is a professional parliamentarian and presiding officer. One of five lawyers worldwide to have earned the credentials Certified Professional Parliamentarian-Teacher (CPP-T) and Professional Registered Parliamentarian (PRP), she helps boards, associations, corporations, and public bodies navigate rules applicable to governance and business meetings.

Part 1 of 5

Preparing for a Church Business Meeting

How to structure effective, legally sound meetings—and set their agendas.

It’s probably safe to say that business meetings are not a church calendar highlight for most staff and church members. Perhaps you view them as necessary but burdensome, and maybe the thought of preparing for one makes you cringe or even panic. Well, be encouraged.

This article aims to help leaders simplify business meetings and streamline the preparation. Let’s dive in by considering three key questions.

Church business meetings take place any time church members, boards, or committees get together to conduct official church business—from annual member meetings to weekly or periodic board or committee meetings where votes are taken and decisions are made.

What documents and rules govern a church business meeting?

The first step in preparing for a church business meeting is understanding the documents and rules that apply to the timing and format of a church meeting, as well as the specific matters to be covered.

Consider the following three points:

  • The law in your state that governs nonprofits likely includes certain rules about how often the board and members should meet, how to give notice of meetings, and how to take votes.These rules can be mandatory, or they can apply only if not contradicted or qualified by a church’s bylaws. In some states, they apply only to churches that are incorporated. The laws vary from state to state, but every church would do well to designate at least one staff member or church member to become familiar with the law that applies.
  • After state law, your church’s constitution and bylaws are the authority for business meetings.
  • Where the church’s constitution and bylaws are silent, the parliamentary authority that your church has chosen applies next.Robert’s Rules of Order Newly Revised is the most common parliamentary authority used by churches, and it covers topics such as the process for making, discussing, and voting on proposals, and the methods by which nominations are made and elections are conducted.If your church has not chosen to follow a specific parliamentary authority, it should consider doing so, or it should adopt a set of its own rules that address the details of how business is conducted at a meeting and how elections occur.

What should a church business meeting agenda include?

The contents of the agenda should be guided by the church bylaws. First, do the bylaws outline quarterly business meetings or an annual meeting only? What do the bylaws say about when a church budget is approved or how deacons, elders, and other church leaders are elected?

Becoming familiar with the bylaws is the first step in determining the timing of business meetings and the necessary topics that should be covered.

Outside of matters specifically designated for member input and voting, a church business meeting agenda should include the following items:

  • approval of the minutes from the last meeting
  • a financial update
  • reports on key areas of focus for the quarter or year

How should a church business meeting agenda be organized?

There are three main categories in a business meeting agenda: preliminary items, reports, and substantive business.

  • Preliminary items include adoption of the agenda and approval of the minutes from the previous meeting.
  • Reports include updates from individuals, task forces, focus groups, and committees on the topics assigned to them.
  • Substantive business includes the consideration of any proposals brought by an individual or group.

Unfortunately, business meeting agendas are often created by following a template of sorts from previous meetings, without much strategic thought as to the priorities of the church or the attention span of the individuals attending the meetings. Here is some guidance for improving your business meeting agendas.

  • Putting preliminary items at the beginning makes sense because the group needs to agree on the agenda and the record of what has happened at previous meetings before proceeding further.
  • After preliminary items are dealt with, however, the remainder of the agenda should be structured according to the church’s priorities as a whole and for that specific meeting. The following scenarios describe possible processes for considering and deciding on agenda priorities:

Scenario 1. Are finances generally top of mind for leadership because of recent giving trends? Or have there been some unexpected, significant expenses for the church in the last quarter? Or is there an ongoing giving campaign for a certain special fund? If finances take precedence over other areas of concern, you might consider putting the financial update at the beginning of the agenda.

Scenario 2. On the other hand, maybe there’s no notable financial update, and instead, the church needs to hear from the building or facilities committee about plans to expand or make updates to the property. If so, then this would be placed high on the agenda.

Scenario 3. Or perhaps the pastor search committee should provide a report first since this is a next big step for the church this year, and the church property concerns are not imminent. If so, the search committee update would come ahead of the property one.

The point is that the order of the agenda should be driven by the present needs of the church, not by what’s been done in the past.

Key point. There is a tendency in many organizations to save the most important topics for the end of the agenda. Maybe this is done in an effort to ensure people stay to the end or to help members focus on the important items by taking care of everything else first.

Whatever the reason, this agenda order typically does not serve the group well because members are often too tired or unable to stay the full length of the meeting to actually participate in that critical part of the church’s business. Putting the important topics at the top of the agenda can help ensure the church makes headway on matters of priority.

Return to the series homepage.

For related infographics and downloadable resources from the author, visit The Law of Order blog at

Sarah E. Merkle is a professional parliamentarian and presiding officer. One of five lawyers worldwide to have earned the credentials Certified Professional Parliamentarian-Teacher (CPP-T) and Professional Registered Parliamentarian (PRP), she helps boards, associations, corporations, and public bodies navigate rules applicable to governance and business meetings.

Should Your Church Get Political?

If your church wants to get political, it’s important to understand the legal, theological, and pastoral considerations.

Pastors and churches in America have struggled for decades to determine whether their church should get political. How much political involvement should they engage in? Which activities might jeopardize tax-exempt statuses?

What about the theological questions regarding whether churches should participate in the public square?

There are also pastoral questions regarding when or how the engagement of political issues is necessary to disciple congregants.

Christianity Today’s Church Law & Tax and Big Tent Initiative hosted a virtual roundtable in which respected and trusted voices in the fields of law, pastoral leadership, and theology gathered to educate and inform pastors and church leaders nationwide on how God is calling them to lead in the face of the current political climate. Watch now to learn more

Before your church gets political

Watch this video, and discover more on this topic by reviewing the handful of articles and coverage in our Churches and Political Activities collection.

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Church Formation Basics

Church formation basics gives leaders insights into how a church is formed, why it matters, and how it guides future decisions.

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Church formation basics is important because how a church is legally formed directly affects how it operates.

From articles of incorporation to bylaws to tax status, church leaders must understand how their church is formed and how that formation shapes the decisions they make, and the ways they make those decisions.

In this helpful, hands-on video, attorney Lisa Runquist, a longtime advisor for Church Law & Tax, delves deeper into the formation processes for churches and explains how the pieces that are essential to formation become instrumental to how those churches function, both internally and externally for years to come.

Download the presentation slides to follow along and take notes as you watch.

Editor’s Note. This video is exclusive to Church Law & Tax members only. However, you can sign-up here to watch this video for free.

Lisa A. Runquist has more than 40 years of experience as a transactional lawyer, both with nonprofit organizations and business organizations.
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On-Demand Webinar

Church and Nonprofit Ministry Finance: Planning for the New Normal

Discussing how the pandemic has challenged church and nonprofit ministry finance, finding the new normals, and more.

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Churches and nonprofit ministries have grappled for a year with unprecedented change affecting their overall operations, including financial matters.

Nationally renowned CPA Michael Batts joined Church Law & Tax editor Matthew Branaugh to discuss the changes and provide insights on how leaders should approach this “new normal.”

Highlights include:

  • Defining the “new normal” for churches and nonprofit ministries
  • How mission and purpose should drive budgets and financial management
  • Maintaining good internal controls
  • Adopting an investment strategy

For more guidance, check out Church Finance and the forthcoming Nonprofit Finance written by Batts.

Q&A: What’s the Best Way to Cut Our Budget as We Weather the Effects of the Pandemic?

This Q and A will help your church address the budget in the best way to weather the financial strain created by the pandemic.

Q: With the financial strain created by the ongoing pandemic, our church must make some difficult decisions to stay financially afloat right now. Should we lay off staff? Should we look for less-expensive service providers? What are some do’s and don’ts when it comes to cutting costs?

One very tempting thing to do is to cut staff and to pare down operations. But here is a cautionary word of advice: Do not reduce the operational and financial administration to a crippling level that hampers your ability to make wise financial management decisions. This is certainly not the right time to terminate the people who are gifted and talented in—and capable of—making such decisions.

When it comes to cost reduction, reducing costs by going to cheaper vendors is not a real solution. You’re only going to save a limited amount of money by changing vendors for copier paper and office supplies or getting a competitive bid on lawn maintenance. That’s not where real financial change happens.

Real financial change takes place when you conduct what I call a mission-based impact assessment. Such an assessment begins with having a clearly articulated expression of your church’s mission and purpose.

What exactly is your church called to do? For example, churches have varying degrees of focus on and commitment to ministry areas such as:

  • their local community;
  • foreign missions;
  • education;
  • helping the needy;
  • Sunday school and children’s education.

Every church is as unique as the people who make it up. Every church has its own unique calling. So, the first and foremost exercise here is to define and articulate your mission and purpose.

Then, the next exercise is to identify and carefully evaluate every single initiative, every single program, every single activity, and every single ministry your church conducts in light of your mission and purpose. Determine what initiatives, what activities, and what ministries you really need to conduct in order to be most effective at carrying out your mission and purpose. That is, which of these initiatives, activities, and ministries have the most impact where it really matters? Adjust as necessary—and eliminate the programs, ministries, and initiatives that you are conducting that have the least impact in accomplishing your specific mission and purpose. That’s where real financial change happens.

In the 2008–2009 Great Recession, churches experienced significant declines in giving then, too. I remember distinctly one church told us that it cut its budget by 30 percent and the church’s leaders told their congregation that they had done so. But what was very interesting was that even after that budget cut, members of the church started looking around and saying, “We don’t really see or notice anything that’s very different.” And that may be an indicator that about 30 percent of the church’s budget had been going to programs, ministries, and activities that were not central to its mission.

For additional details on this concept and other expense reduction strategies, see chapter 1 of my book Church Finance: The Church Leader’s Guide to Financial Operations.

Michael (Mike) E. Batts is a CPA and the managing partner of Batts Morrison Wales & Lee, P.A., an accounting firm dedicated exclusively to serving nonprofit organizations across the United States.

Q&A: Adopting a New Budget During Extraordinary Times

If your fiscal year begins July 1, budgeting during the pandemic presents unique challenges—but there is a way forward.

Q: We have a fiscal budgeting year that ends on June 30 and starts on July 1. According to our bylaws, our congregation is supposed to meet in June to adopt a new budget. The current economic dynamics created by the pandemic means that we won’t be ready with a new budget in time for the meeting—which we might not even be able to have. Without being able to follow our historical budgeting model, what’s the best way to put something together that can be reviewed for accruable?

You are not alone. Although most churches begin their budgeting year on January 1, it’s estimated that about a third use a non-calendar fiscal year for budgeting purposes. Like yours, many of those churches have a year that starts July 1 and ends June 30. They are no doubt dealing with a situation similar to your own.

You certainly want to be respectful of your governing documents. Your bylaws may stipulate what the budgeting process is supposed to look like. But at the same time, we’re dealing with a very unconventional situation. Even if you were to comply exactly with your bylaws and create an annual budget, it would be largely irrelevant as a useful document.

While being respectful to your historical budgeting model, you should also consider alternatives that may be available to you. You’ll want to talk with your church’s governing body, perhaps your legal counsel, about the possibility of having your members or your elders, depending on how your church is governed, waive the current requirement for an annual budget and look at the possibility of doing a quarterly rolling budget. Existing policies should govern the approval of incurring indebtedness at all times.

Along with possibly shifting your budgeting process, you should also conduct regular cash-flow forecasting. I would suggest that your cash-flow forecast look out at least six months and that it be updated semimonthly in the current environment. Such forecasting will help your various ministry teams plan better and make needed adjustments in their spending going forward.

I must stress that I am not suggesting you disregard your own governance requirements. But, at the same time, those requirements were designed for normal circumstances. Look for the proper way to do something different in the current environment and, perhaps, waive the requirements for this budget go-round.

Michael (Mike) E. Batts is a CPA and the managing partner of Batts Morrison Wales & Lee, P.A., an accounting firm dedicated exclusively to serving nonprofit organizations across the United States.

On-Demand Webinar: Churches and the CARES Act

Breaking down the 900-page CARES Act for church leaders. How it works, how it can help you lead your church with confidence.

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Editor’s Note: In late April, Congress approved additional funding for the Paycheck Protection Program created for small employers by the CARES Act. Additional updates regarding the CARES Act and its various provisions can be found on Church Law & Tax’s coronavirus coverage page.

The COVID-19 (coronavirus) outbreak continues to take major physical, emotional, spiritual, and financial tolls on millions of people worldwide. In the US, efforts to slow the disease’s continued spread has led to bans on public gatherings in many places, causing many businesses to shut down, and the buildings of many churches to go dark. With the US economy hurtling toward recession, Congress has passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2.2 trillion stimulus package designed to provide stability and relief to businesses and individuals. Ministries are included in this relief package.

To help churches and leaders respond well in the face of this unfolding adversity, ChurchWest and Christianity Today’s Church Law & Tax hosted a free webinar on April 2, 2020, with renowned church legal and tax expert Richard R. Hammar. Hammar, an attorney and CPA, provided a helpful overview of the 900-page stimulus package, how it works, and the provisions churches and leaders should know to minister well to their congregations and communities.

Watch the recording and download the presentation handouts. Viewers should also visit Church Law & Tax’s coronavirus coverage page for the latest updates and developments that have occurred since the recording on April 2, 2020.

Advantage Member

Mass Shooting Preparation is All About Planning—Not Panic

Churches need to first think through safety basics, not active-shooter scenarios when preparing mass shooting response plans.

Mass shooting preparation is top-of-mind for many faith leaders nationwide.

But has this anxiousness unintentionally overshadowed other, more common risks confronting churches? The statistical probabilities of a mass shooting at a church remain remarkably low. By contrast, the chances of an abuse allegation or personal injury claim are much higher.

Editor’s Note: This article is part of the Advantage Membership. Learn more on how to become an Advantage Member or upgrade your membership.

“The likelihood (of a shooting) is extremely rare,” said Kevin Robertson, a former law enforcement officer who heads security for Saddleback Church and its multiple locations throughout Southern California.

Yet experts like Robertson still note the threat of gun violence against churches cannot be ignored, either. “Don’t bury your heads in the sand,” he tells churches. “But don’t micro-focus on it, either.”

Troubling events

The desire to “micro-focus” is understandable. Shootings generating widespread media attention have hit schools, retailers, music concerts, and movie theaters in recent years, not to mention faith communities. For instance:

The ripple effects from these acts of violence have been felt. Attorney and senior editor Richard Hammar said one large church insurer’s general counsel recently told him the top question his legal department receives from churches each year pertains to active shooters and armed security.

On a larger scale, uneasiness is visibly evident—as demonstrated by two separate, nationwide polls, conducted in the spring of 2019, that were focused on church security and shootings. In one, 12 percent of the 2,001 adults polled said they did not feel safe in a house of worship, and their top concern was an armed intruder. In the other, which surveyed an undisclosed number of evangelical Christian leaders, 71 percent said they increased security at worship services in recent years due to mass shootings.

These events, combined with these sentiments, undoubtedly prompted this provocative headline in the October 2019 issue of Christianity Today magazine: “Armed Security at Churches Is Becoming a New Normal.” (Christianity Today is a sister publication of Church Law & Tax.)

Sorting through the statistics

Statistically speaking, though, the likelihood of an active shooter—or any violent activity—on church property is unquestionably the exception, not the rule.

There are an estimated 350,000 houses of worship in the United States. Based on Robertson’s detailed tracking, only 121 church shootings have occurred nationwide since 1999, 80 of which took place during a church service or event.

Carl Chinn, who helped develop New Life’s security program and was at the church the day it was attacked, has tracked violent incidents since 1999 as well. Chinn casts his net wider, both incorporating the properties of parachurch ministries and religiously affiliated schools and including all types of violent incidents, not just ones involving guns. While the numbers in his report continue to grow each year, the annual total typically remains fewer than 250.

Some of those situations occur during church functions, but many happen on church properties when the church is closed. Domestic violence has been the leading cause of an incident, Chinn has previously noted.

Churches still should be aware of the threat of an active shooter, said Chinn, who leads the Faith Based Security Network and consults with churches across the country. “Just because those life-taking events are low probability, we also have to keep in mind they are still high impact,” he said. “But we should keep it in check. We should focus on the things most likely to happen.”

Basic safety as a ministry

Troubling to both Robertson and Chinn are the number of churches that inquire about shooting prevention and armed security training, only to reveal they have no basic safety or risk management efforts underway at all. Robertson, who fields half-a-dozen inquiries a week from church leaders nationwide, estimates about three-fourths “don’t have anything in place.”

That’s problematic because church safety basics are foundational to solving more complex and challenging situations like a violent threat. Chinn said New Life’s efforts to develop a comprehensive safety ministry likely saved lives, even though a handful of deaths still occurred. “Because we were good at the smaller things, we were better at responding to true evil,” he said.

Robertson, whose security books follow a “crawl-walk-run” model, puts it this way:

I encourage [churches] not to micro-focus on the active shooter, but to micro-focus on what’s more likely. What are you going to do if you have a medical issue? What are you going to do if you have a verbal disruption? What are you going to do if you have a noncustodial parent show up? Those are the ones that are more likely to happen. Those are the ones to micro-focus on.

Robertson sees safety as a ministry. The starting point is to build a team of people primarily committed to helping others, and avoid using the terms “security” or “security guards.” This posture often helps draw support from the senior pastor and church board, Robertson added, and creates long-term buy-in. When Robertson personally interviewed volunteers and staff members for Saddleback’s team, he said his first question was whether the person was comfortable praying with an attender. “It’s a ministry. It’s no different than ushers or greeters,” Robertson added.

Chinn agreed, describing the initial process as a “start-with-what-you-have” philosophy. New Life intentionally called its program the “Life Safety Ministry,” and sought “people serving on that team because of a compassion for their fellow man, not because of the sensationalism associated with the word ‘security,’” he said.

But also note: 41 states regulate the security operations of private parties—and that’s true whether or not the team members of those operations will be armed, Chinn said. Many local jurisdictions, like the city of Denver, do the same. Churches must be aware of these local and state laws and the requirements they must keep to maintain compliance for any team they assemble, he said.

“Keep it simple”

Once a team is established, Chinn said churches should avoid the temptation to rapidly expand policies and procedures. “So many of those inclined to start or head up a security program for their church make it too complicated at first,” Chinn said. Among his 10 standards for starting or improving security (see “10 Standards for Starting a Program”), he emphasizes No. 4 in particular: “Keep it simple.”

As far as first priorities, Robertson said child safety ranks first (if a church has only one volunteer interested to help with safety, he said he advises that church to place the person in the children’s ministry). Second is medical emergencies, followed by responding to verbal disruptions. (Added Chinn: “Our lips are what keeps much of the evil at bay. Whether it’s a violent act about to occur or an obnoxious one, we’ve got to get better at de-escalation training.”)

Leaders also should consult with their insurance agents for resources and to ensure those agents know the steps and measures the church plans to take, Robertson said.

Additional simple steps include securing building doors (the YWAM attack was likely minimized because doors properly latched and locked) and posting at least one person to watch the church parking lot and lobby during services (most attacks start outside the building), Chinn said.

In time, the conversation about active-shooter situations will emerge—as they should, Chinn and Robertson said. Leaders again should contact their insurance agents for possible resources and guidance. Local law enforcement agencies often want to connect with churches about prevention and response plans, and frequently provide low- or no-cost training workshops. Additionally, attorney Richard Hammar recommends hiring off-duty law enforcement if a church decides to implement armed security.

If a church decides to use outside help beyond law enforcement, and considers using security consultants (which have proliferated in number over the past decade), it should look for options that “truly understand the environment of faith-based places,” Chinn said. “Look for someone who has served in churches for years, understands the culture, and has the heart and experience of a protector.”

Require referrals from other churches they have served. Research their standing in the business community, too, he added.

Above all, remember that active-shooter prevention and response is a “run” step on the crawl-walk-run spectrum, Robertson said. Get started with crawl steps that simply focus on physically protecting the church and minimizing legal liability.

“Churches need to build up a foundation first,” he said.

Related resources

Kevin Robertson provides local churches nationwide with about a dozen types of documents, including sample policies and procedures, a sample safety team member application, and a manual covering how to use force when necessary during an escalated situation. Church Law & Tax Advantage Members are encouraged to contact Robertson about these documents, available for free, at

Advantage Members have access to the following on

Advantage Members also receive a 20-percent discount on these resources when they log into using their email address:


New Email Scam Targets Payroll

Churches should verify that requests for bank account changes are legitimate.

A new email scam poses a significant threat to employers including churches, says Batts Morrison Wales & Lee (BMWL). The accounting firm issued this warning on September 13:

BMWL has learned from multiple sources about a new attempted scam related to employee payroll direct deposit accounts. In yet another version of “spear phishing,” fraudsters send a genuine-looking email to the payroll department in an organization purporting to be from an employee, requesting a change in the bank account to which the employee’s payroll direct deposit is sent.

BMWL stressed that payroll departments should verify email requests for any changes “with employees independently of email,” which could include a phone call or an office visit.

For more articles on best practices for payroll, see the following articles:

The Changing Dynamics of the Church Treasurer Role

Five key developments that have reshaped the position during the past 25 years.

During a normal Sunday morning service at a local church, while the congregation read the overhead screens during the sermon, someone in the congregation decided to check email. That church member’s smartphone synced with the church’s projectors and took them over. All of a sudden, the whole congregation was reading that person’s email.

“It was a glitch in the system,” said CPA Stan Reiff, a partner with the accounting firm CapinCrouse. The church shut down the screens and fixed a backdoor in the software. But the incident was a reminder, he said, of the blessings and challenges of modern technology.

The past 25 years have brought significant changes to how churches do business. Many have made life easier for church treasurers and other church leaders. But the changes have also brought new complications and challenges—here are five of the most significant.

Rapid changes in technology

Twenty-five years ago, churches had limited options on how to take in money and how to keep track of it, said CPA Vonna Laue, a senior editorial advisor for Church Law & Tax. Most of the tithes, offerings, and other donations came in by cash or check. Some churches had begun using spreadsheets or software like Quicken or QuickBooks to keep track of those funds.

Today, churches have a wealth of options, including fully integrated software packages that track giving, expenses, and other financial records—along with membership details and room scheduling. That’s made life easier, Laue said, because church leaders at even small congregations can readily access the data they need and create sophisticated reports.

And churches can easily accept electronic giving. “Twenty-five years ago, churches weren’t accepting credit card donations,” Laue explained. She said that a growing number of churchgoers are using ACH payments, texting, and other electronic forms of giving.

“Technology has significantly impacted how donations, tithes, and offerings are handled,” Laue said.

Tip. Churches should be cautious when it comes to choosing new technology, Laue said. Some staff or church leaders may have their favorite software, but that software may not be a good long-term choice for the church. Laue’s advice: Do your research ahead of time. Don’t rush out to buy the latest version of a program. And don’t think that new software will solve all your problems. “When you do that, you can trade one set of problems for another,” she stressed. (For additional guidance for software purchases, see chapter 6 in Church IT: Using Information Technology for the Mission of the Church by Nick Nicholaou.)

The rise of the Cloud

Closely tied to developments in technology, online options have radically affected the way finances and other business is conducted by churches.

Round the clock access to the internet has been a boon to churches, Reiff said. Pastors, church treasurers, and lay leaders can have access to financial information whenever they need it. And it’s easy to disseminate that information at the click of a button.

Using smartphone apps also makes it easy for churches to keep track of expenses. Rather than turning in paper copies of receipts, church staff and volunteers can take a photo of a receipt and file an expense report on their phone. Often those apps can be linked to the church’s general ledger, Reiff explained.

“No more worrying about lost receipts,” he said.

The rise of cloud-based applications, where the software and data are kept off-site, makes it easier for churches of all sizes to keep their financial records in an orderly fashion. Those cloud-based services often offer better cybersecurity than most churches could afford in the past. That’s important, Reiff said, because hackers target churches large and small for fraud—stressing the downside of an unprotected church computer network.

On a number of occasions, Reiff has worked with churches where a hacker has broken into a church’s email when their pastor is traveling—especially on mission trips. In one situation involving a traveling pastor, the hacker sent a fake email from the pastor, asking the treasurer to wire $10,000 for a mission project.

The treasurer was fairly new and was not inclined to question any of the pastor’s decisions.

“Fortunately this treasurer made a mistake when entering the routing number, so the transaction failed,” Reiff said.

After the pastor returned, the treasurer apologized for the delay in sending the funds. When the pastor looked confused, they both realized the request had been a fraud. This kind of situation is more common than you’d think, he stressed.

It also underscores an important point: Churches must be diligent about creating and enforcing policies regarding computer and internet use. Key decision-makers need to develop accounting and financial policies that deal with cybersecurity issues, said CPA Rob Faulk, a partner with CapinCrouse who spent about 15 years in church ministry.

“If hackers get into the network, they can get into your database,” Faulk said. He suggests that churches delete identifying information, like account numbers for donors, as soon as possible. And even the smallest churches should talk with a cybersecurity expert. “You may think, ‘We’re a small church and no one will bother us,'” he explained. “But hackers don’t care how small a church is.”

For help keeping your church and its finances safe, take a look at our recent work on the topic:

“Church Cybersecurity Starts with The Human Firewall” – (Sept., 2023)

“Hacking a Church is About Exploiting its Weakest Link” – (Sept. 2023)

“Navigating Cyberliability Insurance” – Sept. 2023

On the positive side, the internet has made it easier for churches to keep in touch with and raise support for missionaries who are located around the world, Faulk said.

Tip. Rather than visiting a church while on furlough every few years, a missionary can visit with a church via live video conferencing during a service, said Faulk. It can be a major savings for any church budget. And in general, a church can also have direct contact on a regular basis with missions via video or email. When a mission trip team from the church goes out, church members can often get daily updates instead of waiting for the team to return.

People are working longer and seeking second careers

Churches have benefited from two major staffing trends in recent decades, said Laue. The first is that Americans are retiring later. In fact, the fastest growing portion of the American workforce is made up of workers 65 and older, according to the Bureau of Labor Statistics. And second, many older Christians who started out in the for-profit world have begun working for churches.

“We’ve seen a lot more of second career people come into the church—looking for work or volunteer opportunities that have more meaning,” Laue said. “And they’re bringing their business skills with them.”

Those changes have helped raise the competency of church administrators, Laue said. And despite the advances in technology, people remain a church’s most important assets, she added.

Tip. While often skilled in numerous business and financial areas, people coming out of the for-profit sector need training and tools that help them adjust and understand the unique aspects of a church and nonprofit organization. Take advantage of all the training that’s available for church treasurers and other administrative staff, said Laue. Groups like the ECFA and CapinCrouse offer training for church staff, often for free or at very little cost. Those can include webinars, podcasts, and local workshops. Also, find various resources for training staff at

The growing use and value of outsourcing

Twenty-five years ago, outsourcing was mostly for corporations and other for-profit companies, said Bryan Miles, cofounder of Belay Solutions—a company that provides virtual/outsourced services to churches, nonprofit organizations, and for-profit companies.

In recent years, outsourcing has found its way into churches. Along with often being less expensive than hiring full- or part-time on-site staff, many churches are discovering that outsourcing can fill specific employment needs—and do so with people who share a church’s values.

“We’ve worked with hundreds of churches and they are facing the same struggles that businesses face—finding the right people to help them fulfill their mission,” Miles said.

Steve Dawson, the president emeritus of Chicago-based National Covenant Properties, agreed. That’s why the Evangelical Covenant Church—the denomination National Covenant Properties serves—decided to outsource all the bookkeeping for its church plants.

“We’ve got a couple people scattered around the country who understand churches—and they handle 20 or 25 church plants at a time,” he said..

Those outsourced bookkeepers can help churches get their finances in order from the start. As a result, pastors can focus on building the congregation and not on making sure all the bills get paid and all the accounting is done. It’s one less thing for a church planter to worry about.

Like businesses, Miles added, churches are looking for skilled workers—and they have the same needs as businesses do. They’ve got to pay their bills, produce financial reports, schedule events, and communicate with church members and the public. But they are also looking for people who share the church’s beliefs. An outsourcing company like Belay can help a church solve that problem—by matching them with someone who has the right skills and shares their faith.

Miles stresses that outsourcing can be a huge help for small churches or churches in rural areas, where there’s a limited pool of candidates.

That’s especially true when it comes to payroll and bookkeeping, said both Dawson and Miles. Churches have some unique needs when it comes to their finances and not every community has people who understand how churches work. Using an outsourcing firm allows them to draw from a larger pool of potential experts.

Dawson stressed that churches consider using a payroll service whenever possible. Those services can file all the paperwork that churches need to file for tax purposes—and do so on time, he said. That’s one less headache for a church to worry about.

Outsourcing can offer pastors and other staff at small churches a sense of relief, stressed both Dawson and Miles. Rather than worrying about financial reports and procedures on their own, they can partner with an outside firm.

Tip. Make a list of the most essential tasks the church has to accomplish and prioritize them, Miles advised. Then think about which tasks would be easiest to outsource. And then do your research, he said, to make sure the company you’re thinking of working with has a good reputation and has experience with churches.

Updated accounting practices

For most of the last two decades, accounting practices for churches have remained fairly unchanged. However, the Financial Accounting Standards Board (FASB) released a new standard in 2016 that that could impact churches, said Laue.

This standard is required for churches that release external financial reports like audited statements, said Laue, and not for internal reports. But, she says, following the standard can be helpful for all churches.

One change has to do with designated funds. In the past, nonprofits like churches separated those funds into three categories in their external financial reports: unrestricted, temporarily restricted, and permanently restricted.

Under the new standard, those funds will be separated on external financial reports into two categories: without donor restrictions and with donor restrictions.

Again, “this is only applicable if you issue external financial statements,” said Laue. “It will not impact how accounting is done but the reporting will look different, especially if you have both temporarily and permanently restricted amounts because they will now be grouped together,” she explained.

Another key change: External financial statements need to include a liquidity disclosure, Laue explained. That disclosure, she said, could give church members a better sense of the church’s financial health.

“Even if a church isn’t required to make those disclosures, they’re helpful—especially so that the less financially savvy church members will know how well the church is doing,” Laue said.

Tip. Add a liquidity statement to financial reports, even if it is just for internal use. That statement would show the liquid assets the church has available to pay expenses. “It may be a very positive experience for church leaders to truly think about the financial position their church is in,” said Laue. (For more information on the FASB standards, go to

The Masterpiece Cakeshop Ruling and Religious Freedom

This case and two others reflect the complexities of issues related to public accommodation.


Masterpiece Cakeshop is a bakery in Lakewood, Colorado, a suburb of Denver.

The shop offers a variety of baked goods, ranging from cookies and brownies to elaborate custom-designed cakes for birthday parties, weddings, and other events.

Jack Phillips is an expert baker who has owned and operated the shop for 24 years. Phillips is a devout Christian.

He has explained that his “main goal in life is to be obedient to” Jesus Christ and Christ’s “teachings in all aspects of his life.” And he seeks to “honor God through his work at Masterpiece Cakeshop.”

One of Phillips’ religious beliefs is that “God’s intention for marriage from the beginning of history is that it is and should be the union of one man and one woman.”

To Phillips, creating a wedding cake for a same-sex wedding would be equivalent to participating in a celebration that is contrary to his own most deeply held beliefs.

Phillips met Charlie Craig and Dave Mullins when they entered his shop in the summer of 2012. Craig and Mullins were planning to marry. At that time, Colorado did not recognize same-sex marriages, so the couple planned to wed legally in Massachusetts and afterward to host a reception for their family and friends in Denver.

To prepare for their celebration, Craig and Mullins visited the shop and told Phillips that they were interested in ordering a cake for “our wedding.”

Phillips informed the couple that he does not bake wedding cakes for same-sex weddings. He explained, “I’ll make your birthday cakes, shower cakes, sell you cookies and brownies, I just don’t make cakes for same-sex weddings.”

The following day, Craig’s mother, who had accompanied the couple to the cake shop and had been present for their interaction with Phillips, phoned to ask Phillips why he had declined to serve her son.

Phillips explained that he does not create wedding cakes for same-sex weddings because of his religious opposition to same-sex marriage, and also because Colorado (at that time) did not recognize same-sex marriages.

He later explained his belief that “to create a wedding cake for an event that celebrates something that directly goes against the teachings of the Bible, would have been a personal endorsement and participation in the ceremony and relationship that they were entering into.”

Discrimination by places of public accommodation

The Colorado Anti-Discrimination Act (CADA) prohibits several forms of discrimination by places of “public accommodation.” These include discrimination on the basis of sexual orientation as well as other protected characteristics. CADA in relevant part provides as follows:

It is a discriminatory practice and unlawful for a person, directly or indirectly, to refuse, withhold from, or deny to an individual or a group, because of disability, race, creed, color, sex, sexual orientation, marital status, national origin, or ancestry, the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of a place of public accommodation.

The Act defines “public accommodation” broadly to include any “place of business engaged in any sales to the public and any place offering services … to the public,” but excludes “a church, synagogue, mosque, or other place that is principally used for religious purposes.”

CADA establishes an administrative system for the resolution of discrimination claims.

Complaints of discrimination in violation of CADA are addressed in the first instance by the Colorado Civil Rights Division.

The Division investigates each claim, and if it finds probable cause that CADA has been violated, it will refer the matter to the Colorado Civil Rights Commission.

The Commission, in turn, decides whether to initiate a formal hearing before a state Administrative Law Judge (ALJ), who will hear evidence and argument before issuing a written decision.

The decision of the ALJ may be appealed to the full Commission, a seven-member appointed body.

The Commission holds a public hearing and deliberative session before voting on the case.

If the Commission determines that the evidence proves a CADA violation, it may impose remedial measures as provided by statute.

Available remedies include, among other things, orders to cease-and-desist a discriminatory policy, to file regular compliance reports with the Commission, and “to take affirmative action, including the posting of notices setting forth the substantive rights of the public.”

Shortly after the couple’s visit to the shop, Craig and Mullins filed a discrimination complaint against Masterpiece Cakeshop and Phillips in September 2012.

The complaint alleged that Craig and Mullins had been denied “full and equal service” at the bakery because of their sexual orientation, and that it was Phillips’ “standard business practice” not to provide cakes for same-sex weddings.

The Civil Rights Division opened an investigation.

The investigator found that “on multiple occasions,” Phillips “turned away potential customers on the basis of their sexual orientation, stating that he could not create a cake for a same-sex wedding ceremony or reception” because his religious beliefs prohibited it and because the potential customers “were doing something illegal” at that time.

The investigation found that Phillips had declined to sell custom wedding cakes to about six other same-sex couples on this basis.

The investigator also recounted that, according to affidavits submitted by Craig and Mullins, Phillips’ shop had refused to sell cupcakes to a lesbian couple for their commitment celebration because the shop “had a policy of not selling baked goods to same-sex couples for this type of event.”

Based on these findings, the Division found probable cause that Phillips violated CADA and referred the case to the Civil Rights Commission.

The Commission found it proper to conduct a formal hearing, and it sent the case to a State ALJ.

The ALJ ruled that it was undisputed that the shop was subject to state public accommodations laws, and that Phillips’ actions constituted prohibited discrimination on the basis of sexual orientation, not simply opposition to same-sex marriage as Phillips contended.

Phillips contended that requiring him to create cakes for same-sex weddings would violate his right to the free exercise of religion.

The ALJ disagreed, relying on a 1990 case in which the United States Supreme Court ruled that “neutral laws of general applicability” do not violate the First Amendment’s protection of religious freedom despite any burden they impose on religion. Employment Division v. Smith, 494 U.S. 872 (1990).

The ALJ determined that CADA is a neutral law of general applicability and therefore that applying it to Phillips in this case did not violate the First Amendment’s guaranty of religious freedom.

The Commission affirmed the ALJ’s decision in full. The Commission ordered Phillips to “cease and desist from discriminating against … same-sex couples by refusing to sell them wedding cakes or any product they would sell to heterosexual couples.”

It also ordered additional remedial measures, including “comprehensive staff training on the public accommodations section” of CADA “and changes to any and all company policies to comply with … this Order.” The Commission additionally required Phillips to prepare “quarterly compliance reports” for a period of two years documenting “the number of patrons denied service” and why, along with “a statement describing the remedial actions taken.”

Phillips appealed to the Colorado Court of Appeals, which affirmed the Commission’s legal conclusions and remedial order.

Phillips sought review by the United States Supreme Court.

The Supreme Court’s ruling

In Masterpiece Cakeshop, LTD v. Colorado Civil Rights Commission, 2018 WL 2465172 (2018), the Supreme Court began its ruling by noting that “our society has come to the recognition that gay persons and gay couples cannot be treated as social outcasts or as inferior in dignity and worth,” and that “the exercise of their freedom on terms equal to others must be given great weight and respect by the courts.” At the same time, however, “the religious and philosophical objections to gay marriage are protected views and in some instances protected forms of expression.”

Nevertheless, while those religious and philosophical objections are protected, “it is a general rule that such objections do not allow business owners and other actors in the economy and in society to deny protected persons equal access to goods and services under a neutral and generally applicable public accommodations law.”

The Court stressed that Phillips “was entitled to the neutral and respectful consideration of his claims in all the circumstances of the case,” but that “the neutral and respectful consideration to which he was entitled was compromised here by the Civil Rights Commission’s treatment of his case which had some elements of a clear and impermissible hostility toward the sincere religious beliefs that motivated his objection.” That hostility

surfaced at the Commission’s formal, public hearings, as shown by the record… . On July 25, 2014, the Commission met again… . [During this meeting] the commissioner stated: “I would also like to reiterate what we said in the hearing or the last meeting. Freedom of religion and religion has been used to justify all kinds of discrimination throughout history, whether it be slavery, whether it be the holocaust, whether it be—I mean, we—we can list hundreds of situations where freedom of religion has been used to justify discrimination. And to me it is one of the most despicable pieces of rhetoric that people can use to—to use their religion to hurt others… .”

To describe a man’s faith as “one of the most despicable pieces of rhetoric that people can use” is to disparage his religion in at least two distinct ways: by describing it as despicable, and also by characterizing it as merely rhetorical—something insubstantial and even insincere. The commissioner even went so far as to compare Phillips’ invocation of his sincerely held religious beliefs to defenses of slavery and the Holocaust. This sentiment is inappropriate for a Commission charged with the solemn responsibility of fair and neutral enforcement of Colorado’s antidiscrimination law—a law that protects against discrimination on the basis of religion as well as sexual orientation. The record shows no objection to these comments from other commissioners. And the later state-court ruling reviewing the Commission’s decision did not mention those comments, much less express concern with their content. Nor were the comments by the commissioners disavowed in the briefs filed in this Court. For these reasons, the Court cannot avoid the conclusion that these statements cast doubt on the fairness and impartiality of the Commission’s adjudication of Phillips’ case.

The court noted that another indication of hostility “is the difference in treatment between Phillips’ case and the cases of other bakers who objected to a requested cake on the basis of conscience and prevailed before the Commission.” In fact, on at least three other occasions

the Civil Rights Division considered the refusal of bakers to create cakes with images that conveyed disapproval of same-sex marriage, along with religious text. Each time, the Division found that the baker acted lawfully in refusing service… . The treatment of the conscience-based objections at issue in these three cases contrasts with the Commission’s treatment of Phillips’ objection. The Commission ruled against Phillips in part on the theory that any message the requested wedding cake would carry would be attributed to the customer, not to the baker. Yet the Division did not address this point in any of the other cases with respect to the cakes depicting anti-gay marriage symbolism… . In short, the Commission’s consideration of Phillips’ religious objection did not accord with its treatment of these other objections.

Before the Colorado Court of Appeals, Phillips protested that this disparity in treatment reflected hostility on the part of the Commission toward his beliefs. He argued that the Commission had treated the other bakers’ conscience-based objections as legitimate, but treated his as illegitimate—thus sitting in judgment of his religious beliefs themselves.

The Supreme Court observed: “The Colorado court’s attempt to account for the difference in treatment elevates one view of what is offensive over another and itself sends a signal of official disapproval of Phillips’ religious beliefs.”

The Court concluded that “the Commission’s treatment of Phillips’ case violated the state’s duty under the First Amendment not to base laws or regulations on hostility to a religion or religious viewpoint.” It added:

The government, if it is to respect the Constitution’s guarantee of free exercise [of religion] cannot impose regulations that are hostile to the religious beliefs of affected citizens and cannot act in a manner that passes judgment upon or presupposes the illegitimacy of religious beliefs and practices. The Free Exercise Clause bars even “subtle departures from neutrality” on matters of religion. Here, that means the Commission was obliged under the Free Exercise Clause to proceed in a manner neutral toward and tolerant of Phillips’ religious beliefs. The Constitution “commits government itself to religious tolerance, and upon even slight suspicion that proposals for state intervention stem from animosity to religion or distrust of its practices, all officials must pause to remember their own high duty to the Constitution and to the rights it secures.”

Factors relevant to the assessment of governmental neutrality include

The historical background of the decision under challenge, the specific series of events leading to the enactment or official policy in question, and the legislative or administrative history, including contemporaneous statements made by members of the decision-making body. In view of these factors the record here demonstrates that the Commission’s consideration of Phillips’ case was neither tolerant nor respectful of Phillips’ religious beliefs. The Commission gave “every appearance” of adjudicating Phillips’ religious objection based on a negative normative “evaluation of the particular justification” for his objection and the religious grounds for it. It hardly requires restating that government has no role in deciding or even suggesting whether the religious ground for Phillips’ conscience-based objection is legitimate or illegitimate. On these facts, the Court must draw the inference that Phillips’ religious objection was not considered with the neutrality that the Free Exercise Clause requires… . The official expressions of hostility to religion in some of the Commissioners’ comments—comments that were not disavowed at the Commission or by the State at any point in the proceedings that led to affirmance of the order—were inconsistent with what the Free Exercise Clause requires. The Commission’s disparate consideration of Phillips’ case compared to the cases of the other bakers suggests the same. For these reasons, the order must be set aside.

Application of the Supreme Court’s ruling

The Supreme Court’s ruling is relevant to clergy, churches, and business owners with sincere religious beliefs for these reasons:

1. Relevance to clergy. While not required by its ruling, the Court made the following gratuitous statement regarding the ability of clergy to perform, or not perform, same-sex marriages based on their religious beliefs:

When it comes to weddings, it can be assumed that a member of the clergy who objects to gay marriage on moral and religious grounds could not be compelled to perform the ceremony without denial of his or her right to the free exercise of religion. This refusal would be well understood in our constitutional order as an exercise of religion, an exercise that gay persons could recognize and accept without serious diminishment to their own dignity and worth. Yet if that exception were not confined, then a long list of persons who provide goods and services for marriages and weddings might refuse to do so for gay persons, thus resulting in a community-wide stigma inconsistent with the history and dynamics of civil rights laws that ensure equal access to goods, services, and public accommodations.

2. Relevance to churches. The Court’s ruling did not address the application of the nondiscrimination provisions of public accommodations laws to churches. For example, many state and local public accommodations laws prohibit discrimination by places of public accommodation on the basis of sexual orientation and marital status. A question that many church leaders are asking is whether a church that rents its sanctuary to the general public for heterosexual weddings violates such a law by barring same-sex couples from using the church for a wedding ceremony. Does generating rental income from weddings performed for nonmembers make it a place of public accommodation subject to all the nondiscrimination provisions of a public accommodations law? This issue was not addressed by the Court’s decision, other than indirectly by the Court’s conclusion that the First Amendment guaranty of religious freedom requires government neutrality toward religion both in language and in the enforcement of public accommodation laws.

3. Relevance to business owners with sincere religious beliefs. The Court’s decision demonstrates that the civil courts cannot adjudicate the application of the nondiscrimination provisions in a public accommodations law to business owners in a way that violates their religious beliefs if there is evidence of hostility to religion by the courts or the civil rights agency tasked with enforcement of the law. Unacceptable hostility or bias may consist of:

Hostile, disparaging statements concerning religious belief (i.e., likening Christianity to slavery or the Holocaust).
More favorable treatment for atheistic or agnostic beliefs (i.e., failure to prosecute bakeshops that refuse to provide services to Christians).
The historical background of the decision under challenge.
The specific series of events leading to the enactment or official policy in question.
The legislative or administrative history, including contemporaneous statements made by members of the decision-making body.

As a result, the response of business owners with sincere religious beliefs in opposition to one or more of the prohibited forms of discrimination under a state or local public accommodations law will be to find any evidence of disparate or less favorable treatment of religious belief.

If the evidence demonstrates that the courts or civil rights agencies have treated religious belief with neutrality and respect, then the substantive issue of the protection, if any, provided by the First Amendment guaranty of religious freedom is raised. It is far from certain that such a defense will be successful. Consider the following two quotations from the Masterpiece Cakeshop ruling. The first is from the majority opinion by Justice Kennedy, and the second is from Justice Kagan’s concurring opinion:

“The religious and philosophical objections to gay marriage are protected views and in some instances protected forms of expression. Nevertheless … it is a general rule that such objections do not allow business owners and other actors in the economy and in society to deny protected persons equal access to goods and services under a neutral and generally applicable public accommodations law.”

“As this Court has long held, and reaffirms today, a vendor cannot escape a public accommodations law because his religion disapproves selling a product to a group of customers, whether defined by sexual orientation, race, sex, or other protected trait. A vendor can choose the product he sells, but not the customers he serves—no matter the reason.”

Two other cases to consider

A few days after the Supreme Court issued its ruling in the Masterpiece Cakeshop case, the Court addressed a similar case in Washington state involving a Christian florist shop owner (Barronelle Stutzman) who was prosecuted for violating the nondiscrimination provision in a state public accommodations law for refusing to prepare floral arrangements for a same-sex wedding.

The Washington Supreme Court ruled that the florist had violated the public accommodations law and rejected her religious liberty defense.

But the United States Supreme Court, in a two-sentence order, vacated the judgment of the state supreme court and remanded the case back to that court “for further consideration in light of Masterpiece Cakeshop.”

The owner of the floral shop has argued that the State of Washington did not treat her religious beliefs with sufficient respect and neutrality, pointing out that at least one other floral shop that refused to provide services to Christians was not prosecuted for violating the public accommodations law.

In another case, decided a few weeks before Masterpiece Cakeshop, an Arizona state appeals court ruled that a city ordinance barring discrimination based on sexual orientation or marital status by places of public accommodation did not violate the constitutional rights of a wedding design business that refused to provide services for a same-sex wedding.

Brush & Nib Studio v. City of Phoenix, 418 P.3d 426 (Ariz. App. 2018). The court sidestepped the question of nonreligious bias by the state courts or civil rights agency that was decisive in the Masterpiece Cakeshop case, and addressed directly the substantive question of a business owner’s right to refuse to provide services for a same-sex wedding on the basis of his religious beliefs.

It concluded that the First Amendment guaranty of religious freedom did not insulate the business owner from liability for refusing to provide services for a same-sex wedding. The court concluded that the city public accommodations ordinance did not violate the First Amendment guaranty of religious freedom because it did not “substantially burden” the exercise of religious beliefs:

A substantial burden on the free exercise of religion requires more than a government action which merely “decreases the spirituality, the fervor, or the satisfaction with which a believer practices his religion,” and instead is akin to the government coercing an individual to act contrary to his religious beliefs or penalizing faith… . Here [the owner] has failed to prove that [the ordinance] substantially burdens his religious beliefs by requiring that he provide equal goods and services to same-sex couples. He is not penalized for expressing his belief that his religion only recognizes the marriage of opposite-sex couples. Nor is he penalized for refusing to create wedding-related merchandise as long as he equally refuses similar services to opposite-sex couples. [The ordinance] merely requires that, by operating a place of public accommodation, he provide equal goods and services to customers regardless of sexual orientation. He is free to discontinue selling custom wedding-related merchandise and maintain the operation of [the business] for its other business operations. What he cannot do is use his religion as a shield to discriminate against potential customers.

Even if [the owner] had met his burden of proof to demonstrate that [the ordinance] places a substantial burden on their religious exercise, it is still constitutional because the city has a compelling interest in preventing discrimination, and has done so here through the least restrictive means. When faced with similar contentions, other jurisdictions have overwhelmingly concluded that the government has a compelling interest in eradicating discrimination… .

It goes without saying that providing equal access to places of public accommodation does “not simply guarantee access to goods or services,” but “serves a broader societal purpose: eradicating barriers to the equal treatment of all citizens in the commercial marketplace.”

The court concluded that the city’s obligation “is to not enact, interpret or apply its laws or regulations based on hostility to a religion or religious viewpoint. There is no evidence in the record to support any suggestion that the city’s adoption of [its public accommodations law] or its interpretation as it relates to [the owner] has been anything other than neutral toward and respectful of their sincerely-expressed religious beliefs.” As a result, it is unlikely that the business owner will find relief under the Masterpiece Cakeshop case unless he can prove that the ordinance was applied in a way that was biased toward religion.

For more on issues related to public accommodation laws, see the downloadable resource Church Issues: Same-Sex Marriage and Gender Identity, available on

Taking the Right Steps to Establish a Retirement Plan

Early planning can avoid IRS trouble—and provide well when retirement comes.

As a lawyer who advises churches on a variety of issues, I’ve had many difficult conversations with church leaders. One of the most difficult discussions, however, involves telling a church and its pastor that it’s too late to fund the pastor’s retirement.

Far too many pastors reach retirement age and can’t consider retiring—even if they desire to—because they do not have enough in retirement savings. Alternatively, a church board may want a change in leadership, but faces resistance from a longtime pastor who is unwilling to step down because of the financial uncertainties he or she will face. Then there is the heartbreaking situation in which a pastor dies, leaving no viable means of financial support behind for the surviving spouse.

These problems unfortunately arise more often at churches across the nation than they should. Even more concerning: when a problem is discovered, the quick-fix solutions often proposed to resolve it are usually questionable, if not outright illegal.

Consider the complexity of the following six real-life examples, and the challenges posed to the church and the pastor by the attempt to make things right (resolutions to each are at the end of this article):

EXAMPLE 1 A pastor worked for 50 years for the church. The church paid him an annual salary of less than $30,000, but sometimes much less. He opted out of Social Security, stating he opposed receiving any public insurance, but he really opted out because he did not have the cash to pay into the system. He wasn’t able to save anything. The church membership dwindled over time, so much so that the church voted to dissolve, sell the property, and use the money to purchase an annuity for the pastor’s retirement. The state attorney general challenged the use of the funds for this purpose.

EXAMPLE 2 Over a period of about 15 years, a pastor and the church board talked about setting up a retirement plan, but they never finalized anything. He died, and the church began to pay his widow a small sum of money each month. When the church filed to reestablish its exempt status with the Internal Revenue Service, the IRS questioned the basis for these payments to the widow, as she did not provide services to the church, and never had been an employee of the church. The IRS considered these payments a possible form of private inurement.

EXAMPLE 3 Two churches voted to merge. Both churches had pastors; the pastor of one church said he was ready to retire. But then it turned out that he expected the second church to keep paying him a salary in his retirement years after the merger.

EXAMPLE 4 A church’s board of directors included its pastor, who was also the chief executive officer of the church. Because of the respect board members had for the pastor, decisions made by the pastor and presented to the board generally were rubber stamped. Board members didn’t ask hard questions to assure that each decision made was actually in the best interests of the church. When the pastor decided he wanted to retire in about five years, and he realized he did not have sufficient assets to do this, he asked the church to set up a separate fund with a significant amount of church assets. The pastor planned to handle the investments until such time as he retired, and at which time he would have the church transfer the account directly to him to fund his retirement.

EXAMPLE 5 A religious leader who lived most of his life as a monk had a wife he still supported. He wanted to make sure his wife would continue to receive support after his death, but he recognized this would have to come from church assets, since he personally owned nothing. Like Example 2, the wife never was an employee of the church and on her own would not have been entitled to receive retirement benefits from the church. And because the religious leader lived under a vow of poverty and didn’t receive a regular salary from the church, funding a retirement plan would be difficult. The religious leader understood that the church assets would legally have to remain in the control of the church, but he asked that a method be set up to allow some of the assets to be used for the wife’s support after his death.

EXAMPLE 6 A church pastor served a church for over 25 years. Church elders wanted to figure out how to care for him upon retirement. They decided to create a “Pastor Emeritus” role, and to pay him for the next five years. In return, he would focus on relationships with congregants that he developed over the years, as well as the expansion of an overseas ministry. This raised numerous questions, including whether such an arrangement was legal, how long it could continue, and what amounts could be paid.

Do any of these examples sound familiar? How can they be resolved in a way that protects the church, while providing at least some assistance to the pastor or a surviving family member? Ideally, church leaders and pastors will plan ahead so that these types of problems never arise.

Four key questions

As a first step, let’s examine four questions that should guide decisions all churches make with respect to the retirements of their pastors. Then we’ll come back to these examples and offer some answers to the questions they pose.

1. Are you paying your pastor enough?

Being called to ministry shouldn’t mean unfair or unreasonable compensation. Sometimes the pastor, having felt called by God to the ministry, may be willing to live very modestly. Even so, pastors who feel called should not be required to live with barely enough to cover basic expenses—and this should certainly include setting something aside for retirement. By setting up a compensation budget, and sometimes by asking the congregation for contributions to help fund it, some churches have discovered that they can actually pay their pastors more.

For churches with sufficient budgets to pay reasonable salaries, the board must make sure that the pastor’s salary (including housing allowance) is sufficient for current living expenses, and it also must make certain that the church has implemented an appropriate retirement package.

Although the board should look at salaries that are paid for comparable positions to ensure the compensation isn’t too high (and thus trigger penalties discussed later in this article), even apart from this, a good rule of thumb is that the amount paid to the pastor should be in the median range of the income of the congregants—not at the top of the income range, nor at the bottom.

For some churches, financial realities still make it difficult to pay their pastors the amounts they would like. For instance, a very small church may not be able to pay the pastor what would normally be considered a reasonable salary. Or sometimes the growing pains at mid- or large-sized churches can make reasonable salaries challenging, and may require time for those churches to address. In these situations, the board must have a conversation with the pastor about whether it is appropriate to have the pastor in a full-time position, or whether the pastor should be employed, at least part-time on a bivocational basis, outside of the church until the church can afford to pay more. But even in these situations, church boards still must consider ways to help their pastors set aside funds for retirement, as small or seemingly insignificant as those amounts might seem at that moment.

One caution for all churches regarding compensation packages: the pastor should never set his or her salary. This is the responsibility of the church’s governing or financial board. More explanation about this appears later in this article.

2. Has your pastor opted out of Social Security?

The Social Security program was developed by the government to provide a safety net. It was not intended to replace retirement plans, although many people today retire without any significant savings, instead relying upon Social Security programs to completely cover them during their retirement years. Social Security includes medical care and disability coverage as well as retirement benefits, and when a recipient dies, Social Security will provide assistance to the recipient’s survivors.

During the first two years of receiving compensation for ministerial services, a pastor has an option to elect out of Social Security by filing Form 4361. To make such an election, the pastor must certify his or her opposition to the acceptance of such public insurance based on his or her religious beliefs, and must certify that he or she has informed his or her ordaining body of such opposition. Once the election is made, it is irrevocable.

A significant percentage of pastors have made this election, but not always because of religious-based objections. Many new pastors believe (or are told) that opting out represents a chance to accumulate more money through investments made on their own. This is not a legal reason to opt out. It also isn’t wise: even if a pastor could do a better job of investing the funds than the federal government, such a plan only works if the pastor takes the same funds that would have been paid into Social Security and makes investments every year. Not everyone is financially disciplined enough to do so. And for those who do not have a trusted financial advisor to help them, they may not be savvy enough to make the right investment picks.

The amount paid by a church to a pastor must be reasonable. This includes not just salary, but the contributions made by the church to a pastor’s retirement account.

By opting out, the Social Security safety net disappears. When it does, the pastor must make certain the money he or she saves ultimately replicates that safety net for their medical, disability, and retirement needs, as well as for their beneficiaries when they die. Example 1 above demonstrates the problems faced by a retiring pastor who opted out, but didn’t possess the means to replicate that individual safety net.

So what can a pastor who previously opted out of Social Security do about future retirement plans?

First, it isn’t likely a pastor in such a situation will have an opportunity to reenroll into Social Security. Only twice in the past 30 years has Congress temporarily allowed pastors to opt back in, and there are no indications that Congress intends to offer another chance anytime soon.

Second, any pastor who opted out must consider setting aside funds for a safety net right away if he or she hasn’t done so already.

And third, a pastor should evaluate what role Social Security still might play in their future financial outlook, based on previous, current, or future nonministerial employment. For instance, any pastor who opted out for their ministerial role, but previously or currently held some other line of work, and pays into the Social Security program from the earnings of their nonreligious employment for at least 40 quarters (i.e., 10 years), will be eligible to participate in Social Security when they reach retirement age. Since retirement benefits will be based, in part, on the actual amounts paid in, the Social Security retirement benefits generally will be less than if the pastor never opted out. But it still provides some financial support in the retirement years.

For a pastor who opted out, never worked a nonministerial job, and now hopes to retire, the prospect of working in another job for 10 years is likely unattractive. Of course, if the pastor worked another nonministerial job earlier in his or her career, and only needs a few additional quarters to qualify, it may well be worth considering some additional nonministerial work. Sometimes a member of the church who is a business owner might be willing to hire the pastor for the period of time needed. I have worked with pastors who successfully did this. The business gets assistance, often in the form of strategic planning and direction, and the overseeing pastor obtains the additional quarters of nonministerial work that he or she needs.

It should also be noted that if the minister’s spouse has worked the necessary quarters and qualified for Social Security, the spouse may file to receive Social Security benefits and the minister might also be entitled to receive them as a spouse (of course, there is a moral question of whether this is something that the pastor wants to do if the pastor really held religious objections to receiving public insurance benefits).

Even if the minister has paid partially or fully into the Social Security program, there is a clear question of whether it is—or will be—sufficient to cover the minister’s full retirement needs. Social Security’s original purpose was to supplement other retirement savings plans. And because of the financial difficulties the Social Security system faces, it is recommended that all churches and pastors make sure they have a retirement plan that does not require the pastor to rely solely on Social Security to fully fund his or her retirement.

3. How does your pastor’s current housing situation affect the future?

For most Americans approaching retirement age, a large portion of their assets consists of the equity built through a home they own. This is not always true for pastors, though. If the church provides a parsonage, the pastor can live there without paying taxes on the value of the housing furnished. This seems like a great deal. But this also raises questions, such as:

•Where will the pastor and spouse live upon retirement?

•Has the pastor built up a nest egg similar to the equity most others achieve through home ownership?

Some churches address this by providing an “equity allowance”: additional income paid now to the pastor that, although taxable, makes up for the lost opportunity to build equity through home ownership. Senior Editor Richard Hammar further explains in the 2018 Compensation Handbook for Church Staff: An equity allowance is an excellent idea that should be considered by any church having one or more ministers living in church-provided housing. The equity allowance should not be accessible by the minister until retirement, so it should be placed directly in a minister’s tax-sheltered retirement account. Equity allowances also should be considered by a church whose minister rents a home.

Alternatively, many churches provide pastors with housing allowances. This arrangement allows the pastor the ability to build up equity by purchasing a home. The housing allowance is also excludible from income tax (but not from Social Security tax) to the extent it is actually used to provide a home for the pastor, and so long as the total does not exceed the fair rental value of the house. (Editor’s Note: Pastors and church leaders should note the current litigation challenging the constitutionality of the clergy housing allowance. The outcome, which remains uncertain, could affect the availability of this benefit. Check regularly for updates.)

Whether through an equity allowance or a housing allowance, such an arrangement—though not an alternative to retirement planning—does help ensure a pastor is not left penniless. For more help regarding housing allowances, particularly for retired pastors, see chapters 6 and 10 of the Church & Clergy Tax Guide.

4. What types of retirement plans are available—and how should a pastor and board evaluate them?

What should the church and pastor do to figure out the best retirement plan(s) for their particular situation? The area of retirement law is very complex, and is beyond the scope of this article. However, for further guidance, refer to the first article in this issue and to the Church & Clergy Tax Guide. As for this article, here are some basic thoughts and concerns that churches and pastors should consider together:

Each church should consider the future of its pastor, preferably from the time of his or her hire, but in any event, well before the pastor wants to retire. Most denominational churches already have retirement plans in place, and this should be the starting point for the pastors serving these congregations. It is likely that a complete review of where the pastor wants to end up might require additional planning and contributions, and perhaps the use of additional retirement plans. The church should support the pastor in this process.

A new pastor has the benefit of time. If the pastor starts putting money into a retirement account at the beginning of his or her ministry, by the time retirement age arrives, the principal and interest that has accrued (tax-free in most cases) will allow for a comfortable retirement (the chart on page 3 further illustrates the power of saving for retirement early in one’s career).

A pastor with 10 to 20 years left of his or her ministry will have to plan more diligently, but should be able to reach retirement age with some assurance of funds.

No plan will solve the problem that results when a pastor has served a church for 30 or more years and does not think about retirement until retirement nears. The natural response is to ask the church for help, and to figure out how to save enough in the next several years to catch up to where the individual would have been, had retirement contributions been made regularly for the past 30 years of his ministry. Not only is this approach unrealistic, but it may raise other challenges related to annual compensation levels that exceed reasonable levels and trigger penalties discussed later in this article.

Funding the plan and reasonable compensation

How will the plan be funded? Clearly, it is appropriate for a church to assist its pastor in planning a retirement, and even setting up the retirement plan. However, contributions, when added to the compensation already being paid to the pastor, cannot be in excess of what is reasonable compensation for the position. Different providers and organizations recommend different amounts that a church contributes. For instance, GuideStone, a Christian-based financial services provider, recommends church contributions equal to 10 percent of the pastor’s salary. If a pastor has determined that 10 percent will not be sufficient, he or she may be able to set aside additional amounts, through elective contributions. But all amounts contributed by the church must be weighed along with the pastor’s total compensation to ensure penalties aren’t incurred. Let’s examine how those penalties are triggered.

Limits on compensation: private benefit, private inurement, and intermediate sanctions

We have already talked about the need to pay a minister a decent salary. However, there is a limit to what the church can pay. The most common reason for a church to lose its tax exemption is when the church is found to be operating principally to benefit an individual or individuals. This “private benefit” or “private inurement” occurs when the individual receives a benefit (compensation) greater than the value of what he or she provided (services) to the church.

The amount paid by a church to a pastor must be reasonable. This includes not just salary, but the contributions made by the church to a pastor’s retirement account. Unless there was a prior agreement between the church and the pastor to defer income to a later year (for example, the church agreed to pay the pastor $50,000 per year; however, because of a cash shortage, the church and pastor agreed to $40,000 cash and $10,000 deferred income to be shown as a liability to the church and paid to the pastor in the future, as appropriate), all of the funds will be considered to be earned in the year in which they were paid.

Private benefit. All assets of the church must be used for church purposes—to benefit the purpose for which the church was formed. If the church cannot provide a religious justification for a particular expenditure, it should not be made. Clearly this does not prevent a church from having employees. In fact, the purposes of the church may require a minister and other employees in order to accomplish its purposes. However, the amount paid to each employee, including the minister, must be reasonable, and the primary purpose of any payment must be to advance the ministry of the church. If the primary purpose is to benefit an individual, this will endanger the tax status of the organization.

Private inurement. Private inurement is likely to arise when there is a transfer of church resources to an “insider” solely by virtue of the individual’s relationship with the organization, and without regard to accomplishing exempt purposes. An insider is one with a unique relationship to the church, by which the insider, by virtue of his or her control or influence over the church, can cause the organization’s funds or property to be applied to the insider’s benefit. There is no inurement when the benefit to the insider (or any other private party) is an unavoidable byproduct of actions taken for the church’s exempt purpose.

Intermediate sanctions. In the past, if an exempt organization was operated in a way that benefitted a private person, the only remedy the IRS had was to revoke the exempt status of the organization. This often did not penalize the wrongdoer, but hurt the beneficiaries who no longer received services from the organization whose tax-exempt status was now revoked. In 1996, Congress changed the law by adopting a new provision (IRC section 4958) that imposes penalties on the person(s) who actually benefit from an improper transaction, rather than just revoking the exempt status of the organization. The result of this change is that if a “disqualified person” (defined as someone who is, or within the past five years has been, in a position to substantially influence the organization—and this will normally include the pastor) receives an “excess benefit” (for instance, more than the person is entitled to, based on what he or she provided to the organization), that person must repay the excess benefit (plus interest) along with a penalty of 25 percent of the excess benefit. In addition, if the excess benefit (plus interest) is not repaid in a timely manner, the IRS may impose an additional 200 percent penalty. Further, anyone who approved the benefit, even if he or she did not receive a dime (for instance, the board of directors), is subject to a penalty of up to $20,000 per transaction.

As a result of this law, which is commonly referred to as “intermediate sanctions”—since it is less than total revocation of the organization’s exempt status—it is even more important that the church take steps to determine that the compensation paid to the minister does not exceed what is reasonable (the value of services being provided by the minister).

But why, in talking about retirement, do we care about reasonable compensation and intermediate sanctions?

What is reasonable compensation? Compensation is reasonable if the amount paid would ordinarily be paid for like services, by like enterprises, under like circumstances. In determining the value of compensation for purposes of intermediate sanctions, all items of compensation must be considered, including all forms of cash and noncash compensation (i.e., including salary, bonuses, severance payments, and deferred and noncash compensation at the time it vests or is not subject to substantial forfeiture).

Whether compensation received in a given year is treated as gross (taxable) income that year is a separate question from whether the compensation paid is reasonable for purposes of intermediate sanctions. In determining reasonable compensation, all the benefits provided by the disqualified person to the organization in exchange for that compensation also are taken into account. For example, when a pension plan benefit vests, the services performed for the years leading up to the year of vesting may be considered in determining reasonableness. Let’s say that the reasonable compensation for the pastor is determined to be $100,000 per year. The pastor has worked for 10 years for an annual salary of $90,000, with the church also making annual contributions of $10,000 to the pension plan. At the end of 10 years, the pension plan shows $100,000 as now being the property of the pastor. When the $100,000 vests, the pastor would receive, in that year, his $90,000 salary, plus $100,000 pension plan assets, for a total of $190,000—clearly more than what was considered reasonable for annual compensation. However, by looking back over the 10 years, the reasonable compensation would have been a total of $1 million, of which the pastor has previously received $900,000. When one adds the additional $100,000 which has now vested, the compensation is still reasonable.

What must be treated as compensation? Any benefit received by a disqualified person must be in exchange for some type of service or other benefit provided to the church by the disqualified person, and the church must treat it as such. Otherwise, it is treated as an excess benefit, without further consideration, and without regard to any claim of reasonableness of the total compensation package.

An economic benefit will not be treated as payment for the performance of services rendered by the disqualified person unless the church providing the benefit clearly indicates its intent to treat it as such when the benefit is paid.

Except for nontaxable benefits, a church will be treated as clearly indicating its intent to provide an economic benefit as compensation for services only if the church provides written substantiation that is contemporaneous with the transfer of the economic benefit. There may be other written contemporaneous evidence used to demonstrate this intent, such as an executed and approved written employment contract, documentation showing that an authorized body, such as the board of directors, approved the compensation before paid, or written evidence that supports a reasonable belief that the benefit was nontaxable. If the failure to report was due to a reasonable cause (i.e., the church can establish that there were significant mitigating factors, or that the failure arose from events beyond its control) and the church otherwise acted in a responsible manner, the church will be treated as having clearly indicated its intent. If there has not been the requisite withholding or reporting and the failure to report was not due to a reasonable cause, then the economic benefit will be considered an excess benefit transaction.

Why the date of occurrence matters. An excess benefit transaction occurs on the date the disqualified person receives the economic benefit for federal income tax purposes. If the contract provides for a series of payments over a taxable year, any excess benefit transaction resulting from the payments will be deemed to occur on the last day of the taxable year (or the date of the last payment, if only for part of the year). With qualified pension plan benefits, the transaction occurs on the date the benefit vests. With a transaction involving substantial risk of forfeiture (the nonqualified retirement plans), the transaction occurs on the date there is no longer any substantial risk of forfeiture.

The role of the initial contract with the pastor. An initial contract is a binding, written contract between the exempt organization and a person who was not a disqualified person immediately prior to entering into the contract. Intermediate sanctions do not apply to any fixed payment (as defined below) pursuant to this initial contract, unless the person fails to substantially perform his or her obligations under the contract.

This means that when the church first hires the pastor and sets his or her salary, this salary will not be considered to be subject to intermediate sanctions, because the pastor does not become a disqualified person (e.g., able to exercise substantial influence) until after being hired.

A fixed payment is defined in the regulations as the amount of cash or property specified in the contract or determined by a fixed formula specified in the contract, in exchange for the provision of specified services or property. A fixed formula may incorporate an amount that depends upon future specified events or contingencies, provided that no person exercises discretion when calculating the amount or deciding whether to make a payment. Contributions to a qualified pension plan or nondiscriminatory employee benefit program are treated as fixed payments.

Determining reasonableness of other contracts and payments. For all contracts other than initial contracts, reasonableness of a fixed payment (as defined above) is determined based on the facts and circumstances existing as of the date the parties enter into the contract. However, if there is substantial nonperformance, reasonableness is determined based on all facts and circumstances from the date of entering into the contract up to the date of payment. If a payment is not a fixed payment under a contract, then the determination must be made, based on all facts and circumstances, up to and including circumstances as of the date of payment. However, the organization cannot argue that the compensation is reasonable, based on facts and circumstances existing at the time a contract is questioned.

These rules also apply to property subject to a substantial risk of forfeiture: if it satisfies the definition of a fixed payment, reasonableness is determined at the time the parties enter into the contract; if it is not fixed, reasonableness is determined as of the date of payment.

In reviewing this area of the law, it appears that the question of what is reasonable is not always obvious, and will have to be considered when the salary and benefits are set, when they are paid, and when they vest, or are no longer subject to substantial risk of forfeiture. Because compensation includes both salary and retirement benefits, it is important to make sure that the reasonableness is reviewed on a regular basis.

In addition, the IRS takes the position that if a pastor has been willing to perform services in exchange for a particular salary, the pastor is not entitled to receive an additional amount as retroactive compensation, since he or she already received the amount that both parties had agreed was acceptable. Of course, the church can increase his or her salary to what is reasonable. But it cannot provide “extra” compensation over what is reasonable at the time it is received to “catch up” for prior years. It would be different, of course, if the parties agreed to a salary of x+y, but with an understanding that a salary of x would be paid now, and that y would be paid at some point in the future.

Safe harbor

There are steps a church can take so that any compensation paid fits into what is sometimes called a “safe harbor.” This safe harbor provides that if certain requirements are met, then the burden switches from the individual to prove that his or her compensation is reasonable to the IRS to prove that the compensation is not reasonable. The safe harbor requires three steps:

1. Approval by disinterested board. The arrangement must be approved by a board or a committee of the board that is composed entirely of people who are unrelated to the person receiving the benefit, and not subject to his or her control. If the individual is a director, he or she must not participate in the decision regarding the salary (although he or she may participate in decisions about other matters). The individual may meet with other directors to answer questions, but should be excused from the rest of the discussion so that he or she is not present during the debate and voting on the transaction or compensation arrangement. For the safe harbor to be available, the decision of the board must be made at or before the payment is made.

2. Based on independent valuation. The board or committee must obtain and rely upon outside objective information to determine that an arrangement is reasonable. For example, the board might look at compensation paid by similar organizations (both taxable and nontaxable) for similar positions, independent compensation surveys compiled by independent firms (including ChurchSalary), actual written offers to the disqualified person from similar institutions, and independent appraisals of any property that is the subject of the transaction. If the organization has annual gross receipts of less than $1 million, it may rely upon data of compensation paid by five comparable organizations in the same or similar communities for similar services. It is clear that the organization can look at what is paid by for-profit entities, as well as by nonprofits, in order to determine what is reasonable.

3. Adequate documentation. The decision must be adequately documented and the basis for determining reasonableness clearly defined. Meeting minutes should set forth:

  • the terms of the transaction and the date it was approved,
  • the directors present during the debate and who voted,
  • the comparability data obtained and relied upon and how it was obtained, and
  • any actions taken concerning the transaction by any director who had a conflict of interest (e.g., they recused themselves from the meeting).

If the board determines that reasonable compensation/fair market value is actually higher or lower than the comparable information obtained, the basis for this determination must be recorded. Minutes of the meeting must be prepared by the next meeting of the board, and must be reviewed and approved by the board as being reasonably accurate and complete within a reasonable time thereafter.

If these steps are taken, then the IRS will have to furnish additional information to show that the compensation (including retirement benefits) was not reasonable, or that the transfer was not at fair market value, in order to prevail. But remember—the burden only shifts to the IRS if all of the above steps are taken first, before compensation is paid. If not, the burden remains with the individual and the board to prove that the total compensation package, including retirement contributions and other benefits, was reasonable.

The church does not belong to the pastor

Although this might seem obvious, this point needs to be made. Many independent churches look to their pastor to lead and guide all aspects of the church. Often, the board itself is nonfunctional or acts as a rubber stamp for what the pastor decides.

When a director is making a decision on behalf of the church, he or she must look out for the church’s best interests. When a decision could benefit or harm the director personally, then the director is considered to have a conflict of interest. Limiting and regulating conflicts of interest is often addressed in the state law.

If the church plans to set up a retirement plan for its pastor, it should reflect this intention in the minutes of the board meetings, with whatever detail is discussed.

As the safe harbor discussed in the last section suggests, a determination of what to pay the pastor really needs to be made by a disinterested board. Although there are some differences in the laws of the various states concerning conflicts of interest and self-dealing transactions, if the board is not involved in determining the salary and benefits to be provided, the pastor and the board may be subject to penalties, and the church may have its exempt status challenged.

This is a particular concern to the IRS as well as to the states, especially to ensure that the assets of the nonprofit are used to benefit the nonprofit’s mission, rather than principally benefit a private individual. One way to soothe IRS concerns is to adopt a conflict of interest policy (for more help see “Why Churches Need a Conflict of Interest Policy” on Such a policy allows the board to make decisions in an objective manner without undue influence from interested persons (such as the pastor), assures that the organization fulfills its charitable purposes, and that the compensation paid is reasonable. However, a conflict of interest policy only works if the board takes responsibility to fulfill its duties. Often, the chair of the board, if there is such an officer, will work with the pastor to review his responsibilities, accomplishments, and salary needs, and then will present it to the board. Again, as noted above, the pastor’s salary, including retirement benefits, should be approved by a disinterested board, must be reasonable based on outside objective facts, and documented in the board minutes.

And again, with regard to the retirement plan(s) as part of the overall compensation, it is crucial that this must be addressed by the board.

Setting up a church-wide program to assist ministers

If a church does not take care of its ministers who have dedicated their lives to the church, this is not only unscriptural (see 1 Timothy 5:17-18 and 1 Corinthians 9:9-11), but it does not provide a good witness to others. In addition, taking care of the poor, the widowed, and the orphans is a scriptural requirement. If the church can provide assistance to others in need, there does not seem to be anything that should prohibit the church from also taking care of those in the ministry.

Some denominations have set up programs to assist ministers who are retired or retiring, especially if they are in need of financial assistance. Again, this does not replace the need for retirement planning, but it can provide relief, especially when some unforeseen financial issue arises. This method allows the church to take care of those who have given their lives in service to the church, especially when special needs arise.

Transition to full-time retirement

As noted above, unless it is deferred compensation (earned earlier, but paid at an agreed-upon future date), the church cannot pay compensation after the fact. Once a pastor has ceased to provide services, the church cannot generally continue to pay a salary.

Often the pastor and the church agree to have the pastor continue to provide services for a period of time, on either a part- or full-time basis. These services might be a continuation of the services already being rendered, they might be limited to just some of the pastor’s prior responsibilities, or they might have the pastor moving into a new area of ministry. Sometimes the pastor will actually want to retire, but the church will want the pastor to be available for consultation during the transition period. These are all permitted options. In any event, the church must limit the compensation to what is reasonable for the services rendered. If the pastor is still working full time, even if his responsibilities have shifted, his full-time salary still may be reasonable and appropriate. If he is only working part time, the salary should be reduced so that it remains reasonable for the services rendered. Contributions to retirement plans may also continue to be paid during this time.

Sometimes the transition involving the retirement of the pastor becomes difficult. If the church has determined that it is time for the pastor to retire for whatever reason, especially when the pastor does not agree, the church may want to negotiate a settlement with the pastor where the pastor agrees to a voluntary retirement/termination of his or her employment in exchange for severance pay. This allows the church to settle with the pastor, and thus avoid a potential lawsuit, while also providing the pastor with a sum of money that would help in any transition.

Setting the plan

The steps a church can take to accomplish “safe harbor” with an IRS inquiry also represent best practices, in general, for setting the compensation of the pastor, including the retirement plan or plans set.

If the church plans to set up a retirement plan for its pastor, it should reflect this intention in the minutes of the board meetings, with whatever detail is discussed. As more details are determined, this should again be reflected in the board minutes.

If a full plan is developed and funded, this is best, of course. But do not wait until then to have it addressed by the board. If the board has agreed that, as part of the pastor’s compensation, it will provide a retirement plan, and the pastor continues to perform services for the church for a period of years with the understanding that he or she will continue receiving retirement benefits upon retirement, then there will be a basis for making the argument that the benefits are a legitimate part of the pastor’s salary. That’s because they were earned while he or she was working, and are being paid as part of a contractual arrangement, rather than being provided as an afterthought.

Examples revisited and resolved

Here are resolutions to the real examples from the beginning of this article:

EXAMPLE 1 The pastor in this instance has been hit with a triple whammy. He was never paid enough to allow him to save, the church never set up a retirement plan to help, and he, like many others, opted out of Social Security without providing for an alternative, leaving him with nothing. Our solution was to go back through the church records and show the attorney general that at least some of the initial funding for the church facility came from the pastor. More importantly, we were also able to show that the board intended to provide a retirement but never was able to implement their promise, and perhaps most importantly, the amount that was actually being provided was barely above the poverty line. Although this was not an optimal solution, the attorney general did remove the objection and allowed the annuity to be set up.

EXAMPLE 2 Planning in advance is always necessary. In this case, because the directors had always planned to provide a retirement for the minister and spouse and documented it in the minutes over a period of years, even though a formal church retirement plan was never completed, the IRS was willing to acknowledge that the payment was actually agreed-upon deferred compensation that had been earned by the pastor over his years of service. It also should be mentioned that, as with the first situation, the amounts of money being paid were not large; thus there was little incentive for the IRS to pursue the matter.

EXAMPLE 3 Even if the pastor works out an arrangement to continue to be paid by the merged church, unless he continues to provide services, this would be using nonprofit assets for his personal benefit. This violates the private inurement rule, and also would likely trigger intermediate sanctions. A better solution would have been to discuss the issue with both boards before the merger, and to enter into a contract which specified the work that would be performed by the pastor during the time of transition, and to pay the pastor for that work (either by contribution to his retirement plan or by payment of a salary). For example, in one merger, the pastor who was getting ready to retire actually took a position as an associate director for several years so that there was no dispute over who was the principal pastor of the church.

EXAMPLE 4 This is a situation where the pastor thought of the church as his. He had a board of trustees, but he mostly made decisions for the church unilaterally. The first issue is that a decision like this needs to be made by a disinterested board, not by the pastor who would receive the benefit. This includes determining what amounts would be paid. The second issue is whether the total of this “retirement fund,” when added to his salary, would be considered reasonable. We suggested that there be annual contributions to such a fund, limited by what was approved by the board, and that it also be limited by a determination of reasonable compensation. This might still be more than the limits of what could be contributed to most retirement plans; to the extent it exceeded these limits, it would not be excluded from current income. However it might be possible to use a rabbi trust (which would leave title to the fund with the church until such time as it was distributed).

EXAMPLE 5 This is another example of how planning in advance (in this case approximately 10 years before it was fully implemented) will allow a particular result to be achieved. This particular entity had a fund with assets that had been given specifically to provide support for the religious leader. A separate trust was created, containing assets from this fund, and having trustees approved by the religious leader (since it was not clear who would oversee the religious organization upon his death). This trust authorized a designated amount of support to be paid to the wife each year, and also allowed the wife to live in the parsonage for the remainder of her life. Upon her death, the trust would be dissolved and the assets would revert to the original church fund. The amounts paid to the wife were deferred compensation that was earned by the religious leader during his tenure and were taxable to the wife when received.

EXAMPLE 6 The fact that the pastor is changing positions should not affect the ability of the church to continue to pay him, as long as the amount is reasonable based on his current functions. If it is full time, he can continue to be paid for these services. If the overseas ministry is a ministry of the church, then this clearly can be part of the services that he is providing for the church, as well as the direct church ministry. In addition to his compensation (a part of which should be paid as a housing allowance), the church may continue to pay into his retirement fund. If the pastor assumes a part-time position, then his salary should be reduced so that it continues to be reasonable, based on the services rendered.

The best solution

The best way to avoid the problems in the examples described in this article is always to make retirement planning a priority long before the pastor is in a position where he or she wants to—or may have to—retire. The only way to ensure that the pastor will not end up penniless is to begin the process early. This is something that pastors and their churches must be aware of and address while there is time to come up with a constructive solution.

Lisa A. Runquist has more than 40 years of experience as a transactional lawyer, both with nonprofit organizations and business organizations.
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