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 civility.co.

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.

Plurality

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 civility.co.

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 civility.co.

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.

Church Formation Basics

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

Last Reviewed: October 23, 2023

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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 slids 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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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 ChurchLawAndTax.com 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 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.

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 kevinr@saddleback.com.

Advantage Members have access to the following on ChurchLawAndTax.com:

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The Changing Dynamics of the Church Treasurer Role

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

Last Reviewed: January 12, 2024

Over the past 25 years, major changes in technology, staffing, and financial practices have reshaped how churches operate.
While many developments have made life easier for church treasurers and leaders, they also bring new challenges.

Here are five key changes churches must navigate today.


1. Rapid Changes in Technology

Twenty-five years ago, churches had limited tools for handling finances.
Most giving came in through cash or checks, and basic tools like Quicken or QuickBooks were common for tracking donations.

Today, churches have:

  • Fully integrated software that tracks giving, expenses, membership, and even room scheduling
  • Easy acceptance of electronic giving via ACH payments, texting, and credit cards
  • Sophisticated reporting capabilities, even for small congregations

CPA Vonna Laue noted that technology has significantly impacted how churches manage donations, tithes, and offerings.

Tip:
Laue recommends caution when adopting new software:

  • Research options thoroughly.
  • Avoid rushing to buy the latest tool.
  • Remember: technology may solve some problems—but it can introduce new ones, too.
    (For more, see Church IT: Using Information Technology for the Mission of the Church by Nick Nicholaou.)

2. The Rise of the Cloud

Cloud-based services have transformed church financial management.
Today, church leaders benefit from:

  • 24/7 access to financial information
  • Easy dissemination of data via internet and apps
  • Smartphone expense reporting through photo receipts linked to the general ledger

CPA Stan Reiff emphasizes that cloud services often offer better cybersecurity than most churches could afford on their own.

Cybersecurity Risks:
Hackers often target churches.
Reiff shared an example where a hacker impersonated a traveling pastor, emailing a treasurer to wire $10,000.
Luckily, a mistake in entering the routing number saved the church.

CPA Rob Faulk stresses the importance of cybersecurity policies:

  • Delete donor account numbers quickly.
  • Consult cybersecurity experts—even for small churches.

Tip:
Leverage technology for positive engagement:

  • Use live video to connect with missionaries.
  • Offer real-time updates on mission trips, instead of waiting until teams return.

Related Resources:


3. People Are Working Longer and Seeking Second Careers

Two staffing trends are helping churches today:

  • More Americans are working past age 65 (Bureau of Labor Statistics)
  • Older Christians are moving from the for-profit sector into church work

“We’ve seen a lot more second-career people come into the church—bringing valuable business skills with them,” said Laue.

These shifts have raised the competency of church administrators.
Still, people remain a church’s most valuable asset.

Tip:
Provide training to staff transitioning from the business world:

  • Utilize training from ECFA, CapinCrouse, and Church Law & Tax resources.
  • Explore webinars, podcasts, and workshops at CLTStore.com.

4. The Growing Use and Value of Outsourcing

Outsourcing—once rare among churches—is becoming a common solution.

Benefits of outsourcing include:

  • Access to experienced, faith-aligned workers
  • Cost savings compared to hiring full- or part-time on-site staff
  • Filling essential needs like bookkeeping, payroll, event scheduling, and communication

Insights:

  • Bryan Miles (Belay Solutions) said outsourcing helps churches fulfill their missions without local hiring limitations.
  • Steve Dawson (National Covenant Properties) noted that outsourcing bookkeeping frees up pastors to focus on ministry, not administration.

Payroll Tip:
Use a payroll service to handle tax filings and reduce administrative headaches.

Tip:
To approach outsourcing wisely:

  • Make a list of essential tasks.
  • Identify which tasks could be outsourced.
  • Vet providers carefully to ensure they understand church needs.

5. Updated Accounting Practices

The Financial Accounting Standards Board (FASB) released a new reporting standard in 2016 that affects churches issuing external financial reports.

Key Changes:

  • Redefined Fund Categories:
    • Now reported as with donor restrictions or without donor restrictions.
    • Previously categorized as unrestricted, temporarily restricted, or permanently restricted.
  • Liquidity Disclosure Requirement:
    • External financial statements must disclose available liquid assets.
    • Even churches not required to comply may benefit from including a liquidity statement.

Vonna Laue’s advice:
Liquidity statements help church leaders and members better understand financial health.

Tip:
Add a liquidity statement to internal or external financial reports.
(For more details, see: Preparing for FASB Financial Reporting Standards Changes at CapinCrouse.com.)


Conclusion

Modern churches face a dynamic mix of opportunities and risks.
By adapting thoughtfully to technological advances, staffing shifts, and updated financial practices, churches can steward their resources wisely—and strengthen their ministries for the future.

The Masterpiece Cakeshop Ruling and Religious Freedom

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

Background

Masterpiece Cakeshop is a bakery in Lakewood, Colorado, offering a range of baked goods, including custom-designed cakes for weddings and other events.

Key facts:

  • Owner: Jack Phillips, an expert baker and devout Christian.
  • Beliefs: Phillips seeks to honor God through his work. He believes marriage should only be between a man and a woman.
  • Conflict: Creating a cake for a same-sex wedding would violate Phillips’ religious beliefs.

In 2012, Charlie Craig and Dave Mullins visited Masterpiece Cakeshop to order a wedding cake for their upcoming celebration.
At that time, Colorado did not recognize same-sex marriages.

Phillips declined to make a wedding cake for them, citing:

  • His religious opposition to same-sex marriage.
  • The fact that Colorado law did not recognize such marriages.

He offered to sell them other baked goods, such as birthday cakes and cookies.


Colorado’s Anti-Discrimination Act (CADA)

The Colorado Anti-Discrimination Act (CADA) prohibits discrimination by places of public accommodation based on:

  • Disability
  • Race
  • Creed
  • Color
  • Sex
  • Sexual orientation
  • Marital status
  • National origin
  • Ancestry

Key points:

  • Public accommodation definition: Broadly includes businesses open to the public but excludes churches and religious venues.
  • Enforcement: Complaints are first investigated by the Colorado Civil Rights Division. If probable cause is found, cases proceed to the Colorado Civil Rights Commission and possibly an Administrative Law Judge (ALJ).

Shortly after their visit, Craig and Mullins filed a complaint against Phillips.


Investigation and State Rulings

Findings:

  • Phillips had previously declined services to other same-sex couples.
  • His refusal was based on religious beliefs and the then-illegal status of same-sex marriage in Colorado.

Administrative Law Judge (ALJ) ruling:

  • Phillips’ shop was a place of public accommodation.
  • His refusal constituted discrimination based on sexual orientation.

Free Exercise Argument:

  • Phillips argued that CADA violated his First Amendment religious freedom rights.
  • The ALJ disagreed, citing Employment Division v. Smith (1990), which upheld neutral laws of general applicability even when they incidentally burden religion.

Result:

  • The Commission affirmed the ALJ’s decision.
  • Phillips was ordered to cease discrimination, undergo compliance training, and submit quarterly compliance reports for two years.

Phillips appealed to the Colorado Court of Appeals, which upheld the Commission’s ruling. He then appealed to the U.S. Supreme Court.


Supreme Court’s Decision: Masterpiece Cakeshop, Ltd. v. Colorado Civil Rights Commission

The U.S. Supreme Court ruled in 2018 in favor of Phillips, but on narrow grounds:

Key points:

  • The Court emphasized the need for neutral and respectful treatment of religious objections.
  • The Colorado Civil Rights Commission showed impermissible hostility toward Phillips’ religious beliefs.

Evidence of hostility:

  • A commissioner compared religious defenses to those used for slavery and the Holocaust.
  • No objection to these comments was raised by other commissioners or by state courts during appeals.

Disparate treatment:

  • Other bakers who refused to create cakes with anti-gay messages were not sanctioned.
  • The Court found inconsistency in how religious conscience claims were handled.

Conclusion:

“The Commission’s treatment of Phillips’ case violated the state’s duty under the First Amendment not to show hostility toward religion.”

Thus, the Court set aside the Commission’s order.


Application of the Ruling for Churches and Business Owners

1. Relevance to Clergy

The Court noted:

Clergy cannot be compelled to officiate same-sex marriages if doing so would violate their religious beliefs.

This reinforces protections for religious leaders under the Free Exercise Clause.

2. Relevance to Churches

The Court did not directly address whether churches that rent their facilities for weddings qualify as public accommodations.
However, churches that rent to the general public may risk exposure to nondiscrimination laws unless clear religious exemptions apply.

3. Relevance to Business Owners with Religious Beliefs

The decision shows:

  • Civil rights agencies must treat religious objections neutrally.
  • Evidence of hostility (e.g., disparaging religious views) can invalidate enforcement actions.

Important:
Even with neutrality, religious objections will not always succeed.
The Court reaffirmed:

“Religious objections do not allow business owners to deny protected persons equal access to goods and services under neutral, generally applicable public accommodations laws.”


Related Cases

Florist Case: Arlene’s Flowers

In Washington State, florist Barronelle Stutzman declined to create floral arrangements for a same-sex wedding.
The Washington Supreme Court ruled against her, rejecting her religious liberty defense.

However, after the Masterpiece Cakeshop ruling, the U.S. Supreme Court:

  • Vacated the state ruling.
  • Ordered reconsideration in light of Masterpiece Cakeshop’s emphasis on religious neutrality.

Wedding Design Business: Brush & Nib Studio v. City of Phoenix

An Arizona appeals court upheld a city ordinance prohibiting discrimination by businesses based on sexual orientation.
The court found:

  • Requiring businesses to serve same-sex couples did not substantially burden religious exercise.
  • The government had a compelling interest in eradicating discrimination.

Court’s conclusion:

Religious beliefs do not excuse business owners from complying with nondiscrimination laws, unless enforcement shows bias against religion.


Final Takeaways for Churches and Faith-Based Organizations

  • Hostility matters: Neutral, respectful treatment of religious claims is mandatory.
  • Title matters less: Courts focus on how laws are applied, not just the language of the law itself.
  • Public accommodation risk: Churches that open facilities to the public must navigate nondiscrimination laws carefully.

Resource:
For more guidance, see the downloadable resource Church Issues: Same-Sex Marriage and Gender Identity available on CLTStore.com.

Retirement Planning for Pastors

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

Last Reviewed: June 10, 2024

As a lawyer, I’ve had many difficult conversations with church leaders.
One of the hardest is telling a church and its pastor that it’s too late to fund the pastor’s retirement.


The Problem: Too Many Pastors Don’t Save

Far too many pastors reach retirement age without enough savings.
As a result:

  • Some pastors can’t retire, even if they want to.
  • Some church boards face resistance from pastors who fear financial uncertainty.
  • Some pastors die without leaving financial support for their surviving spouses.

When problems arise, many proposed quick-fixes are often questionable—or even illegal.


Six Real-Life Examples

These real-world cases show the complex challenges churches and pastors face regarding retirement planning.


1. Church Forced to Sell Property to Fund Pastor’s Retirement

  • A pastor served 50 years, earning less than $30,000 annually.
  • He opted out of Social Security, mainly due to lack of cash.
  • The church dissolved and planned to use property sale proceeds to buy an annuity for the pastor.
  • The state attorney general challenged the use of funds for this purpose.

2. Pastor’s Widow Left Without Support

  • Over 15 years, the church discussed—but never finalized—a retirement plan.
  • After the pastor’s death, the church paid small sums to his widow.
  • The IRS questioned the legality of payments during a tax-exempt status review.

3. Two Churches Merge; One Pastor Expects Retirement Pay

  • Two churches merged; one pastor initially intended to retire.
  • Later, he expected the merged church to continue paying him a retirement salary.

4. Pastor/CEO Pushes for Separate Retirement Fund

  • A pastor/CEO requested a new, church-funded retirement account managed by himself.
  • Upon retirement, he planned to transfer the entire fund directly to his control.

5. Monk’s Vow of Poverty Leaves Widow with Nothing

  • A monk who took a vow of poverty wanted the church to support his wife after his death.
  • She had never been a church employee and had no legal claim to benefits.

6. “Pastor Emeritus” Role Raises Tax Questions

  • A church created a “Pastor Emeritus” position for a retiring pastor.
  • The arrangement raised legal questions about compensation limits and retirement legality.

Why These Cases Matter

These examples highlight why careful, early planning is essential—to protect pastors, families, and churches from legal and financial risks.

Next: the key questions churches must ask.


Key Questions for Churches

1. Are You Paying Your Pastor Enough?

Fair compensation includes:

  • Covering current living expenses.
  • Allowing for meaningful retirement savings.

Best Practices:

  • Aim for salaries in the median income range of the congregation.
  • Small churches may need bivocational arrangements.
  • No matter the size, retirement contributions should always be considered.

Important:
The pastor should never set his or her own salary.
Only the board may set compensation.


2. Has Your Pastor Opted Out of Social Security?

Opting out of Social Security carries major risks:

  • No retirement, disability, or Medicare benefits.
  • Heavy reliance on private savings.

Solutions:

  • Save aggressively.
  • Work nonministerial jobs to earn Social Security credits.
  • Consider spousal Social Security eligibility if applicable.

Caution:
Social Security should supplement retirement savings—not replace them.


3. How Does Housing Affect the Pastor’s Future?

Pastors often live in church-provided parsonages, raising critical questions:

  • Where will the pastor live after retirement?
  • Has the pastor built home equity?

Solutions:

  • Equity Allowance:
    Additional taxable income for future housing needs.
  • Housing Allowance:
    Tax-free allowance to help pastors purchase homes during active ministry.

Important:
Neither method replaces the need for a retirement savings plan.


4. What Types of Retirement Plans Are Available?

Churches must thoughtfully plan:

  • Set up retirement plans early—even at the pastor’s hire date.
  • Follow denominational plans when available, but review needs individually.
  • Small early contributions grow significantly over time.

Late-stage retirement planning is very difficult and raises compensation risks discussed below.


Funding the Plan: What Churches Must Know

Reasonable Compensation Limits

Contributions to a pastor’s retirement plan count toward total compensation.
Total compensation must remain reasonable to avoid legal risks:

  • Private Benefit: Church assets must serve church purposes.
  • Private Inurement: No insider (e.g., the pastor) may receive personal enrichment from church assets.
  • Intermediate Sanctions:
    If a pastor (or “disqualified person”) receives excess benefits, the IRS can impose severe personal penalties (up to 225%).

How to Ensure Compensation Is Reasonable

Compensation is reasonable if:

  • It matches what similar organizations pay for similar roles.
  • It includes all forms of cash and noncash benefits.
  • It is properly documented and board-approved.

Vesting Retirement Plans:
Deferred compensation (like pensions) must also fit into the overall reasonableness calculation over time—not just in the year it vests.


Achieving a “Safe Harbor” (IRS Best Practices)

To shield the church and pastor, follow these steps:

  1. Approval by a Disinterested Board:
    No board members with personal financial interests vote on compensation.
  2. Use Independent Data:
    Base salaries and benefits on outside surveys and comparable compensation research.
  3. Maintain Adequate Documentation:
    Keep detailed minutes showing how decisions were made and data reviewed.

When all three are followed, the burden of proof shifts to the IRS if challenged.


Protecting the Church: Conflicts of Interest

Key Point:
The church does not belong to the pastor.

  • Pastors must not dominate salary or retirement decisions.
  • Churches should have a Conflict of Interest Policy and disinterested boards must determine compensation.
  • Board minutes must reflect all retirement plan decisions.

Setting Up Church-Wide Programs for Retired Ministers

Some churches or denominations create benevolence funds to help retired pastors in need.
This does not replace retirement planning but provides important supplemental support.


Transitioning to Full Retirement

When pastors near retirement:

  • They may continue limited duties with reduced salaries.
  • Churches may offer consulting roles or “Pastor Emeritus” positions—but compensation must match services provided.
  • Severance packages may be negotiated if retirement transitions are difficult.

Best Practices for Retirement Planning

To ensure fairness and compliance:

  • Plan early.
  • Fund retirement accounts steadily over time.
  • Use safe harbor procedures for all salary and retirement decisions.
  • Document everything clearly.

Revisited: Resolving the Six Real-Life Examples

Church Forced to Sell Property

  • Documentation showed the pastor’s financial contributions and prior board intentions.
  • The state attorney general allowed an annuity to be purchased.

Pastor’s Widow Receives Payments

  • IRS accepted payments as deferred compensation, due to historical documentation.
  • The small payment amounts also reduced IRS scrutiny.

Merger Retirement Conflict

  • Without documented work performed post-merger, continued salary would violate private inurement rules.
  • A better solution: agree on transition roles and compensation before merger.

Pastor/CEO Separate Fund

  • Solution: Contributions made annually, subject to board approval and reasonable compensation limits.
  • Consider use of a rabbi trust to hold retirement funds.

Monk’s Widow Support

  • A trust fund supported the widow while keeping assets under church control.
  • Payments were taxed appropriately as deferred compensation.

“Pastor Emeritus” Arrangement

  • The pastor continued part-time ministry, justifying ongoing salary and retirement contributions.
  • Compensation was adjusted appropriately based on workload.

Final Thought

The best way to avoid retirement problems is to plan early.
Pastors and churches must work together to ensure long-term financial security, following legal standards and protecting the church’s mission.

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

10 Commandments for Pastors, Politics, and Social Media

10 commandments for pastors thinking of preaching, speaking, or posting about politics in an election cycle. Or any other time.

There are few topics that evoke as much emotion as politics, and church leaders would do well to remember these 10 commandments for pastors when it comes to engaging in politics—particular on social media.

Pastors and church staff are not oblivious to political emotions. Indeed, some of them can be among the most intensely emotional.

The purpose of this post is not to imply that pastors and staff should abandon their convictions. Nor is it to suggest that silence is always the best option. Instead, I hope it is a gentle reminder of ten issues pastors and church staff may want to consider before posting political views and opinions on social media.

10 Commandments for Pastors Posting About Politics on Social Media


You shall remember you are an ambassador for Christ.

All of your written and spoken words should be a reflection of Him.

You shall remember you are your church to many people.

Your words, for better or worse, are a direct reflection on your congregation.

You shall not be a stumbling block to unbelievers.

Many are watching you. Many are reading your words.

You shall refrain from posting when your emotions are high.

Take a break for a day. If you don’t, you will likely regret it later.

You shall remember that others are often posting in the throes of their own anger and emotions.

It is usually best not to engage them then.

You shall remember your words are permanent.

The moment you post, someone has likely captured your article or post, even if you delete it later.

You shall understand some members of your congregation likely have a different view than you.

Is your post worth the disunity that may follow?

You shall not be a distraction to the gospel.

Politics are often an easy detour from that which really matters.

You shall be aware of the long political memory many people have.

Some people are talking today about the comments Christians made in the presidential election four years ago!

You shall be aware that your political opinions may cause disunity with other churches in the community.

Make certain the words are worth the price that is paid.

The writer of Ecclesiastes reminds us in chapter 3, verse 7, that there is “a time to be silent and a time to speak.” For the sake of the gospel, please make certain you have sought God’s wisdom to discern what time it is for you.


Lead Your Church With Confidence—Became a Church Law & Tax Member Today.


This post was adapted from an article that first appeared at ThomRainer.com on March 21, 2016. Thom S. Rainer serves as president and CEO of LifeWay Christian Resources. Among his greatest joys are his family: his wife Nellie Jo; three sons, Sam, Art, and Jess; and seven grandchildren. Dr. Rainer can be found on Twitter @ThomRainer and at facebook.com/Thom.S.Rainer .

For information on the tax and legal guidelines faith-based organizations need to know before jumping into the political fray, see the downloadable resource Politics and the Church .

The Definition of Taxable Income for Churches

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

Reimbursing Lunch Expenses

Churches should refer to an important Tax Court decision when reimbursing lunch expenses.

There’s a right way churches should go about reimbursing lunch expenses.

In many churches, ministerial lunches are a weekly ritual. Since church matters are discussed, many church treasurers assume that the cost of the lunch can be reimbursed by the church under an accountable arrangement.

As a result, the cost of such lunches is not added to the employees’ taxable compensation for tax reporting purposes.

But is this the correct way to handle lunch expenses? If your church has an accountable reimbursement arrangement, can you reimburse lunch expenses? If so, under what circumstances? Always? Whenever church matters are discussed?

A Tax Court decision addresses this important question.

In Dugan v. Commissioner (T.C. Memo. 1998-373), a medical technician and a physician shared office space.

The two often met at lunchtime to discuss the treatment of their patients and the details of office administration and operations.

The two met at other times as well, but they found that lunchtime was often the best opportunity to meet. They alternated paying for their meals together.

On her federal income tax return, the technician deducted her share of these meal expenses (subject to the 50% reduction that applies to unreimbursed meal expenses).

The IRS disallowed any deduction for the meals on the ground that they were not a legitimate business expense. The technician appealed to the Tax Court.

Were the technician’s lunch expenses deductible?

After all, she discussed both treatment procedures and office operations during these lunches. Unfortunately, the court agreed with the IRS that the expenses were not deductible.

The court began its opinion by noting that “daily meals are an inherently personal expense, and a taxpayer bears a heavy burden in proving they are deductible” as a business expense.

Attorneys’ lunches

The court referred to a previous ruling involving attorneys.

Members of a law firm met every work day at a local restaurant to discuss work-related matters because the lawyers were all litigators and the court was not in session over the noon hour.

A federal appeals court conceded the business purpose for these lunch meetings, and that lawyers “did not dawdle over their lunch,” but it concluded that the meals represented nondeductible personal expenses rather than business expenses.

It observed:

[I]t is undeniable that eating together fosters camaraderie and makes business dealings friendlier and easier. It thus reduces the costs of transacting business, for these costs include the frictions and the failures of communication that are produced by suspicion and mutual misunderstanding, by differences in tastes and manners, and by lack of rapport. A meeting with a client or customer in an office is therefore not a perfect substitute for a lunch with him in a restaurant. But it is different when all the participants in the meal are coworkers, as essentially was the case here …. They know each other well already; they don’t need the social lubrication that a meal with an outsider provides–at least don’t need it daily. If a large firm had a monthly lunch to allow partners to get to know associates, the expense of the meal might well be necessary, and would be allowed by the Internal Revenue Service. But [the law firm in this case] never had more than eight lawyers and did not need a daily lunch to cement relationships among them ….

We may assume it was necessary for the [attorneys] to meet daily to coordinate the work of the firm, and also … that lunch was the most convenient time. But it does not follow that the expense of the lunch was a necessary business expense. The members of the firm had to eat somewhere … Although it saved time to combine lunch with work, the meal itself was not an organic part of the meeting …. Moss v. Commissioner, 758 F.2d 211 (7th Cir. 1985).

Example. The Tax Court ruled that lunch expenses incurred by a group of government attorneys who met for lunch one day each month were not business related despite the fact that business was discussed. The court did concede that “an occasional luncheon meeting with the staff to discuss the operation of the firm would be regarded as an ordinary and necessary expense,” as would “a luncheon to mark an anniversary, retirement or other occasion for an employee” since such expenses “aid in building morale and loyalty and serve as an inducement for others to work more efficiently.” Wells v. Commissioner, 36 T.C.M. 1690 (1977).

The court’s conclusion

Like the attorneys’ lunches, the lunches shared by the medical technician and the physician were not integral to the technician’s business objectives and have not been clearly linked to her production of income.

They met at lunchtime because that was the most convenient and feasible time to meet.

Their business relationship was well established and did not require “social lubrication,” at least not as often as [she and the physician] dined together.

Indeed, the frequency of their lunches together and the reciprocal nature of their meal arrangement belie the existence of any business purpose for the meals …. If taxpayers were permitted to deduct meal expenses in such circumstances then … only the unimaginative would dine at their own expense.

Why does this case matter to how church treasurers reimburse lunch expenses?

Consider the following checklist:

1. Entertainment expenses. Local lunch expenses incurred by church employees qualify as a business expense, and can be reimbursed by a church under an accountable expenses reimbursement arrangement, only if they qualify as entertainment expenses. The requirements for substantiating entertainment expenses are strict. You must demonstrate that the expenses are either (1) directly related to the active conduct of your ministry, or (2) associated with the active conduct of your ministry and the entertainment occurred directly before or after a substantial business discussion.

In order to show that entertainment was directly related to the active conduct of your business, you ordinarily must be able to demonstrate that (1) you had more than a general expectation of deriving income or some other specific business benefit at some indefinite future time; (2) you did engage in business during the entertainment period; and (3) the main purpose of the entertainment was the transaction of business.

In order to show that entertainment was associated with the active conduct of your ministry, you must be able to demonstrate that you had a clear business purpose in incurring the expense, and that the meal or entertainment directly preceded or followed a substantial business discussion.

2. Frequent staff lunches. Frequent lunches with the same members of the church staff are much less likely to qualify as a business expense, even if church business is discussed. For example, if the same three church staff members go out to lunch every Friday, it is very unlikely that any of these lunches will qualify as a business expense. After all, these persons work in the same office, and presumably have considerable interaction during the week. A shared lunch under these circumstances does not constitute an ordinary and necessary business expense.

Key point. It is worth noting that the Tax Court in the Wells case (summarized in an example in this article) met for lunch one day each month. This was considered too frequent to be business related.

3. Occasional lunches with non staff members. Such lunches are more likely to qualify as entertainment expenses, and as a result the costs of these lunches can be reimbursed by the church under an accountable expense reimbursement arrangement. To illustrate, a lunch arranged by a pastor with a local architect to discuss new building plans would qualify as a business expense.

4. Occasional employee lunches. The Tax Court, in a previous decision (the Wells case, summarized in an example in this article) addressing the deductibility of lunch expenses incurred by attorneys one day each month, conceded that “an occasional luncheon meeting with the staff to discuss the operation of the firm would be regarded as an ordinary and necessary expense,” as would “a luncheon to mark an anniversary, retirement or other occasion for an employee” since such expenses “aid in building morale and loyalty and serve as an inducement for others to work more efficiently.”

5. Lunch expenses while traveling. This article only addresses the reimbursement of local lunch expenses. Lunch expenses incurred while church employees are away from town on business travel are business related and can be reimbursed under an accountable arrangement.

6. Other requirements of an accountable arrangement. In order for your church to reimburse expenses under an accountable expense reimbursement arrangement, you must have adopted a reimbursement arrangement that meets the following three requirements: (1) Only business expenses are reimbursed (expenses that would qualify for a business expense deduction on a taxpayer’s personal income tax return). (2) The church only reimburses an expense if the employee substantiates, with written records (including a receipt for expenses of $75 or more), the amount, date, location, and business connection of the expense. In addition, in the case of entertainment expenses (such as local lunch expenses) the employee must document the “occupation or other information relating to the person or persons entertained, including name, title, or other designation, sufficient to establish business relationship to the taxpayer.” (3) Employees must return to the church any reimbursements in excess of substantiated expenses. This article addresses only on the first of these three requirements. Even if a particular lunch qualifies as a business expense, the church may reimburse it under an accountable arrangement only if the other two requirements for an accountable arrangement are met.

If any of these three requirements is not satisfied, the church’s reimbursement of a lunch expense is nonaccountable, and the full amount of the reimbursement must be allocated to the employees’ W-2s.

7. Unreimbursed expenses. This article addresses the tax consequences of a church’s reimbursement of employee lunch expenses. In some cases, church employees pay for their own lunch expenses. Such “unreimbursed” expenses may be deducted as an employee business expense, but only if reimbursement from the church was not available. Further, church employees may deduct only 50% of business related entertainment expenses, including meals. This 50% limitation is incorporated directly into the tax returns (line 9 of Form 2106, and line 24c of Schedule C). Note however that the 50% limitation does not apply to expenses that are reimbursed by an employer under an accountable reimbursement plan. IRS Publication 463 states: “As an employee, you are not subject to the 50% limit if your employer reimburses you under an accountable plan and does not treat your reimbursement as wages.” Publication 463 states that the self employed persons also can avoid the 50% limitation through use of an accountable reimbursement arrangement.

Here are some examples that will illustrate the issues addressed in this article.

Example 1: A church has 3 pastors who for many years have gone out to lunch every Friday. Church business is almost always discussed at these lunches. The cost of these lunches is always charged to a church credit card, and the church treasurer has never reported the church’s reimbursements as taxable income to the pastors by including it on their W-2 forms. This is incorrect. According to the rulings summarized in this article, these lunches do not qualify as business expenses, and as a result they should not be charged to the church credit card. If the pastors continue to charge the lunches to the church credit card, the treasurer will need to allocate the reimbursed expenses to the pastors and report the reimbursements as taxable income on the pastors’ W-2 forms at the end of the year. The treasurer need not withhold additional income taxes because the pastors’ wages are exempt from income tax withholding.

Example 2: Same facts as the previous example, except that nonminister church employees rather than pastors are involved. The answer is the same, except that the church will need to withhold income taxes and FICA taxes from the value of the lunches.

Example 3: A pastor occasionally meets church members for lunch, and charges the cost of these lunches to the church credit card. The purpose of these lunches is for the pastor to become better acquainted with members, and to provide spiritual guidance as needed. These expenses qualify as an entertainment expense. As a result, the expenses reimbursed by the church are accountable so long as the requirements for an accountable reimbursement (summarized in this article) are satisfied.

Example 4: Same facts as the previous example, except that the pastor informs the church treasurer each month of the approximate amount he spent during the previous month on such lunches, and receives a reimbursement check. This arrangement is nonaccountable since the substantiation requirements for an accountable arrangement are not met. As a result, the treasurer will need to add the value of all lunch expense reimbursements to the pastor’s W-2 at the end of the year.

Example 5: A pastor takes the church staff out to lunch twice each year as a means of expressing appreciation for their hard work. The cost of these lunches is charged to the church credit card. These expenses represent a legitimate business expense, and as a result they can be reimbursed by the church under an accountable arrangement so long as they are adequately substantiated. As a result, the church treasurer would not report any of the reimbursements as taxable income. The Tax Court has noted that “an occasional luncheon meeting with the staff to discuss the operation of the firm would be regarded as an ordinary and necessary expense,” as would “a luncheon to mark an anniversary, retirement or other occasion for an employee” since such expenses “aid in building morale and loyalty and serve as an inducement for others to work more efficiently.” Wells v. Commissioner, 36 T.C.M. 1690 (1977).

Example 6: A church’s two pastors go out to lunch once each month. Church business is always discussed, and the cost of the lunches is charged to the church credit card. A federal appeals court has observed that monthly lunches by law firm members “might well be necessary, and would be allowed by the Internal Revenue Service.” Moss v. Commissioner, 758 F.2d 211 (7th Cir. 1985). On the other hand, the Tax Court has ruled that monthly lunch expenses incurred by government attorneys were not business related despite the fact that business was discussed. Wells v. Commissioner, 36 T.C.M. 1690 (1977). In summary, while there is legal support for treating monthly lunch expenses as business-related, but there is also support for the opposite conclusion. This suggests that the business nature of monthly lunch expenses may be challenged by the IRS, but that no penalties would be assessed.

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