Are Churches Automatically Tax-Exempt?

Are churches automatically tax-exempt? Discover the requirements and benefits of formal IRS recognition for churches.

Last Reviewed: January 21, 2025

Q: I am confused about our church’s tax-exempt status. Are we required to apply to the IRS for recognition of exemption, or are we automatically exempt because we are a church?


Are Churches Automatically Exempt?

Churches that meet the requirements of section 501(c)(3) of the federal tax code are automatically considered tax-exempt. They are not required to apply for recognition of tax-exempt status from the Internal Revenue Service (IRS). To qualify, churches must satisfy the following five requirements:

  • A church must be organized exclusively for exempt purposes.
  • A church must be operated exclusively for exempt purposes.
  • None of a church’s resources can “inure” to the benefit of a private individual, except for reasonable compensation for services performed.
  • The church may not engage in substantial efforts to influence legislation.
  • The church may not intervene or participate in any political campaign on behalf of or in opposition to a candidate for public office.

Why Seek IRS Recognition of Tax-Exempt Status?

Although applying for formal recognition is not required, many churches choose to do so. Official IRS recognition offers several advantages, including:

  • Reassurance for church leaders, members, and contributors that the church qualifies for tax-exempt status.
  • Confirmation for contributors that their donations are generally tax-deductible.

To apply for recognition, most organizations submit IRS Form 1023. However, churches that meet the five requirements above are exempt from this requirement.

Group Rulings for Affiliated Churches

If a church is affiliated with a parent organization that holds a group ruling, it may already be recognized as tax-exempt. Under the group exemption process, the parent organization submits updates to the IRS that list affiliated churches or organizations.

In such cases, the church does not need to apply for individual recognition. Instead, the parent organization provides updates on additions, deletions, and changes to the group.

Additional IRS Resources

For further details, visit the IRS page on churches, integrated auxiliaries, and conventions or associations of churches.

FAQs About Church Tax-Exempt Status

  • Do churches automatically qualify for tax exemption? Yes, churches that meet the 501(c)(3) requirements are automatically exempt from federal income taxes.
  • What are the benefits of applying for IRS recognition? It provides assurance to contributors and simplifies access to other tax benefits.
  • What is a group ruling? It allows a parent organization to include affiliated churches in its tax-exempt status.
  • Do churches need to file Form 1023? No, churches meeting the five requirements are exempt from this filing.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Top 10 Documents for Church Leaders

They’re more important than you think.

From articles of incorporation to your church’s deed, these documents should be present and accounted for.

1. Articles of incorporation

Also called the church’s charter, the articles of incorporation is a short document that contains the church’s:

  • name
  • address
  • period of duration
  • initial board of directors
  • statement of purposes

Why it’s so important.

The charter is the most authoritative legal document that a church has. In the event of a conflict between the charter and any other legal document, the charter will control. Be sure you are well-versed on your church’s charter.

2. Corporate annual reports

In many states, incorporated churches are required to file an annual report with the Secretary of State. This is a simple form that takes only a few minutes to complete.

What if we don’t file one?

Failure to file can jeopardize a church’s corporate status; and this can expose church members and board members to personal liability. Churches should maintain a full set of all corporate annual reports filed with the Secretary of State’s office.

3. Constitution or bylaws

This is an essential document that contains most of a church’s rules of internal administration.

At a minimum, church bylaws should cover:

  • The qualifications, selection, and expulsion of members
  • The time and place of annual business meetings
  • The calling of special business meetings
  • Notice for annual and special meetings
  • Quorums
  • Voting rights
  • Selection, tenure, and removal of officers and directors
  • Filling of vacancies
  • Responsibilities of directors and officers
  • The method of amending the bylaws
  • The purchase and conveyance of property

4. Financial records

It is your responsibility to ensure that appropriate safeguards are implemented with regard to the handling of contributions, that cash and expenses are properly recorded and presented in the church’s financial statements, and that the church is properly receipting donors for their contributions.

You should be reviewing the finances of the church at each board meeting, and asking questions about anything that you don’t understand or that seems irregular.

5. List of members

Many churches have bylaw provisions that call for the periodic review of the membership list, to be sure that it is up to date.

  • Do your church bylaws contain such a provision?
  • How recently did you review and update your membership list?
  • Are you familiar with the procecdure and grounds for removing members from this list?
  • Church administrators and board members—especially treasurers—should be able to answer these questions.

6. Minutes of membership meetings and board and committee meetings

Your church should keep records of all annual business meetings and any special meetings. The church should maintain a complete set of minutes of board and committee meetings.

7. Insurance policies

Do you know where your church’s insurance policies are maintained? Are you familiar with the terms of your policies? It is essential to know how much coverage your church has.

8. Tax records

These will include payroll tax forms, housing allowance designations for your pastors, contribution records, and any other forms you have filed with the federal government or with your state or local government.

9. Employment records

These include applications for employment, reference checks, information concerning disciplinary actions, the I-9 immigration form that all employers, including churches, must maintain for each new employee, and any other document relating to your employees.

10. Deeds

You should not only know where to find the deed to your church property, you should review it—especially if if it’s going up for sale or could be going up for sale.

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

Severance Agreements for Church Employees: Key Considerations

Churches have flexibility in determining severance pay, but legal and financial factors must be considered. Learn how to structure severance agreements, mitigate legal risks, and ensure compliance with tax laws.

Last Reviewed: January 29, 2025

Q: We are considering the dismissal of an employee, and would like to enter into a severance agreement with her. Do you have any guidelines on how much severance pay should be considered?


That’s entirely up to you. There are no definitive standards. The amount of severance pay is often expressed in terms of a specified number of weeks of salary and benefits. It should be discussed openly with the employee, and a mutually acceptable number of weeks should be chosen.

Higher paid employees will receive greater severance benefits because of their higher rate of pay. Other important factors to consider are:

1. Whether the employee is a member of a protected class under an applicable state or federal discrimination law. If so, be prepared to agree to a higher amount in order to avoid a possible discrimination claim under state or federal law that could result in a protracted legal dispute.

2. The likelihood the employee would pursue a legal claim against the church.

3. Whether the church has employment practices insurance coverage that would provide a legal defense, and indemnification, in the event of a lawsuit. Many churches do not have insurance for employment practices, meaning that the church would be responsible for retaining and compensating its own attorney in the event of a claim of discrimination. In some cases, this can result in a substantial, and unbudgeted, expense to the church.

4. The results of the employee’s last several job performance evaluations. If they are all average or above average, this is a strong incentive to resolve any potential claims by entering into a severance agreement. If a severance agreement is not signed, and the employee sues the church, those average or above average job evaluations will be compelling evidence that the church did not have any job-related reason for dismissing the employee. The implication is that the church’s decision to terminate the employee was a product of unlawful discrimination.

5. Congress added section 409A to the tax code in 2004 in response to public outrage over the Enron scandal. Section 409A imposes strict new requirements on most nonqualified deferred compensation plans (NQDPs). In 2007, the IRS published final regulations interpreting section 409A. The final regulations define a NQDP broadly to include any plan that provides for the deferral of compensation. This definition is broad enough to include severance agreements and many other kinds of church compensation arrangements. Any church that is considering a severance agreement with a current employee (or any other arrangement that defers compensation to a future year) should contact an attorney to have the arrangement reviewed to ensure compliance with both section 409A and the final regulations. Such a review will protect against the substantial penalties that the IRS can assess for noncompliance. It also will help clarify if a deferred compensation arrangement is a viable option in light of the limitations imposed by section 409A and the final regulations.

6. Of course, it is important for an attorney to draft any severance agreement to be sure that it will be legally enforceable, and complies with all applicable laws.

The editorial team of Church Law & Tax is made up of Matthew Branaugh, attorney-at-law, and Rick Spruill, digital content manager.
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Managing Risk When Choosing Young People To Help With Church Childcare

No, but the younger the worker, the more supervision required.

Last Reviewed: February 13, 2025

Q: We have a child protection policy in place but I am running into a major problem with the fact that we have stated an age for our workers as 18 years. I am having a very difficult time filling all the areas needed with this age requirement. We are looking at rewording our policy to fit the needs of the church. My question is what is the legal age or is there one for child care workers?


Using children’s workers who are under 18 years of age is a common church practice. However, note the following considerations:

The younger the worker, the greater the risk

A church must exercise reasonable care, some courts have said a “high” degree of care, in the selection and supervision of children’s workers. Obviously, using workers who are 10 years of age in a church nursery will expose the church to greater risk than using someone who is 17.

Adult supervision is essential

It is imperative that at least one adult be present at all times if minors are used as volunteer workers in any program or activity involving minors. Ideally, two adults should be present, so that if one of them must be absent temporarily, the other will be there.

Have a clear and reasonable standard of care

If a minor is injured, the church may be legally responsible on the basis of negligence if the injury resulted from the church’s failure to exercise a reasonable degree of care in the selection or supervision of its workers. Courts often look to the practices of local charities, and sometimes national charities, in establishing a reasonable standard of care. As a result, it is often helpful for church leaders to contact other youth-serving charities in the area to ascertain their practices and policies on specific issues. Using local affiliates of national charities is the best practice. I

Carefully screen all workers

How is this done? You obviously cannot perform criminal records checks on persons under 18 years of age, and even for persons who are 18 or 19 a criminal records check will have limited significance. You really need to approach the screening of adolescents in a different manner. Let me suggest two options.

  1. Get two or three reference letters from persons who have seen the applicant interact with other minors (this would include church workers, coaches, school teachers, scout leaders, etc.). The bottom line is that you cannot conduct criminal records checks on such persons, but you must take other steps to demonstrate reasonable care.
  2. Contact local youth-serving charities such as the public school district, Boy/Girl Scouts, YMCA, Boys/Girls Clubs, etc. and ask them what screening they use for adolescent workers. Be sure to make a record of each contact. Taking these steps will reduce your legal liability.

Understand applicable wage and labor laws

If you compensate minors who work with children in your church, then you need to be aware that you may need to pay them the minimum wage (under state or federal law, whichever is greater), and that state or federal child labor laws may apply. Both of these issues need to be carefully addressed to ensure compliance with the law.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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Are Oral Pledges Legally Enforceable?

Discover how oral pledges to churches can be legally enforceable under certain conditions and what church leaders should consider.

Last Reviewed: January 24, 2025

Can oral pledges to churches be legally enforced? The answer varies by state, but understanding the legal principles can help church leaders navigate these situations effectively. Here’s what you need to know:

Defining Charitable Subscriptions

An oral or written promise to give funds or property to a charitable organization, such as a church, is often referred to as a “charitable subscription.” These are generally evaluated under contract law principles, requiring a clear promise and acceptance.

When Are Oral Pledges Enforceable?

In states like Iowa, oral pledges can be enforceable without requiring consideration (something of value in return) or detrimental reliance (actions taken based on the promise). Courts may enforce pledges if:

  • The pledge is a definite promise, not just a statement of intent.
  • The organization accepts the pledge, often demonstrated by beginning the related project.

Case Study: Iowa Appeals Court Ruling

An Iowa court upheld an oral pledge to a church based on these principles. The pledgor expressed a commitment to fund church improvements, and the church began work in reliance on this promise. The court ruled the pledge enforceable, citing “clear and convincing evidence” of intent and acceptance.

Other States’ Requirements

In some states, additional requirements may apply:

  • Consideration: The donor must receive something of value in return for the pledge.
  • Detrimental Reliance: The organization must demonstrate reliance on the pledge to its detriment, such as beginning a construction project.

Examples of Enforceable Pledges

Case Study: New York Synagogue

A New York court enforced synagogue dues pledges, citing detrimental reliance. The synagogue entered contracts based on the pledges, making them legally binding.

Case Study: Georgia Church

A Georgia court upheld a $25,000 pledge tied to a property sale, as the promise was part of the contractual consideration for the transaction.

Practical Tips for Church Treasurers

While churches rarely pursue legal action to enforce pledges, understanding these principles can help in discussions with donors. Consider these best practices:

  • Document all pledges clearly in writing when possible.
  • Ensure that any verbal commitments are confirmed and accepted before significant action is taken.
  • Consult with legal counsel when dealing with complex or high-value pledges.

Conclusion

Oral pledges can be enforceable under specific circumstances, but the laws vary by state. Church leaders and treasurers should carefully document and manage pledges to avoid disputes and ensure clarity.

FAQs: Legally Enforceable Oral Pledges

  • Q: Are oral pledges enforceable everywhere?
    A: No, enforceability depends on state laws and whether the pledge meets legal criteria such as definiteness or reliance.
  • Q: What is detrimental reliance?
    A: It occurs when a church takes action, like starting a project, based on a donor’s pledge.
  • Q: Should pledges always be in writing?
    A: While oral pledges can be enforceable, written pledges provide clarity and reduce disputes.
  • Q: Can a church sue a member for a pledge?
    A: While legally possible in some cases, this is rarely done due to ethical and relational considerations.

This article first appeared in Church Treasurer Alert, July 2007.

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

Does ADHD Bring a Higher Duty of Care For Churches?

Churches may need to increase supervision.

Q: The 12-year-old Boy Scout who was lost for four days in the mountains of North Carolina may have Attention-Deficit/Hyperactivity Disorder (ADHD). Does such a condition impose a higher duty of care upon scout leaders? What about church leaders who know of children in the church who have this condition?


ADHD has several symptoms, including inattention and impulsive behavior. Clearly, a child with such a condition is more prone to wander away from a group and so a higher degree of supervision is warranted. There is little doubt that a church will be held to a higher duty of care in the supervision of a child with ADHD, whether on church premises or during any off-site activity. This is not to say that a church will be legally responsible for any injury that may occur to such a child. To the contrary, a church will be responsible only if its conduct in supervising the child fall below what a jury would deem reasonable given the child’s condition.

A recent case illustrates this point. A minor was injured while attending a charity’s summer camp program, when, as she was swinging on the rings on a playground, she lost her grasp and fell into a pile of sand beneath the rings. The parents insisted that a “heightened level of supervision” was required since their child suffered from an neurological condition. The court ruled that the charity was not liable for the child’s injuries because it was able to demonstrate that there was adequate playground supervision and that a lack of supervision was not the cause of the accident. Further, the court noted that the child’s mother testified that no doctor had ever restricted the scope of the activities in which the child could participate.

Some church leaders, in deciding what level of supervision is appropriate for a child with ADHD, contact their local public schools or other youth-serving charities to see what guidelines they have implemented. Aligning your practice with that of other reputable youth-serving charities in the community can be helpful, since this is the very “community standard” by which a church’s practices will be judged. Benson v. Union Free School District, 2007 WL 613829 (N.Y.A.D. 2007).

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

Ensuring Fiduciary Duty in Church Investments

Understand fiduciary duties for church investments and strategies to safeguard funds and ensure compliance.

Last Reviewed: January 10, 2025

Many churches, at times, find themselves with excess funds due to contributions, designated funds, or unspent income. Church leaders face the important responsibility of deciding how to handle these funds wisely. With fiduciary duties playing a critical role, it’s essential for church leaders to approach investment decisions prudently and in alignment with their legal obligations.

What is the Fiduciary Duty of Due Care?

The fiduciary duty of due care requires church board members, treasurers, and leaders to act “in good faith, in a manner they reasonably believe to be in the best interests of the corporation, and with such care as an ordinarily prudent person in a like position would use under similar circumstances.” This principle, also called the “prudent person rule,” ensures decisions regarding church funds are made responsibly.

State laws often outline these duties within nonprofit corporation statutes. For instance, the Revised Model Nonprofit Corporation Act specifies:

“A director shall discharge his or her duties as a director in good faith; with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and in a manner the director reasonably believes to be in the best interests of the corporation.”

How Does This Apply to Church Funds?

When it comes to investing excess church funds, fiduciary duty ensures investments are made with care, avoiding undue risks. Importantly, leaders are not liable for every bad investment but must demonstrate reasonable diligence and informed decision-making.

Steps for Church Leaders to Uphold Fiduciary Duty

1. Establish an Investment Committee

Form a committee comprising individuals with proven financial expertise, such as CPAs, financial planners, and business leaders. Their recommendations, combined with the board’s approval, provide protection against poor investment decisions.

2. Create an Investment Policy

A formal policy helps govern investment decisions and prevents speculative ventures. It may outline restrictions, such as avoiding high-risk schemes or investments in organizations linked to board members.

3. Avoid Risky or Speculative Investments

Churches should steer clear of investments promising unrealistic returns. Any opportunity that sounds “too good to be true” likely is. Engage independent financial experts to vet opportunities thoroughly.

4. Maintain Transparency

All investments should be regularly reviewed during board meetings. Keeping open communication and detailed records ensures accountability and allows for necessary adjustments.

Key Considerations for Churches

1. Diversification

Spreading investments across various financial instruments reduces risk. Mutual funds and diversified portfolios are often safer options.

2. Ethical Standards

Investments should align with the church’s values and mission, ensuring that they do not contradict its core principles.

3. Trustee Obligations

In cases where church leaders serve as trustees of a specific fund, they are held to higher standards of care. Trustees must prioritize the fund’s purpose and manage assets diligently.

Protecting Against Fraud

The U.S. Securities and Exchange Commission (SEC) warns against common fraud schemes targeting nonprofits, such as pyramid and Ponzi schemes. Be wary of excessive guarantees, secrecy, and complex claims. Conduct due diligence and consult independent advisors.

FAQs on Fiduciary Duty and Church Investments

What is the fiduciary duty of due care?

This duty requires church leaders to act responsibly and make informed decisions that prioritize the church’s interests.

How can churches minimize investment risks?

Establishing an investment committee, diversifying portfolios, and avoiding speculative schemes are key strategies.

Are church leaders liable for bad investments?

Leaders are only liable if decisions are made without reasonable care or due diligence.

What are common signs of fraudulent investment schemes?

Be cautious of promises of guaranteed high returns, excessive secrecy, and vague investment terms.

Conclusion

Church leaders have both legal and moral duties to manage funds responsibly. By following best practices, such as consulting financial experts, maintaining transparency, and adhering to state laws, churches can safeguard their resources and fulfill their fiduciary responsibilities effectively.

For further guidance on fiduciary responsibilities, visit IRS.gov or consult with experienced legal counsel familiar with nonprofit regulations.

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

Sound Advice: Is Your Worship Too Loud?

Is your worship music too loud? We evaluate the risks to churches, worshippers, and guests when the decibel levels rise to high.

Last Reviewed: August 20, 2024

Skip ahead to read about:

1. The connection between loud music and hearing loss

2. What courts have said about loud music and hearing loss

3. OSHA, loud music, and the Church

4. Does the ministerial exception apply to OSHA claims made by church employees?

5. Can church workers file workers compensation claims for hearing damage?

6. Reducing the effects of excessive noise

The music performed in some churches during worship services and special events can become loud and intense. When electric guitars and drums are involved, the noise can become deafening, and, while scripture says something about making a joyful noise, the courts have had something to say about it, too.

There is no question that sacred music is an integral and energetic part of religious worship. And, more importantly, this connection has been recognized by several courts. 

Consider the following description of sacred music by a federal appeals court in a case addressing a church’s liability for terminating a music director. It represents one of the most stirring descriptions of the pivotal role of music in ministry:

The music ministry and teaching positions at issue are ministerial because the positions are important to the spiritual and pastoral mission of the church. The functions of the positions are bound up in the selection, presentation, and teaching of music, which is an integral part of [the church’s] worship and belief. The [First Amendment’s free exercise of religion clause] therefore bars consideration of [this case]. To hold otherwise would require us to say that music is substantially devoid of spiritual significance in the life of the church. Such a view cannot stand in light of the role of religious music in worship and the record in this case. At the heart of this case is the undeniable fact that music is a vital means of expressing and celebrating those beliefs which a religious community holds most sacred. Music is an integral part of many different religious traditions. It serves a unique function in worship by virtue of its capacity to uplift the spirit and manifest the relationship between the individual or congregation and the Almighty. Indeed, the church has presented ample undisputed evidence affirming the centrality of sacred music to the [Christian faith] and the importance of music ministry to the faith community …. We refuse to demote music below other liturgical forms or to sever it from its spiritual moorings. We cannot say, for example, that the reading of scripture or the reciting of prayers is any more integral to religious worship than the singing of hymns or the intonation of chants. Whether spoken or sung, psalms lift eyes unto the hills. It is not for us to place the oratorios of Handel, the cantatas of Bach, or the simplest of hymns beneath the reading of the sacred texts from which they draw …. Nor can we privilege modes of religious expression that draw principally from the rational faculties, such as preaching or the teaching of theology, over those which summon the more lyrical elements of the human spirit. Indeed [as the Supreme Court once observed] “the inspirational appeal of religion in the guises of music, architecture, and painting is often stronger than in forthright sermon.” The efforts of a music minister or teacher can thus influence the spiritual and pastoral mission of the church as much as one who would lead the congregation in prayer, preach from the pulpit, or teach theology in school. 

Employment Opportunity Commission v. The Roman Catholic Diocese of Raleigh, 213 F. 3d 795 (4th Cir. 2000).

However, two problems arise when sacred music is too loud: 

(1) The music may cause permanent hearing loss in members of the congregation; and (2) the church may be exposed to liability. 

Hearing loss

Yes, worship music can cause permanent hearing loss. The question is what level of intensity, and duration, is required for that to happen. 

 The National Institute on Deafness and Other Communication Disorders of the National Institutes of Health, and OSHA (the Occupational Safety and Health Administration) have done extensive research into occupational noise, and have provided the following information:

When noise is too loud, or music is played too loudly, it begins to kill the nerve endings in the inner ear. This can cause permanent and irreversible damage to our hearing. As the exposure time to loud noise or music increases, more nerve endings are destroyed. As the number of nerve endings decreases, so does a person’s hearing. 

Key point. Sound is measured in units called decibels. Sounds at or below 70 dB, even after long exposure, are unlikely to cause hearing loss. However, long or repeated exposure to sounds at or above 85 dB can cause hearing loss.

To quantify this, continued exposure to noise above 85 decibels [dB] (about the level of city traffic), over time, will cause damage to hearing. Personal stereos with headphones have been measured up to 112 dB, with concerts between 94-110 dB and rock concers approaching 120 dB. Music levels of certain orchestral instruments can exceed 126 dB. A new car stereo can blast at levels above 140 dB. Studies show that 37 percent of rock musicians and 52 percent of classical musicians have a measurable hearing loss. There is no way to restore life to dead nerve endings, so the damage is permanent.

  • Noise induced hearing loss (NIHL) can be immediate, or it can take a while to notice. It can be temporary or permanent, and it can affect one ear or both ears. Symptoms include not being able to understand other people when they talk, especially on the phone or in a noisy room. The good news: noise-induced hearing loss is preventable.
  • People of all ages, including children, teens, young adults, and older people, can develop NIHL.  

Key point. The louder the sound, the shorter the amount of time it takes for NIHL to occur.

Key point. Recent studies indicate that a significant percentage of children and teenagers have suffered permanent hearing loss. One of the most likely contributing factors is loud music (both live and recorded).

What the courts have said

A few courts have directly addressed the question of liability for hearing impairment suffered by persons who are exposed to loud music. 

In Bootz v. Crown Leisure Corporation, a 34-year-old woman suffered hearing loss in one ear consistent with noise exposure, and tinnitus. A physician attributed both conditions to repeated incidents of loud music over a two-year. The woman sued the bar she went to three to four times a week, where noise levels usually reached between 95 and 105 dB. The trial court dismissed the case because the woman knowingly entered the bar, and thus assumed the risk, but an appeals court ordered that it proceed to trial while concluding that the woman’s voluntary exposure to the loud noise was only one factor in determining the bar’s liability for her hearing loss and tinnitus.

CASE STUDY

A 51-year-old attorney (Jeff) attended a rock concert featuring John Fogerty, a member of the former Creedence Clearwater Revival band. Fogerty was accompanied by a back-up band consisting of guitar, bass, and drums. The seating was “open,” and Jeff sat in the front row of the mezzanine. 

When the concert began, Jeff found the noise level intolerable and retreated after one or two songs to an area of the building outside the auditorium but still within hearing range of the music. He made an unavailing attempt or two to inform auditorium personnel that he thought the music was too loud. Some of Jeff’s friends attended the concert with him and found the music so loud that they stuffed tissue or fingers into their ears during the concert. Jeff claimed that he suffered permanent hearing loss because of the concert, and he sued the concert hall and promoters for damages. The noise level for the concert was uncertain. One auditorium employee estimated the first song reached 106 decibels. An audiologist testified at the trial that exposure to this level of sound for a half-hour could be unsafe. Another witness testified that “4 minutes would be the maximum permissible exposure to noise at a level of 105 decibels.” 

A New York court dismissed the case. The court said a jury would not be able to determine the standard of care owed by the concert hall or promoters to concertgoers. The court also said persons cannot sue for damages because of injuries sustained when they voluntarily expose themselves to a known risk of harm. This is a legal doctrine known as assumption of risk

The first of these cases suggests that churches face some risk of liability for music that is so loud that it causes permanent hearing loss. The second case suggests that the legal doctrine of assumption of risk may be raised as a defense to liability for hearing loss caused by excessive noise.

Powell v. Metro Entertainment Co., 195 Misc. 2d 847 ( N.Y. App. 2003).

Key point. Minors are a special case. Some courts have ruled that the assumption of risk defense is narrower when applied to minors. And, recent surveys reveal that most adolescents do not see loud music as a problem.

OSHA violations

 OSHA regulations require employers to address excessive noise in the workplace. Employers must implement a hearing-conservation program when noise exposure is at or above 85 dB averaged over 8 working hours, or an 8-hour time-weighted average. A program must include monitoring, warnings about noise levels, and hearing protectors, among other things. 

OSHA regulations clearly specify that nonprofit organizations are subject to OSHA regulations, but churches are not. 

“The basic purpose of the . . . Act is to improve working environments in the sense that they impair, or could impair, the lives and health of employees,” the law states. Excluding employees of nonprofits and charitable organizations  “would result in thousands of employees being left outside the protections of the Act in disregard of the clear mandate of Congress to assure ‘every working man and woman in the Nation safe and healthful working conditions.’” 

However, OSHA regulations treat churches as special cases with respect to religious worship services:

Churches or religious organizations, like charitable and nonprofit organizations, are considered employers under the Act where they employ one or more persons in secular activities. As a matter of enforcement policy, the performance of, or participation in, religious services (as distinguished from secular or proprietary activities whether for charitable or religion-related purposes) will be regarded as not constituting employment under the Act. Any person, while performing religious services or participating in them in any degree is not regarded as an employer or employee under the Act, notwithstanding the fact that such person may be regarded as an employer or employee for other purposes—for example, giving or receiving remuneration in connection with the performance of religious services.

This language is important.

While OSHA generally applies to churches as employers, it will not take  “enforcement” action against a church that violates OSHA regulations in the course of “the performance of, or participation in religious services” since “any person, while performing religious services or participating in them in any degree is not regarded as an employer or employee under the Act, notwithstanding the fact that such person may be regarded as an employer or employee for other purposes.”

The regulations list numerous religious organizations that would be covered employers under the law:

  • a private hospital owned or operated by a religious organization
  • a private school or orphanage owned or operated by a religious organization
  • commercial establishments of religious organizations engaged in producing or selling products, such as alcoholic beverages, bakery goods, religious goods, and so on
  • administrative, executive, and other office personnel employed by religious organizations [29 CFR 1975.4(c)]

On the other hand, the regulations list the following examples of religious organizations that would not be covered employers under the law when religious services are specifically involved:

  • churches with respect to clergymen while performing or participating in religious services
  • churches with respect to other participants in religious services, such as choir masters, organists, other musicians, choir members, ushers, and the like [29 CFR 1975.4(c)]

The special treatment of churches and church employees under the OSHA regulations helps to explain why no court has addressed the application of the Act to churches. The fact is that most churches would be considered “employers” under the Act because they are engaged in interstate commerce, but OSHA has chosen not to assert jurisdiction over churches except in special circumstances.

The partial exemption of churches from OSHA coverage is illustrated by the following examples:

EXAMPLE A: A church member brings an audiometer to a worship service and measures peaks of 105 decibels on the front row with a sustained reading of 95 decibels. The church’s music minister (a full-time employee) is exposed for several minutes during each worship service. Must the church implement “administrative or engineering controls” under OHSA? No, because the regulations specify that “as a matter of enforcement policy, the performance of, or participation in, religious services will be regarded as not constituting employment under the Act. Any person, while performing religious services or participating in them in any degree is not regarded as an employer or employee under the Act.”

EXAMPLE B: Helen is a church organist. She plays the organ several times each week at worship services, choir rehearsals, funerals, weddings, and other special functions. She is frequently exposed to decibel levels exceeding 85. Is the church liable for exceeding these limits? Under OSHA, the answer is no, based on the same reasons stated in the examples above.

EXAMPLE C: Jon is a sound technician employed by a church. His job is to make sure that sound levels are adequate during all church services and functions. He must attend all rehearsals as well as services and special functions. He is often exposed to music that exceeds the permissible levels specified by OSHA. Is the church liable for exceeding this limit? The OSHA regulations specify that “as a matter of enforcement policy, the performance of, or participation in, religious services will be regarded as not constituting employment under the Act. Any person, while performing religious services or participating in them in any degree is not regarded as an employer or employee under the Act.” In addition, OSHA regulations list “participants in religious services such as choir masters, organists, other musicians, choir members, ushers, and the like” as an example of persons who are outside of the scope of OSHA coverage. Does this exception apply to a sound technician? Does his work constitute participation in a religious service “in any degree”? Neither OSHA, nor any court, has addressed this issue. It remains a possibility.

EXAMPLE D: Pastor Ted has heard that churches are exempt from OSHA. Is this correct? The answer is no. OSHA defines covered employers to include any organization “engaged in a business affecting commerce that has employees.” There is no doubt that most churches are subject to OSHA. However, as a matter of discretion, OSHA regulations specify that “as a matter of enforcement policy” the “performance of, or participation in, religious services will be regarded as not constituting employment under the Act.” As a result, “any person, while performing religious services or participating in them in any degree is not regarded as an employer or employee under the Act” even though that person is regarded as an employee for other purposes (such as tax reporting). OSHA violations can result in substantial penalties. These penalties depend on several factors. To illustrate, willful or repeated violations of OSHA requirements may result in a civil penalty of not more than $70,000 for each violation, but not less than $5,000 for each willful violation. Employers who fail to correct a citation issued by OSHA may be assessed a penalty of up to $7,000 for each day that that the violation continues. 

The “ministerial exception”

The US Supreme Court has recognized the “ministerial exception” prevents  state and federal employment laws from applying to ministers employed by churches due to First Amendment concerns. 

Does the ministerial exception apply to an OSHA case? Since the law pertains to compliance with federal safety regulations that likely would involve no interpretation of church doctrine, it is difficult to say. Even if the ministerial exception did apply to OSHA claims, it would not bar claims by lay employees.

Workers compensation

All states have enacted workers compensation laws to provide benefits to employees who are injured or become ill in the course of their employment. Benefits generally are financed through insurance premiums paid by employers. 

Churches are subject to workers compensation laws in most states.

Some courts have addressed the issue of an employee’s eligibility for workers compensation benefits based on hearing loss caused by excessive noise at work. Consider the following example.

EXAMPLE: Tom was employed by the City of Seattle as a sound technician at the Seattle Center for 15 years. As a sound technician he set up and operated sound equipment for different programs at the Opera House, the Coliseum, the Arena, and the Exhibition Hall. He worked at about 500 events, including opera, ballet, and symphony rehearsals and concerts, and rock concerts. He monitored and adjusted the sound during performances and frequently increased output volumes so the music could be heard over screaming fans. He did not use hearing protection and he and his wife noticed a gradual hearing loss. Tom filed a workers compensation claim for benefits based on hearing loss caused by occupational noise exposure. A state agency ordered the city to pay permanent partial disability benefits. Spyridis v. Department of Labor, 2004 WL 188304 (Wash. App. 2004).

Reducing the effects of excessive noise

Many churches continue to expose members and employees to excessive noise that exceeds the permissible decibel level (85 dB) prescribed by OSHA. And whilethe risk of liability in such cases may be low, due to the exemption of church worship services from OSHA coverage and the doctrine of assumption of risk, the risk cannot entirely be dismissed, since:

  • Some courts have construed the assumption of risk defense narrowly, especially in cases involving minors.
  • OSHA does not exempt all church employees or activities.
  • Churches may be subject to workers compensation claims for employees’ hearing loss.
  • Church members, employees, and volunteers may be able to sue for hearing loss based on the principle of negligence, using OSHA regulations as a “standard of care” that was violated by their church.

As a result, church leaders should recognize that excessive noise may expose a church to potential liability. But avoidance of liability is just one reason to address excessive noise. Another reason is the ethical responsibility to protect members of the congregation from potentially damaging levels of noise during worship services. There are simple and very effective ways for churches to address loud noise during worship services.

Here are some of them, adapted from recommendations from the National Institute for Occupational Safety and Health (NIOSH) and OSHA:

1. Noise measurement. Use an audiometer to continually measure noise levels during worship services at various places in the sanctuary. This can be done during rehearsals, services, or performances. 

2. Engineering and administrative controls. What are these controls? OSHA regulations specify that any noise control should “minimize sources of noise; prevent the propagation, amplification, and reverberation of noise; and protect workers from excessive noise.” Engineering controls may include “anti-vibration machine mountings, acoustical enclosures, and component replacement.” Administrative practices may include “shift rotation or exposure limitation.”

Example A: A church worship team uses electric instruments and a drum set. The drum set is placed in an acoustical enclosure to protect other musicians from dangerous noise levels. This is an example of an engineering control to reduce noise exposure.

Example B: A church’s sound technician continually monitors noise levels using an audiometer. The technician has a master control that allows him to reduce noise levels when they approach a high decibel level. This is an example of an engineering control.

3. Personal protective equipment. If administrative or engineering controls do not lower noise exposure to acceptable levels, or until such time as they are implemented, hearing protection devices are the only way to prevent hazardous levels of noise from damaging the ear. It is important to understand that hearing protectors reduce only the amount of noise that gets through to the ears. Some types of hearing protection include:

  • Single-use earplugs are made of waxed cotton, foam, silicone rubber or fiberglass wool. They are self-forming and, when properly inserted, they work as well as most molded earplugs.
  • Pre-formed or molded earplugs must be individually fitted by a professional and can be disposable or reusable. Reusable plugs should be cleaned after each use.
  • Earmuffs require a perfect seal around the ear.

Churches that cannot reduce sound levels to non-injurious levels should consider nforming the congregation in the weekly bulletin or newsletter that sound levels may reach injurious levels during worship services that could cause permanent hearing loss. 

Additionally, churches should periodically inform members (and musicians) that earplugs will be available at specified distribution points, such as an information booth, usher station, or from any usher.These procedures not only will inform and protect members and musicians against permanent hearing loss, but they also will reduce the church’s potential liability for cases of hearing loss caused by excessive noise levels during worship services.

4. Hearing tests. Consider offering annual hearing tests to musicians, employees, and others who are exposed to excessive noise during church services or other functions.

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

What Church Treasurers Should Know About Rabbi Trusts

Discover how rabbi trusts benefit church retirement planning, including tax deferrals and key legal considerations for church treasurers.

Last Reviewed: January 7, 2025

A rabbi trust is a nonqualified deferred compensation arrangement.
It allows churches to set aside retirement funds for employees without immediate tax consequences for the employee.

Rabbi trusts are especially helpful for senior pastors nearing retirement, as they allow contributions that exceed the annual limits on traditional tax-sheltered annuities and qualified pension plans.

How Rabbi Trusts Work

According to IRS guidance:

  • Contributions made by a church to a rabbi trust are not immediately taxable to the employee.
  • To qualify, the trust’s assets must remain accessible to the church’s general creditors if the church becomes insolvent.
  • This arrangement creates a “substantial risk of forfeiture,” preventing the employee from being considered in “constructive receipt” of the funds.
  • As a result, taxation is deferred until the funds are actually distributed.

Case Study: Bank of America v. Moglia

The case of Bank of America v. Moglia, 330 F.3d 942 (7th Cir. 2003), highlights key legal considerations for rabbi trusts.

Case summary:

  • Outboard Marine Corporation created a rabbi trust for an executive.
  • After the company’s bankruptcy, a dispute arose over who was entitled to the trust’s assets.
  • The court ruled that, according to the IRS Model Rabbi Trust Agreement:
    • Trust assets were subject to the claims of general creditors.
    • However, secured creditors could not claim those assets.

Key takeaway:
Precise trust language is crucial.
Church treasurers must carefully structure rabbi trusts to align with legal requirements and creditor rules.

(Source: Casetext)

Setting Up a Compliant Rabbi Trust

For churches considering a rabbi trust:

  • Use the IRS Model Rabbi Trust Agreement:
    Follow the structure provided in Revenue Procedure 92-64 to meet tax compliance standards.
  • Include creditor access provisions:
    The trust must specify that assets are available to satisfy claims of general creditors in case of insolvency.

(Source: IRS)

Conclusion

Rabbi trusts can offer churches a powerful tool to provide enhanced retirement benefits to key employees, especially senior pastors.

However, it is essential to:

  • Structure the trust carefully
  • Use the proper legal language
  • Understand the implications for both the church and the employee

For more detailed information, church treasurers should review:

  • The IRS Model Rabbi Trust Agreement
  • Case law examples, such as Bank of America v. Moglia

Proper planning and compliance can ensure that rabbi trusts provide the intended financial and tax benefits.

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

Preparing for the Annual Church Business Meeting

A 15-point checklist for church treasurers.

Most churches conduct an annual business meeting for members. Many churches use the annual business meeting to elect board members, adopt a budget, approve reports, authorize the purchase or sale of church property, and discuss new items of business. As a church leader, you should be familiar with a number of issues that may arise in your annual church business meeting. This article reviews 15 of these issues. Familiarizing yourself with this information will help you prepare for the annual meeting.

1. Current copy of church bylaws

As hard as it may be to believe, many church leaders cannot identify the current version of their church’s governing document (which we will refer to as the “bylaws”). Often there are multiple versions in circulation. Usually, this occurs because older versions not incorporating the most recent amendments are still being used. Prior to the annual business meeting the church board should identify the current version and have a copy available at the meeting.

This official version should be prominently dated (as of the most recent amendment) at the top of the cover page. A chronology of all amendments to the bylaws can be prepared by reviewing the minutes of all annual and special meetings. This chronology will enable church leaders to quickly identify obsolete versions of the bylaws. These versions should be discarded.

2. Reviewing the membership list

Check the church bylaws to see what they say about the identification of church members. It is common for church bylaws to call for a periodic review of the membership list so that the names of persons who fail to meet specified conditions can be removed. For example, it is common for church bylaws to limit members to persons who regularly attend or support the church. In such a case it is important for the church’s membership standard to be properly and consistently applied.

This is a task that should be done annually, pursuant to the process spelled out in the bylaws. Many church boards neglect this duty, and this often compounds the problem of deciding who are active voting members in good standing.

3. Prescreening candidates for the church board

Many churches have bylaws that prescribe various qualifications for members of the board. This can present problems if members are allowed to make nominations from the floor during an annual business meeting. If your church bylaws contain a list of qualifications for members of the board, and board members are elected at annual business meetings, then it is a good practice for the church board to appoint a nominating committee that prescreens and selects a list of candidates who meet those qualifications.

Members should be advised during the membership meeting not to make additional nominations from the floor unless they have determined in advance that their nominee meets the qualifications specified in the bylaws.

4. Notice

The church membership ordinarily must be notified of the date, time, and place of annual membership meetings. In the case of a special meeting, the notice generally must state the purpose of the meeting (in addition to the date, time, and place).

The “notice” requirements usually are found in a church’s bylaws, but also may appear in the corporate charter or in the body of parliamentary procedure adopted by the church. If a church is incorporated and its bylaws do not address notice requirements, the state nonprofit corporation law ordinarily will contain the applicable requirements.

Unincorporated churches that have no bylaws or written regulations are bound by their established customs regarding notice of church membership meetings. A church must comply with the manner and method of giving notice prescribed in the bylaws. Failure to follow such requirements may render any action taken at the meeting invalid. However, a number of courts have ruled that members must object to defective notice at the meeting in question, and that a failure to do so will constitute a “ratification” of the defective notice.

5. Quorum

A “quorum” refers to the minimum number of members who must be present at an annual or special business meeting in order for business to be transacted. This number usually is specified in a church’s bylaws. If it is not, then state nonprofit corporation law will specify a quorum if the church is incorporated. It is important for church board members to know the applicable quorum requirement.

6. Voting majorities

Often there is confusion regarding the number of votes required to adopt a particular action. For example, if the church bylaws require a particular vote to be by “a majority of members,” does this mean a majority of the total church membership or a majority of those members present at a duly convened membership meeting?

A church can and should define the term majority of members to avoid this confusion. But if a church’s bylaws nowhere define majority of members, or any other term relating to the required number of votes needed to adopt an action, the fraction or percentage of votes needed to adopt an action generally refers to the members present at a duly called meeting and not to the entire church membership.

If a church’s bylaws do not designate the required percentage of votes for an affirmative action, then there is a presumption of majority rule. Church bylaws may impose a higher voting requirement than a simple majority for some actions. Common examples are the purchase or sale of real estate, and voting for a pastor. Board members should be familiar with all of the voting requirements specified in the bylaws to be sure that official actions are taken with the legally required number of votes.

7. Absentee ballots

Absentee voting is not ordinarily permitted unless specifically authorized by a church’s bylaws or by statute. Robert’s Rules of Order specifies: “An organization should never adopt a bylaw permitting a question to be decided by a voting procedure in which the votes of persons who attend a meeting are counted together with ballots mailed in by absentees, since in practice such a procedure is likely to be unfair.”

8. Proxy voting

Proxy voting refers to voting by means of a substitute. For example, a church member appoints another member to vote on his behalf at a membership meeting that he cannot attend. Churches rarely intend to permit proxy voting. Robert’s Rules of Order specifically discourages it.

Few if any state nonprofit corporation laws require proxy voting, but some states permit it unless specifically repudiated in an incorporated church’s bylaws. Incorporated churches not wanting to recognize proxy voting should review their bylaws to determine if they contain a provision prohibiting it. If not, an amendment would be in order. It should not be assumed that a church’s formal adoption of Robert’s Rules of Order will result in the prohibition of proxy voting.

9. Other methods of voting (by hand, secret ballot, absentee voting)

Votes can be cast orally, by show of hands, or by secret ballot. The method used is governed by the church’s bylaws. If these documents are silent, established church custom will control. The members present at a meeting can also approve of a particular manner of voting if the church’s bylaws do not address the subject.

10. Parliamentary committee

The church board should designate a parliamentary committee to serve during the annual business meeting. If the church’s bylaws do not adopt a particular body of parliamentary procedure (there are several), they should be amended to do so. Church leaders should never assume that Robert’s Rules of Order automatically applies. It doesn’t.

11. Financial reports and audits

Be sure to review the church’s bylaws to see what kinds of reports must be presented at the annual business meeting. To illustrate, some church bylaws require an annual audit, and a presentation of the audit at the annual business meeting. Be sure the church complies fully with such a requirement. Note that the word “audit” has a specific meaning. It does not include various “limited engagements” that CPAs can perform. If your bylaws call for an audit, be sure that the financial report that you present in your annual membership meeting is in compliance with your church bylaws.

12. Amendment requirements

Can the bylaws be amended in the course of an annual business meeting? Some church bylaws permit this to be done. However, it also is common for church bylaws to require advance notice of any proposed bylaw amendment, and this prevents members from proposing and enacting bylaw amendments during an annual business meeting. Church board members must be familiar with the amendment provision in the church bylaws.

13. Procedure

Be sure to follow any other procedural requirements that are spelled out in the church bylaws. These may include the appointment of a recording secretary, the presentation and approval of a church budget, and a specified order of business.

14. Disclosure of salary information

Some churches disclose the salaries paid to staff members, while others do not. If your church does not disclose this information, you should be prepared to respond to a member who asks for this information during the annual business meeting. Some churches that do not disclose salary information will inform the congregation that all salaries are within the average ranges of compensation paid by other churches of the same size for similar positions (if such is the case). For help setting salaries that are within the avarage ranges, use information and tools available on ChurchSalary.

15. Resolving conflicts in a church’s organizational documents

What if there are conflicting provisions in a church’s charter and bylaws (or other governing document) regarding the required number of votes necessary for adoption of a particular action? In general, provisions in the charter prevail over provisions in a church’s constitution, bylaws, or resolutions; provisions in the constitution prevail over provisions in the bylaws, or resolutions; and provisions in the bylaws prevail over provisions in resolutions. In most cases, an incorporated church is bound by the provisions of state nonprofit corporation law only where it has not expressly provided otherwise in its own charter, constitution, or bylaws.

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

Should Your Church Have a Defibrillator?

Should your church have a defibrillator? Consider these key points when answering that question.

Last Reviewed: September 10, 2024

Gary, a middle-aged man, clutches his chest and collapses during a worship service. The congregation is horrified. Some panic, and most have no idea what to do. One member tries to apply CPR. Another calls 911. Efforts to revive Gary fail, and he is pronounced dead on arrival at a local hospital. In the following days, church members wonder whether a defibrillator might have saved Gary’s life. Others wonder whether not having a defibrillator exposes the church to a lawsuit. 

The risk of cardiac arrest

The tragedy involving Gary could happen in any church. Consider these facts:

  • Someone goes into cardiac arrest every two minutes in the United States.
  • Time is a factor. Survival rates plummet every minute after a heart attack, and go to almost zero after 12 minutes.
  • Of those who experience cardiac arrest outside of a hospital, 95 percent die (and 60 percent of all cardiac arrests happen somewhere other than a hospital).

Can’t we just call 911?

While calling 911 is essential, it may not be enough to save a life.. Many churches are located in crowded urban or suburban areas where traffic congestion may delay the arrival of paramedics for several precious minutes. In many rural areas, the response time for paramedics (if they are available) may be 30 minutes or more.


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A case for defibrillators

(1) What is a defibrillator?

Automated external defibrillators (AEDs) are medical devices that can restart a heart that has stopped beating effectively, and replace the abnormal heart rhythm with a normal rhythm. 

Defibrillators are subject to FDA approval, and can only be sold with a prescription by a licensed individual. 

Defibrillators have been shown to be safe and effective, even when used by lay people, since the devices are designed to not administer a shock until after it has analyzed a victim’s heart rhythm and determined that an electric shock is required. 

Defibrillator training courses are provided by the American Red Cross, the American Heart Association, local emergency medical services groups, and other public health and safety institutions.

(2) How effective are defibrillators?

Defibrillators are very effective. Consider the following statistics:

  • Organizations that have established and implemented defibrillation programs have achieved average survival rates for cardiac arrest as high as 50 percent.
  • According to the American Heart Association, wide use of defibrillators could save as many as 50,000 lives nationally each year.
  • Studies show that defibrillators are successful up to 90 percent of the time in detecting ventricular fibrillations that should be defibrillated, and are successful up to 99 percent of the time in not sending electric shocks when ventricular fibrillations are not detected.

(3) Can my church afford one?

Defibrillators cost $2,000 to $3,000. Prices continue to drop, and some very effective units have been introduced recently that cost less than $1,500. Modern units are also much easier to operate. Many have voice commands to “guide” users.

Are defibrillators a substitute for CPR?

Most medical authorities agree that defibrillators are not a substitute for CPR. 

While CPR is generally ineffective in cases of sudden cardiac arrest caused by ventricular fibrillation, it may sustain life for a few precious minutes until defibrillation can be applied. 

CPR provides a small amount of blood to the brain and heart and keeps these organs alive until defibrillation can shock the heart into a normal rhythm. 

Many modern defibrillators will instruct users (by verbal commands) whether CPR should be initiated or continued.

The American Heart Association recommends that defibrillator users be trained in both CPR and defibrillator use.

Tip: Many medical professionals recommend using the “Cardiac Chain of Survival” in responding to victims of sudden cardiac arrest. The first step in the chain is to call 911. The second step is to provide early CPR to the victim. The third step is to provide early defibrillation, and the fourth step is early advanced life support, which includes care by paramedics and transport to a hospital. The “chain” recognizes the value of CPR in conjunction with defibrillators.

Church leaders should not assume church members know CPR, but instead should recognize that, while CPR can sustain someone suffering cardiac arrest, only defibrillation can restore normal heart rhythm. 

Legal considerations 

There are several legal considerations  associated with the use of defibrillators.

(1) What if a defibrillator is used on a person who is not a victim of cardiac arrest?

Okay, so you see the need for having a defibrillator in your church, but worry that buying and using one at the wrong time could make the situation worse. Thanks to improvements, defibrillators will not emit electric impulses until they analyze a victim’s heart rhythm and determine that an electric shock is required.  If your church buys  a defibrillator, be sure that it has this “failsafe” feature (to receive FDA approval, this feature is required).

(2) What if a defibrillator does not save someone’s life?

There are several responses to this concern.

Reducing the risk

Ensure your church’s defibrillator(s) are used properly and perform reliably by (1)training several members how to use it/them; (2) placing them in the proper places on church property (often this will be set by state law); (3) doing routine maintenance(again, as set by state law).

Court cases

Some court cases address liability based on ineffective use of a defibrillator. 

In Young v. Houghton Lake Ambulance Service (2002), a Michigan widow sued an ambulance company after the defibrillator the paramedics used on her husband did not perform. She claimed the company had been grossly negligent in failing to test and maintain the device. 

An appeals court dismissed the case, noting that state law gives immunity for those who use defibrillators unless their actions constitute gross negligence and willful misconduct. In this case, the jury could not conclude that the company’s conduct met that standard of gross negligence.

(3) Immunity under federal law

Federal law offers “Good Samaritan” protections regarding defibrillators.

Except as provided in subsection (b), any person who uses or attempts to use an automated external defibrillator device on a victim of a perceived medical emergency is immune from civil liability for any harm resulting from the use or attempted use of such device; and in addition, any person who acquired the device is immune from such liability, if the harm was not due to the failure of such acquirer of the device—

(1) to notify local emergency response personnel or other appropriate entities of the most recent placement of the device within a reasonable period of time after the device was placed;

(2) to properly maintain and test the device; or

(3) to provide appropriate training in the use of the device to an employee or agent of the acquirer when the employee or agent was the person who used the device on the victim, except that such requirement of training does not apply if—(A) the employee or agent was not an employee or agent who would have been reasonably expected to use the device; or (B) the period of time elapsing between the engagement of the person as an employee or agent and the occurrence of the harm (or between the acquisition of the device and the occurrence of the harm, in any case in which the device was acquired after such engagement of the person) was not a reasonably sufficient period in which to provide the training.

(b) Inapplicability of immunity

Immunity under subsection (a) does not apply to a person if—

(1) the harm involved was caused by willful or criminal misconduct, gross negligence, reckless misconduct, or a conscious, flagrant indifference to the rights or safety of the victim who was harmed;

(2) the person is a licensed or certified health professional who used the automated external defibrillator device while acting within the scope of the license or certification of the professional and within the scope of the employment or agency of the professional . . . .

(c) Rules of construction

(1) In general

The following applies with respect to this section:

(A) This section does not establish any cause of action, or require that an automated external defibrillator device be placed at any building or other location. . . .

(e) Definitions

(1) Perceived medical emergency

For purposes of this section, the term “perceived medical emergency” means circumstances in which the behavior of an individual leads a reasonable person to believe that the individual is experiencing a life-threatening medical condition that requires an immediate medical response regarding the heart or other cardiopulmonary functioning of the individual.

(2) Other definitions

For purposes of this section:

(A) The term “automated external defibrillator device” means a defibrillator device that—

(i) is commercially distributed in accordance with the Federal Food, Drug, and Cosmetic Act .. . .;

(ii) is capable of recognizing the presence or absence of ventricular fibrillation, and is capable of determining without intervention by the user of the device whether defibrillation should be performed;

(iii) upon determining that defibrillation should be performed, is able to deliver an electrical shock to an individual; and

(iv) in the case of a defibrillator device that may be operated in either an automated or a manual mode, is set to operate in the automated mode.

(4) Immunity under state law

Every state has enacted a law that provides limited immunity from liability for the use of defibrillators. Most of these laws protect persons who have received training in the use of defibrillators, even if they have no formal medical training. 

(5) Can we be liable for not having a defibrillator?

No laws or court decisions provide a clear answer to this question. However, the following text from the American Heart Association notes that “assessments of the legal risks associated with AEDs have found litigation arising primarily from not having a readily available AED and trained staff on the premises when a cardiac arrest occurs (11,27-29)” (emphasis added). .

Churches should enlist the assistance of a physician or public health official in drafting, adopting, and implementing a defibrillator policy. Both the policy and the efforts to enforce it should be reviewed annually.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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What Churches Should Know About Works Made for Hire

Legal implications of works created by a church employee.

Quick-Reference Checklist

Here are key points churches should keep in mind:

  • A “work made for hire” is any book, article, or music created by an employee during the course of employment.
  • This includes work created on church property, during office hours, or using church equipment.
  • In such cases, the employer owns the copyright.
  • The employer can transfer copyright back to the employee, but only in a signed writing.
  • Doing so may risk the church’s tax-exempt status due to possible “inurement.”
  • It may also expose employees to intermediate sanctions.
  • Sermons may not be considered works made for hire, even if created during work hours, although legal clarity is lacking.

Understanding Works Made for Hire

Church employees often create written or musical works on the job. But they may not realize they don’t automatically own the copyright.

Under the U.S. Copyright Act:

“In the case of a work made for hire, the employer is considered the author and owns the copyright unless otherwise agreed in writing.”

To Qualify as a “Work Made for Hire,” Two Conditions Must Be Met:

  1. The creator is an employee.
  2. The work is made within the scope of employment (i.e., during work hours, at the church, with church equipment or staff help).

Even if a staff member is considered self-employed for tax purposes, courts may still deem them employees under copyright law.


Real-World Examples

  • Rev. B, the senior pastor, writes a devotional book at church during work hours using church equipment. There is no agreement about copyright. Result: The church owns the copyright.
  • Rev. T, minister of music, writes songs at the church, using church instruments and supplies. Again, no agreement exists. Result: The church owns the songs.
  • Rev. T writes music at home on weekends, using her own equipment. Result: She owns the copyright—it was created outside the scope of employment.
  • Rev. T splits her work between home and church. In such mixed scenarios, courts examine factors like:
    • Where most of the work occurred
    • Which equipment was used
    • When it was created (on/off hours)
    • Whether she kept adequate records

Without strong documentation, courts rely on testimony from staff and witnesses.


Tax-Exempt Risk: Inurement

Transferring a copyright to an employee could be seen as inurement—a violation that may jeopardize a church’s tax-exempt status.

Giving a copyright to an employee without reporting it as compensation may be viewed as diverting church assets.

The IRS forbids use of nonprofit resources for private gain unless compensated fairly.

Even if rare, the consequences of revocation are severe, so the risk should be taken seriously.

A safer approach:

  • Church retains the copyright.
  • Royalties go to the church.
  • Church pays a bonus to the employee, reported as taxable income.

✅ This avoids inurement and keeps tax-exempt status safe.

3. Encourage Staff to Create at Home

Churches can minimize risks by encouraging staff to:

  • Do personal creative work off-site, outside work hours.
  • Avoid using church resources for personal projects.

This clearly separates church and personal work.

4. Sermons May Be Different

While sermons written at church could be considered works made for hire, no court has directly ruled on this. A relevant precedent from academia (Williams v. Weisser, 1969) found that lecture notes created at a university belonged to the professor—not the school.

This may support the argument that sermons are not works made for hire.


Compensation Limits and Intermediate Sanctions

When a copyright is transferred to a staff member, and that work generates income, the IRS may treat it as excessive compensation.

Consequences:

  • 25% excise tax on the excess amount
  • 200% penalty if the excess isn’t returned to the church
  • 10% tax (up to $10,000) on board members who approved the transaction

Who’s at Risk?

  • Only “disqualified persons” (those with substantial influence) are liable.
  • In most churches, this includes senior pastors but not necessarily junior staff.

Key Takeaways

  • A church typically owns copyright in works created by staff during employment.
  • Transferring copyright to the creator must be carefully considered, preferably with legal counsel.
  • To avoid legal and tax risks:
    • Use written agreements.
    • Keep creative work separate from ministry duties.
    • Report bonuses for creative work as taxable income.

By understanding copyright and compensation implications, churches can safeguard their legal standing and tax-exempt status.

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

Church Bank Account Authority: Key Lessons from First Born Church of the Living God v. Bank South

Discover crucial lessons on church bank account management from the First Born Church case, emphasizing compliance with constitutions and bylaws.

Last Reviewed: January 26, 2025

Case

First Born Church of the Living God v. Bank South, 472 S.E.2d 469 (Ga. App. 1996).

Background

Is a bank required to honor a change in signature authority on church accounts if the change failed to comply with the church’s constitution? This Georgia case tackled that issue.

A church’s bank accounts stated that all checks and withdrawals had to be approved by the senior pastor.

A dispute arose in the church, and the congregation split over the issue of whether or not to retain their pastor. The church board held an “emergency meeting” at which it removed the pastor and replaced him with another pastor. The board also amended its bank accounts to require that all checks and withdrawals be approved by the new pastor. The former pastor claimed that the board’s actions were invalid because they violated the church constitution.

The constitution required that the senior pastor approve any actions adopted by the board. The former pastor claimed that he had not been asked to approve the board’s attempt to change the church bank accounts, and therefore the board’s action was legally invalid. The bank asked a court to determine who controlled the church’s accounts.

The board’s actions were invalid.

The court ruled that the board failed to follow the church constitution in attempting to change the bank accounts. The effect of this failure? The board’s attempt to substitute the new pastor on the bank accounts failed. Such a substitution required the former pastor’s approval—according to the church constitution.

The court concluded that it was not barred by the first amendment’s guaranty of religious freedom from resolving this lawsuit. It observed that “the sole issue is not of a religious nature but is secular—whether the board at its emergency meeting duly complied with the provisions of the written constitution. The court’s involvement does not call for the resolution of any ecclesiastical or theological dispute.”

What this means for churches

Every church with a bank account has completed a card or resolution identifying those persons with signature authority. If such a person is removed from office in a manner that violates the church’s constitution or bylaws, then a bank may question the validity of such an action. This can result in unfortunate delays in accessing church funds, which may result in delays in meeting payroll obligations or in paying church debts. This is one of the consequences of attempting to take action in violation of the church’s constitution or bylaws.

Key point. Any attempt by a church to remove a person from office who has signature authority over church bank accounts must be in strict compliance with the church’s constitution or bylaws.

Checklist

Now is a good time to review your records to see who has signature authority over your church bank accounts. Use this checklist as a guide.

(1) In which banks does the church maintain accounts?

(2) Which persons have signature authority to write checks or make withdrawals?

(3) Are the persons with authority to write checks and make withdrawals the persons duly authorized by the church’s constitution, bylaws, or pertinent board or congregational resolution? If not, this discrepancy should be addressed immediately.

(4) Does your church require the signature of two persons on all checks and withdrawals? If not, this is a serious weakness in your church’s internal control that should be addressed immediately.

This article originally appeared in Church Treasurer Alert, November 1997.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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How Churches Should Handle Suspected Embezzlement

Discover essential steps for handling embezzlement in churches, including audits, legal actions, and restoring accountability within your congregation.

Last Reviewed: January 26, 2025

Sometimes a person who has embezzled church funds will voluntarily confess.

This is often done out of a fear that he or she is about to be “caught.”

But in many cases the embezzler does not confess—at least initially. Discrepancies or irregularities may occur which cause church leaders to suspect this person.

A few examples:

  • The same person has counted church offerings for many years. The pastor inadvertently notices that offerings are always higher when this person is absent (due to illness, business, or vacation).
  • Church officials noticed that a church bookkeeper was living a higher standard of living than was realistic given her income. Among other things, she purchased an expensive home and a luxury car.
  • Church offerings have remained constant, or increased slightly, despite the fact that attendance has increased.
  • A church treasurer notices several undocumented and expensive purchases from the church’s checking account.

Church leaders often are unsure how to address suspected cases of embezzlement. The suspected embezzler is almost always a trusted member or employee. Because of this, church leaders are reluctant to accuse such a person without irrefutable evidence of guilt.

Seldom does such evidence exist. The pastor may confront the person about the suspicion. However, the individual often denies wrongdoing even when they’re clearly guilty. This compounds the frustration of church officials, who do not know how to proceed.

Here is a list of steps that church leaders can take to resolve such difficult cases:

Confront the suspected embezzler

The pastor and at least one other church leader should confront the suspected embezzler. Inform the person that the church has evidence indicating that he or she has embezzled church funds. Seek a confession. Inform the person that if no one confesses, the church will be forced to call in a CPA firm to confirm that embezzlement has occurred, and to identify the probable embezzler.

Tip. Embezzlement is a criminal offense. Depending on the amount of funds or property taken, it may be a felony that can result in a sentence in the state penitentiary. This obviously would have a devastating impact on the embezzler, and his or her family.

If the evidence clearly indicates that a particular member or employee has embezzled church funds, but this person denies any wrongdoing, inform him or her that the church may be forced to turn the matter over to the police for investigation and prosecution.

Tip. Embezzlers never report their illegally obtained “income” on their tax returns. Nor do they suspect that failure to do so may subject them to criminal tax evasion charges! In fact, in some cases it is actually more likely that the IRS will prosecute the embezzler for tax evasion than the local prosecutor will prosecute for the crime of embezzlement.

If the evidence clearly indicates that a particular member or employee has embezzled church funds, but this person denies any wrongdoing, inform him or her that the church may be forced to turn the matter over to the IRS for investigation and possible prosecution.

Conduct an audit

Have a local CPA conduct an audit to establish that embezzlement has occurred, and provide an estimate of how much was embezzled.

If the suspected embezzler denies any wrongdoing (or if embezzlement is suspected but it is not clear who is guilty), church leaders should consider hiring a local CPA firm to look for evidence of embezzlement. There is a good possibility that the embezzlement will be detected, and that the perpetrator will be identified.

Tip. CPAs can also help the church establish a strong system of internal control to reduce the risk of embezzlement in the future.

Many church leaders have found that turning the investigation over to a CPA firm is much more acceptable than conducting the investigation internally. The CPA firm is completely objective, and ordinarily will not know the suspected embezzler. Further, few church members will object to the church hiring a CPA firm to detect wrongdoing and help establish a sound system of internal control.

Contact the police or local prosecutor

If the suspected embezzler does not confess, or if embezzlement is suspected but it is not clear who is guilty, church leaders must consider turning the matter over to the police or local prosecutor. This is a very difficult decision, since it may result in the prosecution and incarceration of a member of the congregation.

Respond to a confession

In some cases the embezzler eventually confesses. Often, this is to prevent the church from turning the case over to the IRS or the police, or to a CPA firm. Embezzlers believe they will receive “better treatment” from their own church than from the government. In many cases they are correct.

It often is astonishing how quickly church members will rally in support of the embezzler once he or she confesses—no matter how much money was stolen from the church. This is especially true when the embezzler used the embezzled funds for a “noble” purpose, such as medical bills for a sick child. Many church members demand that the embezzler be forgiven.

They are shocked and repulsed by the suggestion that the embezzler—their friend and fellow church member—be turned over to the IRS or the police! But is it this simple? Should church leaders join in the outpouring of sympathy? Should the matter be dropped once the embezzler confesses?

Some questions demand answers

These are questions that each church will have to answer for itself, depending on the circumstances of each case. Before forgiving the embezzler and dropping the matter, church leaders should consider the following points:

A serious crime has been committed, and the embezzler has breached a sacred trust. The church should insist, at a minimum, that the embezzler must:

  • disclose how much money was embezzled
  • make full restitution by paying back all embezzled funds within a specified period of time, and
  • immediately and permanently be removed from any position within the church involving access to church funds

Tip. Closely scrutinize and question the amount of funds the embezzler claims to have taken. Remember, you are relying on the word of an admitted thief. Is it a realistic amount? Is it consistent with the irregularities or discrepancies that caused church leaders to suspect embezzlement in the first place? If in doubt, consider hiring a local CPA to review the amount the embezzler claims to have stolen.

In many cases the embezzler will insist that he or she is not able to pay back the embezzled funds.

They have been spent. This presents church leaders with a difficult decision, since the embezzler has received unreported taxable income from the church. The embezzler should be informed that the embezzled funds must either be returned within a specified time, or a promissory note must be signed promising to pay back the embezzled funds within a specified period of time.

The embezzler should be informed that failure to agree to either alternative will force the church to issue him or her a 1099 (or a corrected W-2 if the embezzler is an employee) reporting the embezzled funds as taxable income. Failure to do so will subject the church to a potential penalty (up to $10,000) for aiding and abetting in the substantial understatement of taxable income under section 6701 of the tax code.

Tip. An embezzler’s biggest problem ordinarily will not be with the church or even with the local prosecutor. It will be with the IRS for failure to report taxable income. There are only two ways to avoid trouble with the IRS: (1) the embezzler pays back the embezzled funds, or (2) the church reports the embezzled funds as taxable income on a 1099 or corrected W-2.

Church leaders must also remember that they owe a fiduciary obligation to the church and that they are stewards of the church’s resources.

Viewing the offender with mercy does not necessarily mean that the debt must be forgiven and a criminal act ignored. Churches are public charities that exist to serve religious purposes, and they are funded entirely out of charitable contributions from persons who justifiably assume that their contributions will be used to further the church’s mission. These purposes may not be served when a church forgives and ignores cases of embezzlement.

Tip. The federal Employee Polygraph Protection Act prohibits most employers from requiring or even suggesting that an employee submit to a polygraph exam. Employers also are prevented from dismissing or disciplining an employee for refusing to take a polygraph exam.

There is an exception that may apply in some cases—an employer may require that an employee take a polygraph exam if the employee is suspected of a specific act of theft or other economic loss and the employer has reported the matter to the police. However, the employer must follow very strict requirements to avoid liability.

A church should never suggest or require that an employee submit to a polygraph exam, even in cases of suspected embezzlement, without first contacting a local attorney for legal advice.

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

Preventing and Addressing Embezzlement in Churches

Discover how to prevent church embezzlement through practical steps, real examples, and a focus on accountability and transparency.

Last Reviewed: May 18, 2025

The definition of embezzlement varies slightly from state to state, but in general, it refers to the wrongful conversion of property that is lawfully in your possession. The idea is that someone has legal control or custody of property or funds, and then decides to convert the property or funds to his or her own personal use.

Most people who embezzle funds, including many church employees, insist that they intended to pay the money back and were simply “borrowing” the funds temporarily. One can only imagine how many such schemes actually work without anyone knowing about it.

An intent to pay back embezzled funds is not a defense to the crime of embezzlement. The courts are not persuaded by the claims of embezzlers that they intended to fully pay back the funds they misappropriated. The crime is complete when the embezzler misappropriates the church’s funds to his or her own personal use. As one court has noted:

The act of embezzlement is complete the moment the official converts the money to his own use even though he then has the intent to restore it. Few embezzlements are committed except with the full belief upon the part of the guilty person that he can and will restore the property before the day of accounting occurs. There is where the danger lies and the statute prohibiting embezzlement is passed in order to protect the public against such venturesome enterprises by people who have money in their control.

In short, it does not matter that someone intended to pay back embezzled funds. This intent in no way justifies or excuses the crime. The crime is complete when the funds are converted to one’s own use.

What if the embezzled funds are returned?

Giving stolen money back does not mean it was not stolen and a crime has not been committed.

Of course, it may be less likely that a prosecutor will prosecute a case under these circumstances. And even if the embezzler is prosecuted, this evidence may lessen the punishment. But the courts have consistently ruled that an actual return of embezzled funds does not purge the offense of its criminal nature or absolve the embezzler from punishment.


Key point. Even if an embezzler is caught or confesses, and then agrees to “pay back” the embezzled funds, church officials seldom know if all embezzled funds are being returned. They are relying almost entirely on the word of the embezzler.

Why churches often are vulnerable to embezzlement.

Many churches refuse to adopt measures to reduce the risk of embezzlement out of a fear that such measures will reflect a lack of trust in those persons who handle church funds.


Example. Tom has counted the church offering at his church for 25 years. The church board has discussed this arrangement several times, but fails to stop it out of a fear of offending Tom.

Why should church leaders take this risk seriously?

For several reasons, including the following:

  • Survey data. Church Law & Tax’s nationwide survey demonstrates that embezzlement is a risk that every church should take seriously.
  • Removing temptation. Churches that take steps to prevent embezzlement remove a source of possible temptation from church employees and volunteers who work with money.
  • Protecting reputations. By taking steps to prevent embezzlement, a church protects the reputation of innocent employees and volunteers who otherwise might be suspected of financial wrongdoing when financial irregularities occur.
  • Avoiding confrontations. By taking steps to prevent embezzlement, a church avoids the unpleasant task of confronting individuals who are suspected of embezzlement.
  • Avoiding church division. By taking steps to prevent embezzlement, a church avoids the risk of congregational division that often is associated with cases of embezzlement—with some members wanting to show mercy to the offender and others demanding justice.
  • Avoiding the need to inform donors. By taking steps to prevent embezzlement, a church reduces the risk of having to tell donors that some of their contributions have been misappropriated by a church employee or volunteer.
  • Protecting the reputation of church leaders. By taking steps to prevent embezzlement, a church reduces the damage to the reputation and stature of its leaders who otherwise may be blamed for allowing embezzlement to occur.
  • Preserving accountability. Churches that take steps to prevent embezzlement help to create a “culture of accountability” with regard to church funds.

These are powerful motivations for addressing the issue of embezzlement.

How it happens.

Let’s look at several cases of actual embezzlement of church funds to see how it can occur. Where appropriate, quick tips regarding how to prevent such situations are included, but for full online training for boards, pastors, staff members, and volunteers, be sure to check out Church Law & Tax’s Safeguarding Your Church’s Finances.



Example. An usher collected offerings each week in the church balcony, and pocketed all loose bills while carrying the offering plates down a stairway to the main floor. Church officials later estimated that he embezzled several thousands of dollars over a number of years before being caught.



Example. The same two persons counted church offerings for many years. Each week they removed all loose coins and currency (not in offering envelopes) and split it between them. This practice went on for several years, and church officials later estimated that the two had embezzled several tens of thousands of dollars.



Example. A church left its Sunday offering, along with the official count, in a safe in the church office until Monday. On Monday morning, a church employee deposited the offering. The employee ignored the official counts, and deposited the offering less loose coins and currency (which she retained). The deposits were never checked against the offering counts.

Tips. For the above three examples, aways require two unrelated persons to count weekly offerings, then ensure all counted amounts are kept in a safe accessible only by another group of identified persons. Amounts actually deposited should be reconciled with the counted amounts by someone who did not count or deposit the offerings. Lastly, monthly financial statements will offer another opportunity to spot-check.

Example. A church child care director embezzled church funds by issuing herself paychecks for the gross amount of her pay (before deductions for tax withholding). The church withheld taxes and paid them to the government, but her paychecks reflected the gross amount of her pay.

Tip. Make certain duties for payroll are segregated in the same way that they should be segregated for other financial functions. Specifically, make sure two or more unrelated persons are involved with the custody of paychecks or online access to pay rates and deposits, authorization of paychecks and online transactions, and the recordkeeping for entering and reconciling payroll information within the accounting system.

Example. A pastor had the sole authority to write checks using the church’s checking account. He used church funds to pay for several personal expenses, amounting to thousands of dollars each year, until his actions were discovered.

Tip. Two unrelated persons should always be involved with the custody of checks, reviews and approvals, and signatures.

Example. A church bookkeeper embezzled several thousand dollars by issuing checks to a fictitious company. He opened an account in the name of a fictitious company, issued church checks to the company for services that were never performed, and then deposited the checks in the fictitious company’s account. He later withdrew the funds and purchased two automobiles, which he gave to a friend. A court ruled that the friend had to give the cars back to the church, since they had been purchased with embezzled church funds. The point here, as noted by the court, is that one who acquires property that was purchased with embezzled church funds may be required to transfer the property to the church.

Tips. Review your church’s conflict-of-interest policy to make certain all business conducted with outside parties goes through a review and approval process. Again, all cash disbursements should be handled by at least two unrelated persons for review, approval, and signature.

Example. A minister received an unauthorized kickback of 5 percent of all funds paid by a church to a contractor who had been hired to build a new church facility. The minister received over $80,000 from this arrangement in exchange for which he persuaded the church to use the contractor. The minister’s claim that the $80,000 represented a legal and nontaxable “love offering” was rejected by a federal court that found the minister guilty of several felony counts. This arrangement was not disclosed to the church board, and obviously amounted to an unauthorized diversion of church funds back to the minister.

Tip. An effective conflict-of-interest policy can help uncover potential situations in which someone in a position of authority, such as a pastor, stands to personally gain from a transaction involving the church.

Example. A church accountant embezzled $212,000 in church funds. This person’s scheme was to divert to his own use several designated offerings, and to inflate the cost of equipment that he paid for with his own funds and that the church later reimbursed at the inflated amounts. The interesting aspect of this case was that the accountant was not only found guilty of embezzlement, but he was also convicted for tax evasion because he had failed to report any of the embezzled money as taxable income. He was sentenced to prison.


Example. A court ruled that an insurance company that paid out $26,000 to a charity because of an act of embezzlement could sue the embezzler for the full amount that it paid. This is an important case, for it demonstrates that a church employee who embezzles church funds may be sued by the church insurance company if it pays out a claim based on the embezzlement. In other words, the fact that the church decides not to sue the embezzler does not mean that the person will be free from any personal liability. If the church has insurance to cover the loss, the insurance company can go after the embezzler for a full recovery of the amount that it paid out on account of the embezzlement.

We’ve used a combination of AI and human review to make this content easier to read and understand.

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

Clergy Taxable Income: Understanding Taxable Income and Gifts

Key insights into taxable income for ministers, including handling of bonuses, love gifts, and fringe benefits.

Last Reviewed: January 8, 2025

Church treasurers must accurately report the clergy taxable income paid to ministers on W-2 or 1099 forms. This ensures compliance with IRS regulations and minimizes errors that could lead to audits or penalties.

Key Taxable Income Categories for Ministers

Bonuses

Any “bonus” paid by a church to a minister is taxable income and must be included on the minister’s W-2 or 1099 form.

“Love Gifts”

Churches often pay ministers “love gifts” for occasions like Christmas or anniversaries. If the purpose of the gift is to compensate a minister for services rendered, it is taxable income and must be reported. This is true even if the payment is called a “love gift.”

Important: Since 1987, federal law specifies that the term “gift” does not include “any amount transferred by or for an employer to, or for the benefit of, an employee.” Traditional holiday gifts of low fair market value, like a turkey or fruitcake, are an exception and are nontaxable.

Retirement Gifts

Most retirement gifts presented to ministers by a church are taxable compensation and must be included on the minister’s W-2 or 1099. Federal law prohibits employers from making tax-free gifts to employees since 1987. Self-employed ministers may qualify for tax-free retirement gifts under strict conditions, such as demonstrating the gift was not intended as compensation.

Property Purchased Below Market Value

When a church sells property to a minister at less than fair market value, the difference must be reported as taxable income on the minister’s W-2 or 1099. For example, if a church sells a parsonage valued at $100,000 for $25,000, the $75,000 difference is taxable.

Social Security Assistance

Ministers pay self-employment taxes for social security. If a church provides financial assistance to cover this tax, the amount must be reported as taxable income on the minister’s W-2 or 1099 form.

Moving Expenses

Employer reimbursements of moving expenses are taxable unless they meet specific IRS criteria. Substantiated moving expenses reimbursed by the employer are not reported in box 1 of the W-2 but must be noted in box 13 using code “P.” Unsubstantiated reimbursements are taxable income.

Personal Use of a Church-Provided Car

If a church provides a car to its minister, the personal use of the vehicle is a taxable noncash fringe benefit. The church must calculate the taxable value and include it on the minister’s W-2 or 1099.

Below Market Interest Loans

Loans offered by a church to a minister below prevailing interest rates may generate taxable income. The church treasurer must report the foregone interest as compensation. However, loans under $10,000 may be exempt under certain conditions.

General Guidelines for Church Treasurers

  • Special occasion gifts from the church’s general fund are taxable income and must be reported.
  • Direct personal gifts from members, such as checks or cash given personally to a minister, are typically tax-free and not deductible for donors.
  • Special offerings collected through the church for a minister are generally taxable income, depending on the intent of the donors and the church’s involvement.

Accurate reporting of taxable income ensures compliance with IRS regulations and protects both churches and ministers from legal and financial risks.

FAQs

  • Are bonuses taxable for ministers?
    Yes, all bonuses are taxable and must be reported on W-2 or 1099 forms.
  • What qualifies as a tax-free gift to a minister?
    Personal gifts from members directly to a minister, without church involvement, are usually tax-free.
  • How should a church report social security assistance?
    Any assistance provided to cover self-employment taxes must be included as taxable income.
  • Are retirement gifts taxable?
    In most cases, retirement gifts from the church are taxable unless specific conditions for self-employed ministers are met.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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