Author: twatermann

Paycheck Protection Program FAQ

Answers to 30 frequently asked questions from church leaders.

Richard R. Hammar, Attorney, CPA
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Editor’s Note: After this article published, the US Small Business Administration issued the application and instructions for Paycheck Protection Program (PPP) loan forgiveness. On May 22, 2020, the SBA issued two new Interim Final Rules (IFR) (the Loan Forgiveness IFR and the Review Process IFR). Tax attorney and CPA Ted Batson’s updated article addresses the developments associated with these IFRs. Additionally, in early June, Congress nearly unanimously passed the Paycheck Protection Program Flexibility Act, and on June 5, 2020, President Trump signed it into law. The legislation modifies several key provisions of the CARES Act. Batson wrote a new article further detailing these developments as well. Readers are strongly encouraged to read through these additional updates to ensure they have the most current information available.

Additionally, Congress passed another bill—which President Trump signed on July 4, 2020—that extends the deadline for PPP loan applications to August 8, 2020. Unfortunately, it’s not yet clear what the new application deadline means for the various dates and deadlines associated with the program, but future guidance from the Treasury Department and SBA should shed light on any changes resulting from the extension.

Richard Hammar answers the following questions submitted to Church Law & Tax about the Paycheck Protection Program (PPP).

Determining eligibility

Are churches eligible to participate in the Paycheck Protection Program (PPP)?

Yes, so long as they have less than 500 employees. The US Small Business Administration (SBA) has issued a document titled Frequently Asked Questions Regarding Participation of Faith-Based Organizations in the Paycheck Protection Program (herein “Faith-Based Organizations FAQ”) explicitly affirming this point. This document also clarifies

that faith-based organizations are eligible to receive SBA loans regardless of whether they provide secular social services. That is, no otherwise eligible organization will be disqualified from receiving a loan because of the religious nature, religious identity, or religious speech of the organization. The requirements in certain SBA regulations . . . impermissibly exclude some religious entities. Because those regulations bar the participation of a class of potential recipients based solely on their religious status, SBA will decline to enforce these subsections and will propose amendments to conform those regulations to the Constitution.

For more on the availability of the PPP to churches, see Churches and Faith-Based Organizations May Apply for CARES Act Loans and SBA Updated Guidance: Religious Liberty Protections Will be Provided with Loan Program.

Does church participation violate the First Amendment of the United States Constitution which prohibits the establishment religion?

It is likely that the eligibility of churches and other religious organizations to participate in the loan program will be challenged in court as an unconstitutional establishment of religion in violation of the First Amendment. But consider three important points:

1. Any legal challenge will be hampered by the fact that this program ends on December 31, 2020.

2. The United States Supreme Court has ruled that laws benefiting a wide range of secular nonprofit organizations are not rendered unconstitutional by the fact that religious organizations are included among the beneficiaries.

To illustrate, in 1970 the Court upheld the constitutionality of a New York law exempting churches from property taxes, in part because property used for religious purposes was but one of a wide variety of classifications of property that were exempted from tax. The state had not singled out churchowned property for the exemption, but rather it had included such property in a long list of other exempted properties owned by organizations whose activities the state had decided were socially desirable and deserving of protection through exemption from tax. Walz v. Tax Commission, 393 U.S. 664 (1970).

Similarly, in 1989 the United States Supreme Court ruled that a Texas law exempting religious periodicals from state sales tax violated the First Amendment’s nonestablishment of religion clause. Texas Monthly, Inc. v. Bullock, 109 S. Ct. 890 (1989). From 1984 until 1987 Texas law imposed a sales tax upon all periodicals except those “published or distributed by a religious faith and that consisted wholly of writings sacred to a religious faith.” This law was challenged by a secular publisher, and the United States Supreme Court agreed that the Texas law violated the First Amendment’s ban on the establishment of religion.

But the Court stressed that “insofar as a tax exemption is conferred upon a wide array of nonsectarian groups as well as religious organizations in pursuit of some legitimate secular end, the fact that religious groups benefit incidentally does not [violate the First Amendment].” The court emphasized that if Texas chose to grant a tax exemption to “all groups that contributed to the community’s cultural, intellectual, and moral betterment, then the exemption for religious publications could be retained.” The court specifically ruled that a statute exempting organizations created for “religious, educational, or charitable purposes” from the payment of state sales tax would be a “model” exemption statute.

3. The above conclusion is affirmed by the following clarification in the Faith-Based Organizations FAQ:

The PPP and EIDL loan programs are neutral, generally applicable loan programs that provide support for nonprofit organizations without regard to whether they are religious or secular. The CARES Act has provided those program funds as part of the efforts to respond to the economic dislocation threatened by the COVID-19 public health emergency. Under these circumstances, the Establishment Clause does not place any additional restrictions on how faith-based organizations may use the loan proceeds received through either the PPP or the EIDL loan program. . . . In addition, the CARES Act does not impose unique burdens or limitations on faith-based organizations. In particular, loans under the program can be used to pay the salaries of ministers and other staff engaged in the religious mission of institutions.

Key point: The above three points strongly suggests that any constitutional challenge to the inclusion of religious groups in the Paycheck Protection Loan Program will fail.

Some church leaders have expressed concern that participation in this loan program could subject a church to an increased risk of government regulation. Is this a likely outcome?

The SBA Faith-Based Organizations FAQ document addresses this concern as follows:

Receipt of a loan through any SBA program does not (1) limit the authority of religious organizations to define the standards, responsibilities, and duties of membership; (2) limit the freedom of religious organizations to select individuals to perform work connected to that organization’s religious exercise; nor (3) constitute waiver of any rights under federal law, including rights protecting religious autonomy and exercise under the Religious Freedom Restoration Act of 1993 (RFRA) . . . section 702 of the Civil Rights Act of 1964 . . . or the First Amendment.

Simply put, a faith-based organization that receives a loan will retain its independence, autonomy, right of expression, religious character, and authority over its governance, and no faith-based organization will be excluded from receiving funding because leadership with, membership in, or employment by that organization is limited to persons who share its religious faith and practice. . . .

[But] receipt of a loan through any SBA program constitutes Federal financial assistance and carries with it the application of certain nondiscrimination obligations.

Any legal obligations that you incur through your receipt of this loan are not permanent, and once the loan is paid or forgiven, those nondiscrimination obligations will no longer apply.

Consistent with certain federal nondiscrimination laws, SBA regulations provide that the recipient may not discriminate on the basis of race, color, religion, sex, handicap, age, or national origin with regard to goods, services, or accommodations offered. But SBA regulations also make clear that these nondiscrimination requirements do not limit a faith-based entity’s autonomy with respect to membership or employment decisions connected to its religious exercise. And . . . SBA recognizes the various protections for religious freedom enshrined in the Constitution and federal law that are not altered or waived by receipt of Federal financial assistance.

SBA therefore clarifies that its regulations apply with respect to goods, services, or accommodations offered generally to the public by recipients of these loans, but not to a faith-based organization’s ministry activities within its own faith community. For example, SBA’s regulations will require a faith-based organization that operates a restaurant or thrift store open to the public to serve the public . . . . But SBA’s regulations do not apply to limit a faith-based organization’s ability to distribute food or clothing exclusively to its own members or co-religionists. Indeed, SBA will not apply its nondiscrimination regulations in a way that imposes substantial burdens on the religious exercise of faith-based loan recipients, such as by applying those regulations to the performance of church ordinances, sacraments, or religious practices, unless such application is the least restrictive means of furthering a compelling governmental interest.

This is a very helpful clarification coming from a federal agency. While the nondiscrimination provisions of employment and public accommodations laws may apply with respect to “goods, services, or accommodations offered generally to the public” by recipients of Paycheck Protection Program loans, including churches, they will not apply to a church’s “ministry activities within its own faith community.” In other words, any exemption applicable to churches is limited, and so churches that engage in commercial activities targeting the general public should expect that they will be covered by the nondiscrimination provisions in employment and public accommodations laws until the loan is paid or forgiven.

Are there any limitations on how faith-based organizations can use the PPP and Economic Injury Disaster Loans (EIDL) loan money they receive?

No. SBA’s Faith-Based Organizations FAQ provides:

The PPP and EIDL loan programs are neutral, generally applicable loan programs that provide support for nonprofit organizations without regard to whether they are religious or secular. The CARES Act has provided those program funds as part of the efforts to respond to the economic dislocation threatened by the COVID-19 public health emergency. Under these circumstances, the Establishment Clause does not place any additional restrictions on how faith-based organizations may use the loan proceeds received through either the PPP or the EIDL loan program. . . . In addition, the CARES Act does not impose unique burdens or limitations on faith-based organizations. In particular, loans under the program can be used to pay the salaries of ministers and other staff engaged in the religious mission of institutions.

Is a church disqualified from any SBA loan program because it is affiliated with another church or denomination?

Not necessarily. SBA’s Faith-Based Organizations FAQ provides:

Under SBA’s regulations, an affiliation may arise among entities in various ways, including from common ownership, common management, or identity of interest. 13 C.F.R. §§ 121.103 and 121.301. These regulations are applicable to applicants for PPP loans. Some faith-based organizations likely would qualify as “affiliated” with other entities under the applicable affiliation rules. Entities that are affiliated according to SBA’s affiliation rules must add up their employee numbers in determining whether they have 500 or fewer employees.

But regulations must be applied consistent with constitutional and statutory religious freedom protections. If the connection between your organization and another entity that would constitute an affiliation is based on a religious teaching or belief or is otherwise a part of the exercise of religion, your organization qualifies for an exemption from the affiliation rules. For example, if your faith-based organization affiliates with another organization because of your organization’s religious beliefs about church authority or internal constitution, or because the legal, financial, or other structural relationships between your organization and other organizations reflect an expression of such beliefs, your organization would qualify for the exemption. If, however, your faith-based organization is affiliated with other organizations solely for nonreligious reasons, such as administrative convenience, then your organization would be subject to the affiliation rules. SBA will not assess, and will not permit participating lenders to assess, the reasonableness of the faith-based organization’s good-faith determination that this exception applies.

What type of assistance will independent contractors be eligible for?

Refundable tax credits are available for independent contractors who would have qualified for coronavirus related paid leave if they were employees. IRS will be posting information soon on these credits on its website (irs.gov), including information on how to claim these credits.

Fifty percent of certain self-employment taxes are deferred through the end of 2020. Deferred taxes will not become due until end of 2021 and end of 2022, with 50 percent of the liability being paid at each date. Independent contractors are also eligible for assistance through the Small Business Administration’s new Paycheck Protection Program and Economic Injury Emergency Grant Program.

Can a church get more than one PPP loan?

No, a borrower is limited to one PPP loan. Each loan will be registered under a Taxpayer Identification Number at SBA to prevent multiple loans to the same employer.

What do I need to apply for a PPP loan?

You will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender that is available to process your application by August 8, 2020.

Do I need to first look for other funds before applying for a PPP loan?

No. The SBA is waiving the usual SBA requirement that you try to obtain some or all of the loan funds from other sources.

How long will the PPP last?

Although the program is open until August 8, 2020, potential borrowers are encouraged to apply as quickly as possible because there is a funding cap and lenders need time to process your loan. (Editor’s Note: Contact your lender immediately to determine funds availability.)

Housing allowance confusion

Are housing allowances included in the definition of “payroll costs”? (If so, a church’s maximum loan amount will be higher since the maximum amount is 2.5 times average monthly payroll.)

The CARES Act refers to payroll as a permitted expense in disbursing a Paycheck Protection Program loan. It defines “payroll” to include “the sum of payments of any compensation with respect to employees that is a . . . salary, wage, commission, or similar compensation.”

Does this definition include a housing allowance? The SBA released an updated “frequently asked questions” document on April 26, 2020, in which it states that a minister’s housing allowance is considered part of “payroll costs.” The document includes this question and answer:

Question: Does the cost of a housing stipend or allowance provided to an employee as part of compensation count toward payroll costs?

Answer: Yes. Payroll costs includes all cash compensation paid to employees, subject to the $100,000 annual compensation per employee limitation.

In filing Form 941, housing is not going to show up since it is not taxable income. So, how do we document housing allowance as a payroll expense with the lender, who requires Form 941 for the PPP loan application?

Churches should provide their lender with a letter documenting the points made in the response to the previous question.

What’s covered, what’s not

The CARES Act excludes from the definition of payroll costs any employee compensation in excess of an annual salary of $100,000. Does that exclusion apply to all employee benefits of monetary value?

No. The exclusion of compensation in excess of $100,000 annually applies only to cash compensation, not to non-cash benefits, including:
  • employer contributions to defined-benefit or defined-contribution retirement plans;
  • payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums; and
  • payment of state and local taxes assessed on compensation of employees.

Do PPP loans cover paid sick leave?

Yes. PPP loans cover payroll costs, including costs for employee vacation, parental, family, medical, and sick leave. However, the CARES Act excludes qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response.

Does the maximum loan amount (2.5 times average monthly payroll costs) apply to just payroll costs or does it include rent, utilities, and mortgage payments?

The maximum loan amount is 2.5 times average monthly payroll costs. It does not include rent, utilities, or mortgage payments.

What about a church camp whose activity increases from April to June. Considering activity from that period would be a more accurate reflection of my business’s operations. However, my small business was not fully ramped up on February 15, 2020. Am I still eligible?

In evaluating a borrower’s eligibility, a lender may consider whether a seasonal borrower was in operation on February 15, 2020, or for an 8-week period between February 15, 2019, and June 30, 2019.

What can I use PPP loans for?

You should use the proceeds from these loans on your:
  • Payroll costs, including benefits;
  • Interest on mortgage obligations, incurred before February 15, 2020;
  • Rent, under lease agreements in force before February 15, 2020; and
  • Utilities, for which service began before February 15, 2020.

What counts as payroll costs?

Payroll costs include:
  • Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
  • Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
  • State and local taxes assessed on compensation; and
  • For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.

Loan forgiveness

Editor’s Note: On May 15, 2020, the SBA released the loan forgiveness application and related instructions and schedules. This in-depth article covers the process.

How should a borrower account for federal taxes when determining its payroll costs for purposes of the maximum loan amount, allowable uses of a PPP loan, and the amount of a loan that may be forgiven?

Under the Act, payroll costs are calculated on a gross basis without regard to (i.e., not including subtractions or additions based on) federal taxes imposed or withheld, such as the employee’s and employer’s share of Federal Insurance Contributions Act (FICA) and income taxes required to be withheld from employees. As a result, payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer, but payroll costs do not include the employer’s share of payroll tax.

For example, an employee who earned $4,000 per month in gross wages, from which $500 in federal taxes was withheld, would count as $4,000 in payroll costs. The employee would receive $3,500, and $500 would be paid to the federal government. However, the employer-side federal payroll taxes imposed on the $4,000 in wages are excluded from payroll costs under the statute.

The amount of forgiveness of a PPP loan depends on the borrower’s payroll costs over a covered period. When does that period begin?

The covered period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval.

What is the covered period of a PPP loan?

According to the SBA’s frequently asked questions documents, the covered period “begins on the date the lender makes the first disbursement of the PPP loan to the borrower. The lender must make the first disbursement of the loan no later than ten calendar days from the date of the loan approval.”

Payroll taxes and payroll providers

What if an eligible borrower contracts with a third-party payer such as a payroll provider or a Professional Employer Organization (PEO) to process payroll and report payroll taxes?

SBA recognizes that eligible borrowers that use PEOs or similar payroll providers are required under some state registration laws to report wage and other data on the Employer Identification Number (EIN) of the PEO or other payroll provider. In these cases, payroll documentation provided by the payroll provider that indicates the amount of wages and payroll taxes reported to the IRS by the payroll provider for the borrower’s employees will be considered acceptable PPP loan payroll documentation.

Relevant information from a Schedule R (Form 941), Allocation Schedule for Aggregate Form 941 Filers, attached to the PEO’s or other payroll provider’s Form 941, Employer’s Quarterly Federal Tax Return, should be used if it is available; otherwise, the eligible borrower should obtain a statement from the payroll provider documenting the amount of wages and payroll taxes. In addition, employees of the eligible borrower will not be considered employees of the eligible borrower’s payroll provider or PEO.

Calculating payroll costs

The maximum amount of a loan under the Paycheck Protection Program is 2.5 times a church’s average monthly payroll costs for the past 12 months. Are payroll taxes included in computing the maximum amount of a loan?

No, the loan amount calculation is based off payroll costs.

The maximum amount of a loan under the Paycheck Protection Program is 2.5 times a church’s average monthly payroll costs for the past 12 months. Are 1099 workers included in computing the maximum amount of a loan?

The Treasury Department’s “fact sheet” published the week of April 13, 2020, stated PPP applicants could include “nonprofits [with 500 or fewer employees] … sole proprietorships, self-employed individuals, and independent contractors.”

Key point. Earlier guidance from the SBA seemed to suggest employees who received a 1099 were included, but independent contractors were not counted. The more recent Treasury Department guidance seems to suggest self-employed workers and independent contractors are treated the same and should not be counted because they can apply for a PPP loan on their own. Applicants should confer further with their lending bank, since the decision is ultimately up to the lending bank.

Which one-year period do we use to calculate the average monthly payroll costs? Some say the applicant can choose—either the calendar 2019 year or the 12-month period ended preceding the date of the loan (i.e. an April application would use 3/31/19 to 3/31/20).

The SBA has published a series of questions and answers that answer this question as follows:

In general, borrowers can calculate their aggregate payroll costs using data either from the previous 12 months or from calendar year 2019. For seasonal businesses, the applicant may use average monthly payroll for the period between February 15, 2019, or March 1, 2019, and June 30, 2019. An applicant that was not in business from February 15, 2019 to June 30, 2019 may use the average monthly payroll costs for the period January 1, 2020 through February 29, 2020. Borrowers may use their average employment over the same time periods to determine their number of employees, for the purposes of applying an employee-based size standard. Alternatively, borrowers may elect to use SBA’s usual calculation: the average number of employees per pay period in the 12 completed calendar months prior to the date of the loan application (or the average number of employees for each of the pay periods that the business has been operational, if it has not been operational for 12 months).

Confirming the calculation of salary and benefits for average monthly payroll costs: Up to $100,000 of salary is counted, plus employer-paid health care benefits, employer-paid retirement benefits, and employer-paid state/local taxes. So, if we have an employee who makes $85,000 in salary, and we have $22,000 in qualifying employer-paid benefits, then $107,000 is added into the amount used to determine average monthly payroll costs, correct?

The exclusion of compensation in excess of $100,000 annually applies only to cash compensation, not to noncash benefits, including:
  • employer contributions to defined-benefit or defined-contribution retirement plans;
  • payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums; and
  • payment of state and local taxes on compensation of employees

How do you determine how many part-time employees are considered full time for the application?

The term “full-time equivalent employee” is used 10 times in the 900-page CARES Act, but is not defined. Many tax professionals are recommending use of the Affordable Care Act’s definition of full-time equivalent employee, at least until guidance is provided by the SBA. The ACA defines full-time equivalent employees as “a combination of employees, each of whom individually is not a full-time employee because they are not employed on average at least 30 hours per week, but who, in combination, are counted as the equivalent of a full-time employee.” Fortunately, many employers already are using software to compute full-time equivalent employees for purposes of the ACA, so using the ACA definition in the context of PPP loans should not be difficult.

Expenses not forgiven

If we receive a PPP loan and then find we’re not going to use all of the funds by the end of the covered period, can we just pay back the unused portion (and is there a penalty)? Or are we required to keep the unused portion and have it convert into a loan?

Yes, you can pay back the unused portion at the end of the overed period. These loans contain no prepayment penalties.

PPP loans not applied fully to allowable expenses continue on as a loan but on what terms?

Loans are repayable at one percent interest for a five-year term, but payments are deferred for six months.

Unemployment insurance

Who is eligible for unemployment insurance under the CARES Act that’s not traditionally eligible for unemployment benefits?

While this question isn’t about the PPP, it is one that keeps coming up. For my answer, turn to the “Unemployment insurance provisions” section in my overview of the CARES Act.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
Image: Andriy Onufriyenko | Getty

Church Loan Modifications in a Crisis

Restructuring your church’s debt when full payment, or any payment, becomes difficult.

Vonna Laue and Michelle Sanchez

The COVID-19 pandemic changed the way churches operate both logistically and from a ministry perspective.

For example, more people may be participating in worship services now, but fewer are attending in person, while online giving—once a novelty to many churches—is becoming commonplace.

Church administration is just as impacted by the changes as frontline ministry.

We want to focus on a specific related topic that is relevant for many, but not all, churches: loan modifications.

If your church has debt, and its struggling to make its payments on it, have you considered whether the payment plan offers any leeway? If not, it may be time to have a conversation with your lender.

This leeway can provide some needed, albeit temporary, relief as your church weathers a financial hardship and needs time to regroup.
Wondering whether your church is carrying too much debt? Use these calculations to chart your church’s financial health.

Prudent loan modifications

During the pandemic, the FDIC (Federal Deposit Insurance Corporation) posted highlights from the Interagency Statement on Loan Modifications and Reporting by Financial Institutions Working With Customers Affected by the Coronavirus.

Now that we are moving beyond the pandemic to deal with other issues in the economy, some of the ideas the FDIC discussed are still relevant.

One of the highlights, “prudent loan modifications,” explored how borrowers can work with lenders if they find themselves out of compliance with loan covenants or unable to make payments.

Borrowers will need to undergo some type of underwriting, and each bank will have its own set of requirements. But a church facing a hardship should be prepared to submit a continuance plan to outline the specific steps it will take as it works to meet future obligations.

These steps may include:
  • Engaging the growing online community to participate financially and expectations for that to continue.
  • Developing online ministry options for men’s, women’s and children’s, youth and community group ministries.
  • Communicating better about giving opportunities and methods.
  • Proactively monitoring weekly giving trends and adjusting accordingly.
  • Developing a Financial Advisory Standing Team (FAST) to identify trigger points for decisions, obtain perspective from various departments, and adjust budgets.
  • Developing plans for any ongoing remote work, laying out expectations for this arrangement, and analyzing its operational impact.
  • Cash projection reporting.
  • Spending reductions.

Loan modifications can come in the form of temporary payment deferral, an interest-only duration, a reduced interest rate, an extension of the amortization term, and waiver of loan covenants. Which option you choose should be based on your church’s needs.

Depending on when your loan originated, understand that interest rate hikes in the past year are likely to affect any modification you may desire.

Communication is key

Communicating proactively with your lender may include language like this:

In response to the [cause of current economic difficulty resulting in request for modification], we have initiated our ministry continuance plan which includes formally requesting a loan modification. [Expand on the results of the cause here.] Therefore, we are requesting a loan modification to defer payments on our loan for 90 days. A summary of our ministry continuance plan is attached for your review and reference.

Tip: If you have a good rapport with the relationship manager at your financial institution, certainly check with this individual first to see what specific information should be included in the request. The better the information you provide early in the process, the less time it should take to receive a response or approval.

Remember, a loan modification is not loan forgiveness, and may only be a temporary reprieve from your normal debt service obligation.

You will need to continue to actively monitor the situation and determine how to prepare for payments when the modification period expires.

We recognize the strain that is put on both churches as well as individuals within the church during the current inflation and potential recession environment. However, not everyone is being financially impacted at this point and some individuals may be able to assist more when they understand the extensive measures your church is taking to be financially responsible.

We all learned “Stop, drop, roll!” as children. Hopefully, it’s a command very few of us have had to act upon. But, we still remember it well and can recite it easily.

Let’s change that slightly and apply it to our churches as “Stop, pray, communicate!”

With those keys, we can weather a financial storm—and we may even find that ministry has been impacted in positive ways that will serve the church for decades to come.

Vonna Laue, CPA, is a senior editorial advisor for Church Law & Tax. In 2010, she was inducted into The Church Network’s Church Management Hall of Fame.

Michelle Sanchez, CPA, serves as a CFO consultant and on the board of directors for mission focused non-profits, churches, and higher education institutions. She is also the CFO at Horizon Christian Fellowship .

Editor’s Note: This content was last reviewed and updated in March 2023.
Image: Dimitri Otis | Getty Images

Recommended Reading

Online Giving: How to Start or Strengthen It

Editor’s picks of articles and information to help you keep offerings coming in.

The Editors

Right now, churches are relying more than ever on online giving as church services are being streamed and congregations are watching from home. Below is a list of articles to help you as you navigate the best way to set up or strengthen your church’s online giving.

For additional information church leaders should know, visit Coronavirus and the Church: The Latest News and Advice from Church Law & Tax, Online Worship and Meetings, and Managing Tough Financial Times.

SBA: Religious Liberty Protections Will be Provided with Loan Program

SBA says religious liberty protections will be maintained with loan program for small employers affected by pandemic.

The Editors

The US Small Business Administration (SBA) issued updated guidance late in the evening of April 2, 2020, indicating the agency will not enforce certain nondiscrimination requirements for the newly enacted CARES Act’s Paycheck Protection Program loans.

Acceptance for the loan applications by SBA-approved lenders is expected to begin on April 3, 2020. Employers with 500 or fewer employees—including tax-exempt organizations—are encouraged to apply as a way to assist with specific payroll and operational expenses during the economic fallout of the COVID-19 (coronavirus) outbreak.

In the days leading up to the launch date, initial versions of the SBA application contained a statement indicating applicants would need to abide by the agency’s nondiscrimination provisions. Those provisions prohibit discrimination on the basis of race, color, national origin, sex, or age.

As attorney and senior editor Richard Hammar noted in response to this development: “This raises the question of the eligibility of churches that discriminate on the basis of ‘employment standards’ including extramarital sexual relations, sexual orientation, and same-sex marriages to participate.”

The SBA’s newly updated guidance attempts to answer that question. On pages 27 and 28, the agency said “all loans guaranteed by the SBA pursuant to the CARES Act will be made consistent with constitutional, statutory, and regulatory protections for religious liberty, including the First Amendment to the Constitution, the Religious Freedom Restoration Act” and a SBA regulation that states:

Nothing in [SBA nondiscrimination regulations] shall apply to a religious corporation, association, educational institution or society with respect to the membership or the employment of individuals of a particular religion to perform work connected with the carrying on by such corporation, association, educational institution or society of its religious activities.”

Separately, the SBA later issued additional guidance confirming the eligibility of churches and nonprofits to participate in PPP and other CARES Act relief.

The $2.2 trillion CARES Act stimulus package was passed into law on March 27, 2020. Key provisions of the law include individual household help, tax deadline extensions, and the Paycheck Protection Program administered through the SBA. The Act’s language regarding the $349 billion program calls for a streamlined application process aimed to put funds into the hands of small employers quickly.

By providing some basic information about employee headcounts and payroll costs, employers can receive a loan over an eight-week period worth 2.5 times the amount of their average monthly payroll. At the end of the eight weeks, the employers can have the loans forgiven—effectively converting them into a nontaxable grant—if they show they spent funds on specific payroll and operational costs and maintained certain employment counts and compensation levels. If the loan is not forgiven, or only partially forgiven, it is carried forward as an ongoing loan with a term of two years at 1 percent interest.

Learn more about the program and its requirements in this free on-demand webinar featuring attorney and senior editor Richard Hammar.

What Are the Consequences of Canceling an Off-Site Church Event?

What churches should consider if they are under contract for a venue.

Erika E. Cole, Attorney
Bio

To say that the COVID-19 (coronavirus) outbreak has changed the way we live our daily lives is an understatement. Many schools and businesses are closed, and working from home has become the norm for many Americans. Moreover, the social distancing requirements implemented by government authorities to help slow the spread of the virus have generally prohibited the gathering of large groups. This has greatly affected churches.

In an odd sense of timing, this global pandemic hit the US hard at a time when many denominations, churches, and church-planting organizations are gearing up for their annual meetings. This has caused church leadership to consider making the ultimate decision to cancel the upcoming events that they have been planning for many months. Generally, such an event may host hundreds, if not thousands, of individuals and the large venue necessary to accommodate the crowd has been contractually secured. Just as COVID-19 is novel to the human body, the issues surrounding large event contract cancelations based on this pandemic are likewise novel.

Whenever considering contract terms, a detailed review of the contract itself must be the first step. While reviewing the contract, there are a number of provisions that an experienced attorney would consider, such as the scope of the agreement and payment terms. In this instance, however, I would focus on whether the contract has a force majeure clause and what that clause provides.

Understanding force majeure

Force majeure is a French term that literally means “superior force.” As a practical matter, it is a provision that governs what happens if some outside force like a war, earthquake, flood or other acts of God cause one party or the other to not be able to perform under the agreed-upon terms. However, one of the most important requirements of a force majeure clause is that it be specific, and because COVID-19 did not exist until recently, it does not specifically appear in any contracts as a basis to void the contract. As such, many venues (especially hotels) are not allowing churches to cancel without paying the full sum that is due under the contract.

In the future, I expect that we will see the push to expand force majeure clauses to include a viral outbreak and the like. Moreover, the church will want to have future contracts specify that, should force majeure apply, all deposits are to be returned to the church and that no further sums would be due and payable under the contract.

Considerations for churches with signed contracts

If your church has already signed a contract with a venue to host an event, consider the following:
  • First, make a detailed review of the contract terms. Read every word twice.
  • Does the contract have a force majeure clause? If it does, is there anyway the current circumstances would provide your church a basis to cancel the agreement? If there is no force majeure clause, it will be necessary to review the state law and court decisions applicable to the place where the venue is located.
  • Does the contract provide other reasons why a cancelation may be acceptable?
  • If the contract is cancelable, are there any penalties?
  • Finally, if there is not a clear legal basis to cancel the contract, reach out to the venue to see if it would show leniency to the church. Even if you can’t get a full abatement of sums due, perhaps the venue would be willing to accept the deposit as the total payment. Or, perhaps the venue will work with you to reschedule to a future date and time so that the church isn’t forced to pay for an event that never occurred.

For churches that rent a facility

In a similar way, churches that rent their building have run into issues regarding not being able to assemble. Because of government requirements to self-isolate and avoid gatherings, churches find themselves not being able to hold church services. Of course, this negatively impacts revenue and the ability to pay overhead, including rent. Most commercial leases for the renting of a building to a church would likely contain a force majeure clause.

Using the process above, consider whether the lease can be canceled. In commercial leases, however, the lease generally excludes the nonpayment of rent as a remedy. While it would be important to review the law in the state where the church is located, under common law, the requirement to pay rent is usually not suspended for any reason. This puts an obvious hardship on churches.

Again, after thoroughly reviewing the lease provisions, reaching out to the landlord to make a direct appeal is well warranted in the current pandemic. Even large retailers and chain restaurants have put their landlords on notice that they will either not be able to pay rent or will have to reduce their rent payments, according to Bloomberg. This includes Cheesecake Factory, Subway, Mattress Firm, and may other businesses, so churches should feel no shame in seeking remedies.

Churches may also find relief in the Coronavirus Aid, Relief and Economic Security (CARES) Act, which has passed the House and Senate and is awaiting the President’s signature. This Act is expected to provide wide support to small-businesses with fewer than 500 employees and nonprofits.
Erika E. Cole, Esq., known as The Church Attorney®, is one of only a handful of attorneys in the nation who practices exclusively in the area of church law. She currently serves as a senior editorial advisor for Christianity Today’s ChurchLawAndTax.com.
Image: Ariel Skelley | Getty

5 Questions Churches Should Ask Before Holding a Virtual Business Meeting

How church leaders can ensure their decisions are valid if an in-person meeting isn’t possible.

Sarah E. Merkle, Attorney
Bio

Editor’s note: Attorney Sarah Merkle’s newly released resource, Your Complete Guide to Virtual Church Meetings: A toolkit for legal and compliant business meetings, is now available on ChurchLawAndTaxStore.com.

COVID-19 (coronavirus) may require social distancing, but it does not mean an end to church business decisions. In fact, if anything, the coronavirus may have increased the number of decisions that need to be made and accelerated the timeline for making them.

Church business decisions are made at board and membership meetings, which means in a COVID-19 world, we have to ask, “How?” Technology makes the answer seem easy. Surely a business meeting can be held on GoToMeeting or Zoom, right? Unfortunately, not necessarily. The availability of technology does not necessarily mean that a business meeting using that technology is permitted by your church’s state law or governing documents. And even if virtual business meetings are permissible, special rules are necessary to ensure that each member’s rights are preserved.

Before you decide to hold your next board or membership meeting online, answer these five questions.

1. Does our state law allow virtual business meetings?

The law governing business meetings for churches is state-specific, meaning that whether your church can hold a virtual business meeting is ultimately governed by the law of the state where your church is incorporated. For many churches, that is the law of the state where your church is physically located. For others, that is the law of the state where your denomination is incorporated. If your church is independent and not incorporated at all, check the law of the state where your church is physically located to see if it has provisions for unincorporated non-profit entities or religious entities. Regardless of your church’s status, look for provisions that discuss board and membership meetings.

Tip: If delving into the law sounds overwhelming, start by doing an online search for your state name and the word “statutes.” Choose a link that takes you to an official site for the state legislature to find the law. Look for a section titled “Corporations” or “Business Corporations” or “Non-Profit Corporations.” Then look for the subsections that address board and membership meetings. Alternatively, once you locate the right website for the statutes, you can search on the word “meeting.”

Before you make plans for a virtual business meeting of any kind—board or membership—you should read the relevant sections of applicable state law and determine whether virtual meetings are permitted. Some states allow for virtual board meetings but not virtual membership meetings. Other states are more permissive. Still others point churches back to their governing documents, allowing virtual meetings only if an organization’s bylaws permit.

The takeaway here is to avoid assumptions about what the law allows. Find the applicable law and be sure you understand what blanket permissions (or prohibitions) it includes about virtual meetings. Also, understand to what extent the law leans on your church’s governing documents to determine whether virtual meetings are allowed.

2. Do our governing documents allow virtual business meetings?

Once you understand applicable state law on virtual business meetings, next look to your church’s governing documents. Whether you are denominationally affiliated or independent, your church’s bylaws should speak to board meetings and membership meetings.

You are looking for language that specifies whether meetings must be in person, or at a place determined by the board of directors. You are also looking for language that says meetings can be held virtually, or by any means that allows for simultaneous communication. For example, there may be a provision that expressly allows for meeting scenarios where members communicate virtually or electronically instead of being physically present in the same room. If that’s the case, you can move forward with plans for a virtual business meeting.

On the other hand, if your bylaws do not expressly allow for virtual meetings, and applicable state law doesn’t provide any options either, then the general rule is that you may only conduct business when members are physically present in the same room. Robert’s Rules of Order Newly Revised (11th ed.), 95–97.

3. What actions can we take if a virtual business meeting is not allowed?

If neither state law nor your bylaws permit virtual business meetings, do not despair. There may be other ways that you can still conduct business, and they are listed below. Either of these options likely needs its own explanation, but the list is a starting point for brainstorming solutions in this difficult situation with COVID19:
  • Explore whether your church’s bylaws give the board or leadership latitude to make decisions during an emergency or in between church business meetings; and/or
  • Consider whether there are any decisions to be made that could result in a unanimous vote. Many states have laws that allow decisions to be made if unanimity among the voting body exists and can be determined through a written or mail-in ballot.

4. How will we know whether a quorum is present?

If virtual meetings are a permissible option for your church, make sure you take time to think through more than just the technical capabilities of your chosen software. A quorum—that is, the minimum number of people needed to transact business—is a baseline requirement for a compliant business meeting of any kind. Meeting virtually doesn’t eliminate or relax that requirement.

Before you send out the meeting notice, take time to review your church roll and ensure that each member receives proper notice of the meeting and the details of how to participate. Then decide how you’re going to determine the number of people that have joined the meeting and the number that are in attendance at any time. If only your board is meeting, or if your church is small, you may be able to do a roll call at the start and then monitor the number of attendees. Larger groups will likely need to provide a separate login code for each participant. There are several good options here. The bottom line: make sure you think through the process ahead of time.

5. What special rules will we follow for discussion and voting?

Finally, before you hold a virtual meeting, decide on a set of rules that, at minimum, addresses how you will recognize members and take votes. Avoid putting members in a situation where one member has to yell over others to be recognized and heard. Instead, write rules that make good use of the software you’ve chosen and instruct members to “raise their hand” by selecting a specific button. Tell them how you will choose who to recognize, and how they can raise a point of order if there is a procedural error. Understand the ways in which you can use the software to take a vote (e.g., virtual hand clapping, or polling).

There’s no need to write rules that are extreme or unnatural for your church’s culture. That said, thinking through the process, writing it out, and communicating it to members ahead of time will set everyone at ease. Note, too, that any special rules (e.g., rules that modify your bylaws or your parliamentary procedure rulebook) must be adopted by the membership before they become applicable and enforceable. My advice is to distribute them ahead of any meeting and then take a vote to adopt them (hopefully by general consent) at the outset.

Concluding thought: Be risk averse

Reading this article might make you conclude that complying with the law and your governing documents is too much trouble. I sympathize. Compliance is wearisome and often seems pointless in the short-term. But I encourage you to re-run the cost/benefit analysis before you make a final decision. Consider the long-term dissention and distraction that could come if members question decisions because they were made in a manner that exceeds what the law or your governance structure allows. Keep unity and your church’s mission in your sight and let them be your motivators. Be willing to take extra steps now—even if laborious—to avoid unnecessary distractions later.

Related article: “When Church Business Meetings Go Electronic”
Sarah E. Merkle is a professional parliamentarian and presiding officer. One of five lawyers worldwide to have earned the credentials Certified Professional Parliamentarian-Teacher (CPP-T) and Professional Registered Parliamentarian (PRP), she helps boards, associations, corporations, and public bodies navigate rules applicable to governance and business meetings.
Image: Jasmin Merdan | Getty

Q&A: Did My Church Infringe on Copyright When Using YouTube Videos in a Livestream Service?

What church leaders must understand about copyright law when doing church online.

Frank Sommerville, Attorney, CPA
Bio

Q: I pastor a small, rural church. This past week, due to the social separation recommendations made in response to the COVID-19 (coronavirus) outbreak, my family developed and streamed a worship service from my home using Facebook Live. We used worship music and lyrics from YouTube.

After the live event, the video of our worship service was automatically posted to our church’s Facebook page. Not long afterward, I received threatening, system-generated emails saying that my video contained music that might fall under copyright laws. This was unsettling because the videos I used were publicly available on YouTube, which, I assumed, fell under “fair use” consideration. I also have licensing from Christian Copyright Licensing International (CCLI). During the service, I read our licensing number to make it clear that we weren’t doing anything illegal.

I feel like I tried to do what is right, but I still worry that I could be in trouble for copyright infringement. Did my worship service break any laws?

A: I am afraid you have violated copyright law in numerous ways. I will attempt to explain my main concerns.

Overall, the exception from copyright law for music performed in a religious worship service does not apply to streaming worship services. Note the following important points:
  • CCLI basic licensing does not cover online streaming. The church must purchase a license specifically for streaming that is separate and apart of the CCLI basic license.
  • A church may not broadcast (on the internet or otherwise) the performance of copyrighted music without a license from the copyright owner.
  • A church may not broadcast the lyrics to a copyrighted song without a license from the copyright owner.
  • A church may not record the performance of copyrighted music without a license from the copyright owner.
  • A church may not make copies of its recordings of copyrighted music without a license from the copyright owner.
  • A church may not rebroadcast music/videos created by others without a license from the copyright owner.
  • A church may not download music/videos created by others to rebroadcast them.
  • Facebook has specific requirements for its Facebook Live broadcasts that also must be met.

The easiest solution to keep from breaking copyright law is to omit music from the streamed service. The church already owns the copyright to its sermons, prayers, and announcements.

While there are several sources for obtaining streaming licenses, the most common ones used by churches are CCLI, Christian Video Licensing International (CVLI), Christian Copyright Solutions (CCS), and One License. But keep in mind: Each of the licensing services has limitations and does not cover everything that the church might want to include in a stream of a worship service. Ask a lot of questions and carefully study your agreement to know what kind of licensing you are—and aren’t—purchasing.

It’s essential that you get this right. If you still have questions, consult an attorney with experience helping churches navigate copyright law.

Additional reading

“Understanding Worship Music Copyright Law”

“Hey, Fletch: Is Our Church Website Violating Copyright Law?”

Essential Guide to Copyright Law for Churches
Frank Sommerville is a both a CPA and attorney, and a longtime Editorial Advisor for Church Law & Tax.

Are Church Employees Eligible for Unemployment Benefits?

Sorting through a complex area of law as churches weigh difficult financial decisions.

Matthew Branaugh, Attorney | Editor, Content and Business Development
Bio


Editor’s Note: The passage of the “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act) on Friday, March 27, 2020, includes provisions intended to financially aid businesses and households. Ministries are included in this relief package, and some of the provisions may either aid furloughed or laid-off church employees or offer incentives to retain employees. A free overview of the CARES Act, as well as a detailed summary, are now available from attorney, CPA, and senior editor Richard R. Hammar.

Additionally, new guidance issued by the US Department of Labor now suggests clergy and church employees previously considered ineligible for unemployment benefits may now be considered eligible. See the “Unemployment insurance provisions” section of Hammar’s overview for this update.

The rapid progression of the COVID-19 (coronavirus) pandemic worldwide has created a perfect storm of unexpected financial pressures for many American churches.

Fast-changing guidance and restrictions on public gatherings have detrimentally affected weekly worship collections for many congregations. And with an anticipated surge in unemployment claims unfolding, financial hardships are erupting among attenders, hampering the ability for some to give as they normally would.

That combination of conditions already is forcing many church leaders to assess their budgets and expenses. In some instances, decisions about cutting back on personnel—traditionally a church’s largest expense—are already surfacing.

Those decisions now are spawning another storm of significant consequence: employees laid off by their churches most likely aren’t allowed to apply for unemployment benefits. That’s because the vast majority of states exempt churches from paying unemployment taxes. When churches don’t pay in, employees who are let go are ineligible for any unemployment benefits associated with their previous ministry work.

As Church Law & Tax senior editor Richard Hammar, an attorney and CPA, explains in chapter 12 of his annual Church & Clergy Tax Guide:

The following activities ordinarily are exempt from state unemployment taxes: [S]ervice performed in the employ of a church, a convention or association of churches, or an organization that is operated primarily for religious purposes and that is operated, supervised controlled or principally supported by a church or convention or association of churches [and] service performed by a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry or by a member of a religious order in the exercise of duties required by such order.

As Hammar also notes, “[t]he exemption is not limited to employees performing strictly religious duties,” and generally includes employees of church-controlled elementary or secondary schools.

Churches theoretically can pay state unemployment taxes voluntarily, which would then make their ex-employees eligible. But such situations are rare, notes Robert Brockman Jr., a California-based attorney who represents numerous churches. “They are the minority,” he adds. “The vast majority of them do not participate.”

Adds Lisa Runquist, a California-based attorney and senior editorial advisor for Church Law & Tax: “I know of no church that voluntarily does it.”

How can churches still help former employees?

Unless they oversaw human resources or payroll themselves, church leaders and employees who are laid off are often caught off-guard by their ineligibility for unemployment, Brockman says. That can blindside many who are already reeling from the effects of losing their job.

How can churches still help? Brockman, Runquist, and others shared these insights:
  • Review the provisions of the recently adopted CARES Act, which may aid laid-off church employees or provide churches with incentives to retain employees.
  • Note the responsibilities your church now faces with respect to paid leave and sick leave after the recently adopted federal law affecting the Family and Medical Leave Act. Also note that the Labor Department says any “individual receiving paid sick leave or paid family leave is still receiving pay” and thus is not considered unemployed.
  • Consider going above and beyond what’s legally required with a layoff to compensate the person losing their job, says Donn Meindertsma, an attorney and partner with Washington, D.C.-based Conner & Winters. But he cautions churches to tread carefully, since any such steps taken will trigger taxable income and may be shaped—or even limited—by federal and state laws.
  • Encourage former employees to seek assistance through the church’s existing benevolence program. (Also note that any benevolence provided to a current employee, especially in response to any type of compensation reduction, still results in taxable income.)
  • Contact your state to determine if it has applied yet for a portion of the $100 million in Dislocated Worker Grants recently made available by the US Department of Labor in response to coronavirus. The grants “will provide eligible participants with both disaster-relief employment and employment and training activities,” the department said. “These participants can include dislocated workers, workers who were laid-off as a result of the disaster, self-employed individuals who are unemployed or underemployed as a result of the disaster, and long-term unemployed individuals.”
  • Contact your state to determine if funds for Disaster Unemployment Assistance from the Federal Emergency Management Agency (FEMA) become available, Brockman says. In general, FEMA says individuals who become unemployed due to a major disaster, and otherwise couldn’t qualify for state unemployment insurance, may be able to do so, he notes.
  • Encourage former employees to research the state’s welfare program, and the process necessary to apply, Runquist says.
  • Assemble a list of local and state social service agencies that can prove helpful, especially with securing food, medications, and other necessities, says CPA and tax attorney Ted Batson with CapinCrouse, another Church Law & Tax advisor.
  • Note that this is a point in time to reevaluate your church’s decision not to pay into unemployment (if it currently does not), Batson suggests. Though the law exempts churches, there still may be theological reasons to participate. “Is there a Christian witness issue here in the midst of this?” he says. While there may be good reasons for churches to decide not to pay into unemployment, Batson says that “this situation highlights practical considerations that may or may not impact how a church evaluates this decision in the future.”
Matthew Branaugh is an attorney, and the content editor for Christianity Today's Church Law & Tax.
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The Growing Problem of Mail Theft at Churches

Simple steps you can take to lower the risk of it happening at your church.

Lee A. Dean

The possibility that someone would steal from the mailbox at Peace Presbyterian Church in Cary, North Carolina, wasn’t on the church’s radar. That changed when a detective from the local police department paid the church office a visit in December of 2019.

Detective Clinton Babb delivered the disturbing news that a large check written to pay a full year of the donor’s tithes had been cashed and deposited by someone other than church staff.
Church Mail Theft Update
A Florida-based crime ring stole $740,000 in donations from the mailboxes of more than 600 churches, reported the Associated Press (AP) on May 26, 2021. According to the AP news story, four members of the ring were arrested through an investigation called “Operation Thou Shalt Not Steal,” conducted by the Florida Department of Law Enforcement.

Soon after this news, law enforcement officials learned that other checks had been stolen from Peace Presbyterian and that other churches in the area had also been victimized.

Along with that, Parishioners of Peace Presbyterian kept discovering missing donations while processing their tax returns. “One donor was doing his taxes and wanted to itemize. He realized that his donation records didn’t match ours,” said Todd Blonshine, office and facilities manager for the church. In late February 2020, Peace Presbyterian reported that 19 checks from its donors worth approximately $25,000 were missing.

“Many in the congregation were surprised that anybody would do this,” Blonshine said. “For the people who have been the victims of this, the reaction has ranged from ‘Okay, we can figure this out’ to total dismay and discouragement.”

The problem of thefts from mailboxes extends far beyond Cary. According to media reports, similar incidents have sprouted up along the East Coast and from Texas to Wisconsin. Outgoing mail was has been stolen as well, such as a theft of church bill payments from mailboxes in Austin, Texas.

What a video camera revealed

After learning of the multiple missing checks, Blonshine and other church staff did some detective work of their own.

They started by reviewing their internal procedures. The church keeps all checks received in a locked safe and deposits them digitally within a week of receipt. The checks are then shredded. Those safeguards ruled out the possibility that thieves were somehow getting into the church building and gaining access to the safe.

This led them to turn their attention to the church’s non-locking mailbox, which was monitored by a security camera. After viewing hours of video footage, church leaders found an explanation.

Video showed that at 2 p.m. on a Saturday during a church event, two men were seen rifling through the mailbox. The thieves drove into the parking lot, opened the mailbox, quickly sorted its contents, found what they wanted, put the other mail back, and then drove away.

The security cameras were able to get good images of the men’s faces and the license plate of their vehicle. The video images were sharp enough to help police launch an investigation that is still active and widening in scope.

The Cary Police Department would not comment on the details of the active investigation other than to say it will likely be turned over to US postal inspectors as a federal case.

Preventive measures

There are a number of measures churches can take to cut down the chances of mail theft, including the following.

Consider moving the mailbox

Mailboxes that are poorly located may attract thieves. “If you can’t see your mailbox from within your organization, then it needs to move,” said Leslie DeMattia of DeMattia Consulting, who advises churches on security issues.

Moving a mailbox as close as possible to the church office, or within range of a security camera, is a much more secure alternative than a solitary mailbox by the roadside. (A church may not have the ability to place a mailbox anywhere it wishes. This will depend on postal regulations and local zoning ordinances.)

Invest in lockable mailboxes

Though the thefts took place in a variety of churches, one element was common: the thieves took checks from unsecured church mailboxes. Church leaders should ensure that the mailbox is locked. Lockable mailboxes can cost as little as $80, depending on the size required.

Companies such as Jayco, Mail Boss, and Qualarc manufacture lockable mailboxes. They are sold at big box hardware stores and can also be ordered online from Amazon and Mailboxes.com.

Encourage donors to review their bank records regularly

Donors often do not notice that a check is missing until they examine the church’s year-end donor statement. Encourage the congregation to regularly check bank records and to report if a donation check appears not to have been cashed within a reasonable amount of time.

Timeliness is extremely important, stressed CPA Nathan Salsbery, executive vice president of CapinCrouse, which provides audit, tax, consulting, and cybersecurity services to nonprofits. Salsbery, who is an expert in fraud prevention and forensic accounting, noted that some laws are in place that limit the time a bank is required to reimburse funds to a customer in the event of a theft. It is important for a church to seek legal counsel and understand the applicable laws in their jurisdiction, said Salsbery.

Regular account reconciliations by your church

At a minimum, churches should conduct account reconciliations monthly. This is key to discovering a missing check as soon as possible. (If the stolen check is a donor check, the church should encourage the donor to promptly follow up with the bank.)

Look for abnormalities in giving

There may be occasions where a check is not received from a donor who has a routine habit of contributing. If a church has a strong enough relationship with that donor, staff should reach out and see if the check had been sent—not in a spirit of hounding the donor for contributions but to determine if the funds have been intercepted and redirected by mail thieves.

The challenge is even greater if an occasional or one-time donor has issued the missing check. “It would be very difficult for a church to even know if such a theft is occurring if it’s more of a random check that’s being sent to the church from someone who doesn’t give regularly,” said Salsbery.

Invest in security cameras

The progress made by investigators in Cary, North Carolina, might not have been possible if Peace Presbyterian’s deacons had not decided to invest in security cameras. For “a reasonable price,” Blonshine said, the church installed 25 cameras around the property.

Cameras can be part of an elaborate security system or can be lower-cost alternatives such as Ring cameras that can be monitored from smartphones. A small indoor camera from Ring costs approximately $60. An indoor/outdoor unit called a Stick-Up Cam is approximately $200 and can be powered by Ethernet connection.

Consider installing lock boxes for packages.

Along with mailbox theft of checks, the pilfering of packages has become a growing problem. Churches can prevent package theft by installing lock boxes and consulting with the USPS and major delivery companies to install and maintain them.

Still, the church should have a plan for packages that are too large to fit even a box made for packages. If such a package arrives when the church is closed, it should have someone authorized to pick it up when it arrives. If you are expecting a package after work hours, or even during work hours, track the shipment through the delivery company website—such as usps.com, Amazon, or other delivery company, or sign up for email and text alerts with the originating delivery company. Be ready bring the package inside as soon as it arrives.

Use a PO box

One way to avoid the problem of a physical mailbox is to sidestep its use. Post office (PO) boxes are the most tried-and-true way to accomplish this. Peace Presbyterian decided to do this after their mailbox theft.

“Churches that have post office boxes do not have this issue,” Blonshine said. “Banks will do this, too. Our bank notified us that we could set up a box at the bank where they would take checks and deposit them directly to our account.”

Encourage online giving

Another option would be to create a system that avoids paper checks through online giving. “Churches should encourage online giving,” Salsbery said. “Anything that’s electronic will eliminate the risk of someone physically stealing a check or cash.” He added that another way to avoid creating a physical check is to encourage donors to give through a smartphone app.

Other steps recommended by the USPS

Additional security steps recommended by the United States Postal Service (USPS) include:
  • Remove mail from a mailbox immediately after delivery, especially if checks or other negotiable items are expected. Don’t let incoming or outgoing mail sit in a mailbox.
  • Give outgoing mail by hand to the letter carrier, take mail directly to a post office, or place in a blue curbside collection box. Drop mail in the blue boxes as close to the listed pickup time as possible.
  • If a church is going to be closed for an abnormal period, such as a holiday weekend, arrange to have mail held and delivered at a later date.

A USPS tip sheet advises calling local police if suspicious activity is observed near a mailbox. Then contact a postal inspector. Dial 877-876-2455 and say “theft.” You can also submit an online complaint at uspis.gov.

Develop a procedure

A church’s mail policy can include a set of standard operating procedures for handling incoming and outgoing mail.

“The safest way is to deliver directly to a person,” DeMattia said. “But churches have done all kinds of things to contain costs and that can mean being closed on a Friday or a Monday. On those days, I would recommend a lock box and having someone available to check that immediately.”

Mail carriers can be equipped with keys to use when delivering and extracting mail. Another way the postal service can cooperate is by varying delivery times to throw off any potential thieves who are looking for a routine pattern of delivery. (Check with your mail carrier or local post office to see if these are options for your church’s mail delivery.)

Often, church offices have open mailboxes or bins for outgoing mail. Avoid any situation where an unauthorized person can walk by and grab what’s in the outgoing mail pile.

When a check is missing

Report missing checks to both law enforcement and postal inspectors to increase the chances of a strong response, advised DeMattia. “I would also reach out to the local district attorney, who can put out a public caution,” she added.

Churches and donors can hasten the process of recovering stolen money if the bank is contacted immediately after the discrepancy is discovered. If the stolen check is a donor check, the church should encourage the donor to promptly follow up with the bank.

“If it’s within a few weeks or in a monthly cycle and they see a check that appears to have been altered or manipulated, immediately contact the bank. Most banks will have good processes in place to help their customers,” Salsbery said.

Bank protocol should be followed to stop payment on a stolen check. If the check has already been cashed, banks should have procedures in place to try and restore the funds.

Check your bank’s insurance coverage for recovering money from theft. Salsbery noted that “FDIC insurance only covers bank failure, not theft or fraud. Most banks have private insurance for loss due to fraud.”

Peace Presbyterian has an extra layer of protection in place in the form of liability insurance that covers theft of property, including any donation up to $5,000 per incident or day.

If funds are stolen, be prepared to wait for the recovery. By late February, Peace Presbyterian had recovered approximately $16,000 from the December thefts. The bank told Blonshine that the typical time to recover funds is between 90 and 120 days, but it can be longer.

For a very small church on a tight budget, the theft of a contribution can have a more damaging effect. These churches have even more solid reasons to be vigilant about bank statements and to watch for irregularities.

Be vigilant

At Peace Presbyterian, the initial shock and frustration has worn off, replaced by vigilance and a search or anything redemptive that can be gleaned from the experience.

“I was spending a lot of time looking at video, which is horribly mundane, and asking God why he would allow this to happen to our church,” Blonshine said. “The answer was so that [the thieves] could get caught. It turns out that our video footage was the one that opened up the case.”

Lee A. Dean is a freelance writer and editor from Plainwell, Michigan.

Online Worship and Meetings

Ideas, insights, and advice on how to proceed as you shift more ministry online.

The Editors

How do you continue to carry out the business and the work of the church during a pandemic? Here are several articles plus new video content that answers many of the questions you might have as well as considerations you’ll need to think about in the days ahead.

For even more information on what church leaders should know, visit Coronavirus and the Church: The Latest News and Advice from Church Law & Tax, Online Giving: Start or Strengthen This Type of Offering, and Managing Tough Financial Times.
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Advantage Member Exclusive

15 Things Richard Hammar Wants Pastors to Know

On-Demand Webinar: Attorney Richard R. Hammar identifies 15 topics that frequently trip up pastors and church administrators.

Richard R. Hammar, Attorney, CPA
Bio
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Editor’s Note. This video is part of the Advantage Membership. Learn more on how to become an Advantage Member or upgrade your membership.

Your training to serve as a pastor prepared you to write sermons and guide the spiritual life of a congregation. But what about the administrative side of ministry? Attorney and CPA Richard R. Hammar knows only too well that pastors struggle with budgeting, understanding housing allowances, or running a business meeting.

In this one-hour Advantage Member webinar, Hammar shares 15 things that frequently trip up new and seasoned pastors. This webinar will provide awareness, education, and inspiration to help get pastors pointed in the right direction.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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Three Steps to Determine If Government Actions Affect Public Gatherings

These three steps can help churches determine if local government actions affect their gatherings.

David Middlebrook

All governments have emergency powers. You will hear this sometimes mentioned as “health, safety, and welfare,” and emergency powers are used to help keep good order and protect the lives of citizens, especially its most vulnerable.
Attorneys Theresa Sidebotham and Nicole Hunt explore the legal considerations for coronavirus guidance and church gatherings.

During this COVID-19 global pandemic, your church is likely to gain a greater awareness of the powers of government during an emergency declaration. In-person worship can be effectively shut down by prohibitions on assembling crowds by local, county, or state executive government action.

Here’s how your church can determine what your local or state government has—or hasn’t—done in response to COVID-19, and how it affects your congregation.

1. Check to see if your state has made an emergency declaration.

You can start by checking out the Association of State and Territorial Health Officials (ASTHO). According to the ASTHO, as of March 16, 2020, all 50 states, 7 territories, and the District of Columbia had taken some type of formal executive action in response to the outbreak. (Editor’s Note: The Wall Street Journal is also updating a daily tracker of state-mandated lockdowns.)

2. Check your church’s specific local health departments.

Often this can be located by searching for “County, State, Public Health.” Most county websites are already posting information about disaster declarations.

Also note: These emergency powers operate down to the county and municipal level, so also do a search for your city website for any relevant declarations.

3. Pay attention to specific language.

Once you determine how the government has used its emergency powers to restrict the assembly of people in your area, make sure you pay attention to the specific language of the declaration. Is it a mandate, prohibition, or merely a recommendation?

To learn more about how federal and state courts decide religious freedom cases, and to understand which states have their own RFRAs, check out the 50-State Religious Freedom Laws Report, a new downloadable resource from Church Law & Tax.

Adapted from an article that first appeared in an e-newsletter from Middlebrook Group. Used with permission.
Image: Peter Zelei Images | Getty

Advantage Member Exclusive

A Coronavirus Response Plan for Churches

8 ways your leadership can take decisive and responsible action.

Matthew Branaugh, Attorney | Editor, Content and Business Development
Bio


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

COVID-19, more commonly known as the coronavirus, continues spreading globally. Extensive media coverage, combined with daily warnings from health officials about the growing threat the virus poses, have prompted questions about how people should approach their work, travel, social gatherings, and public activities.

Many of those same questions have extended to churches, and the preparations and precautions church leaders should take with respect to worship services, events, and office work.

With an eye toward helping church leaders address challenges associated with an outbreak, Church Law & Tax assembled this article outlining eight key responses they should note to make informed ministry decisions.

1. Identify a point person and form a response team now.

Assign a staff leader or trusted volunteer to take the lead with gathering information and tracking updates about the outbreak. The following sources and resources will prove especially valuable with familiarizing this person about the illness, its spread, and tactics for responding:

This point person can lead internal communications as well as communications with key local agencies and health care providers should an outbreak occur in your community. Ideally, this person should be someone who is highly trusted within your church and demonstrates strong written and verbal communications skills.

Your point person also can lead your church’s response team. We previously recommended involving the following on the team: a member of the pastoral staff; a local health care professional; a custodian or building maintenance team member; a finance committee member; and a communications/website team member. This team should form now and meet soon to first assess the current situation and developing local trends and then set up preventive measures and potential response plans.

2. Encourage personal hygiene among staff, volunteers, and congregants.

The CDC says the spread of COVID-19 appears to occur when an infected person coughs or sneezes within six feet of another person. Promote personal hygiene, especially through posters and flyers around the church building reminding staff members, volunteers, and congregants to wash their hands, practice good etiquette with coughing and sneezing, and evaluate when it’s best to stay home. Hand-washing guidance, in particular, should explain the importance of using hot water and soap, and the ideal duration (conventional wisdom suggests the time it takes to sing “Happy Birthday” twice).

For more help with communicating tips and best practices, check out these online resources:

Along with this communications plan, the CDC recommends:
  • Making hand sanitizer stations and tissues available throughout the church building; and
  • Regularly refilling cleaning supplies, toilet paper, tissues, hand soap, hand sanitizer, and disposable gloves for cleaning crews, just to ensure nothing runs out during or after services and events.

3. Maintain continuous cleaning and sanitation practices.

The CDC says it is possible for a person to touch a surface containing COVID-19 and contract it by subsequently touching his or her mouth, nose, or eyes. The CDC consequently recommends routine cleaning of frequently touched surfaces.

In church offices, this includes workstations, countertops, and doorknobs. In church buildings, this includes restrooms, nurseries or daycares, and common areas. During previous viral outbreaks, we recommended churches implement nursery policies preventing toys passing from child to child and cleaning toys after each use.

We also previously recommended hiring additional cleaning help after worship services and events to ensure restrooms and common areas are thoroughly disinfected. The CDC says regular cleaning solutions and sanitizers are sufficient until further notice.

The CDC also encourages the use of no-touch trash cans throughout offices and buildings.

4. Revisit policies on staff sick leave, absences, and remote work arrangements.

The CDC advises employers to impose temporary mandatory sick-leave policies that do not penalize staff members who have COVID-19. The center also suggests employers temporarily allow extended absences without a note from a medical professional since local health care providers may become inundated with appointments.

Additionally, the CDC says employers should anticipate increased absences as employees provide home care for ill family members. Flexible leave policies are likely necessary—and employers should encourage these employees to follow the CDC’s recommended precautions if exposed to COVID-19 while providing care.

Relatedly, churches should have measures in place to send someone home immediately if they show signs of illness at work. Note the need to keep a potentially ill person separated as much as possible from other individuals.

In terms of allowing employees back to work (either after illness or exposure), employers should require individuals to be symptom-free before returning to work. This includes an orally taken temperature of less than 100.4 degrees for at least 24 hours (without the use of fever-reducing medication), and preferably includes completing a CDC self-assessment and consulting with a local physician.

Last, one CDC official encourages organizations and employers to begin making preparations now for “social distancing,” which includes remote-work arrangements. Now is the time to evaluate whether the church’s information technology and other infrastructure (such as laptops, virtual private networks, and antivirus and malware protections) will make such arrangements for staff possible.

5. Keep employment law considerations in mind.

Medical and legal experts remind employers like churches to be cautious regarding how they maintain workplaces, track records, and keep confidences. Of note:
  • The CDC reminds employers not to evaluate an employee’s potential risk of infection based solely on his or her race or country of origin;
  • The CDC reminds employers to maintain confidentiality as much as possible regarding any employee diagnosed with COVID-19 or suspected to have it;
  • The Occupational Safety and Health Administration’s (OSHA) requirement for employers to provide “employment and a place of employment, which are free from recognized hazards that are causing or are likely to cause death or serious physical harm.” This means continuous cleaning and sanitation practices are crucial.
  • OSHA deems COVID-19 to be a required reporting event if an employee becomes ill on the job (most churches must);
  • State labor safety laws must be followed;
  • The federal Fair Labor Standards Act (FLSA) wage-and-hour provisions must be followed, particularly for hourly employees and certain salaried employees who are eligible for overtime pay. Also, the FLSA says volunteers can offer their services without pay during an emergency to a private, religious not-for-profit—but “employees of such organizations may not volunteer to perform on an uncompensated basis the same services they are employed to perform”; and
  • The implications of the Americans with Disabilities Act of 1990 (ADA) on remote work arrangements, according to the Equal Employment Opportunity Commission (EEOC).

6. Consider limiting travel, especially outside of the country.

Sending staff members, volunteers, or congregants to conferences or short-term missions trips in the immediate future should be handled with caution. Check the CDC’s geographic risk assessment for global updates.

If churches still opt to send staff members or volunteers out of the country, the CDC strongly urges lining up medical care or assistance ahead of time in the event someone becomes ill during the trip. Some of the major church insurers offer additional coverage that assists with securing foreign medical care during out-of-country trips. Leaders should check with their insurance agents about the features and costs of this coverage before any trips.

Relatedly, global law firm DLA Piper cautions employers not to force an employee to travel if the employee expresses concerns about the destination involved (particularly ones with a CDC-issued threat level). Doing so could create legal liability if the employee later becomes ill with COVID-19, the firm says.

7. Consider alternatives with food-related activities.

For communion, consider using individual glasses and bread pieces. For church events involving food, consider offering only individually packaged food and drink items. If food and drinks (such as punch bowls) are set out, advise people to take what they touch and don’t leave items out for extended periods of time. Make sure garbage is thrown out as soon as possible.

8. Should conditions warrant, cancel church services and close the church office.

Should your local or state health officials or a federal agency warn against public gatherings or advise congregations (or your congregation specifically) not to meet, take such warnings and advice seriously. Follow the guidelines and instructions provided. Your church can demonstrate its care to the larger community by playing its part.

Free Resource. Christianity Today and Church Law & Tax created a free, downloadable PDF guide that covers the theological and ministerial considerations churches should make in response to outbreak conditions.

Should your church opt to cancel services, you can still bring your congregation together through online services. But note your church should only stream your pastor’s teaching and announcements unless it already possesses proper licenses to broadcast copyrighted music.

Additionally, remind your church of the importance to still faithfully give, even when the church hasn’t physically gathered. Bills are still due and payroll still needs to be made. Previously established electronic giving arrangements through websites, texts, and electronic funds transfer (EFT), as well as mobile giving apps, will naturally help most giving to still occur. But friendly messages can help remind those congregants who don’t use e-giving.

Lastly, if you have to close the church office for a period of time, think ahead about what steps need to be taken to make sure bills and payroll get paid and other mission-critical business activities are maintained.

Additional Reading

For more on how people of faith should respond to the coronavirus, see the following articles on ChristianityToday.com:
Matthew Branaugh is an attorney, and the content editor for Christianity Today's Church Law & Tax.
Posted:
Image: Classen Rafael/EyeEm | Getty Images

Top 3 Most Confusing Tax Issues for Clergy

What new—and veteran—ministers and treasurers need to know to file taxes correctly and receive maximum tax benefits.

Richard R. Hammar, Attorney, CPA
Bio

Ministers and treasurers must be familiar with the tax rules that apply to clergy. Unfortunately, seminary training rarely equips new ministers with this information, and church treasurers often don’t know about the unique tax laws that apply to clergy. This information gap means ministers and treasurers frequently handle clergy income and the payment of related taxes incorrectly, and they fail to take advantage of the tax benefits that are available to ministers.
Get Instant Access to the 2024 Church & Clergy Tax Guide by Richard R. Hammar when you order it in PDF format.

For instance, ministers are eligible for five special tax rules with respect to services they perform in the exercise of their ministry. These include (1) not paying federal income taxes on the portion of their church compensation designated in advance by their church as a housing allowance (limitations apply), (2) not paying federal income taxes on the annual rental value of a parsonage provided by their church, (3) being exempt from “self-employment taxes” (Social Security taxes paid by the self-employed) if several conditions are met, (4) being considered self-employed for Social Security (if not exempt), and (5) having ministers’ wages exempt from income tax withholding.

In order to qualify for these tax savings, however, you must meet the IRS’s definition of a “minister.” The IRS applies a five-factor test to determine whether an individual qualifies as a minister for federal income tax purposes. In general, for individuals to enjoy the five special tax rules summarized above, they must satisfy two main requirements: they must be a minister, and they must be engaged in the exercise of ministry.

Assuming you clear these IRS hurdles for establishing whether or not you’re a minister for federal tax purposes, you then need to know how to file taxes properly to ensure you receive the benefits available to you.

In this article, we focus on three of the most perennially perplexing tax issues for clergy. While there are many more we could cover, these are the three that pose confusion and uncertainty for many ministers and church treasurers, new and seasoned.

1. Should a Minister Report Income Taxes as an Employee or as Self-Employed?

The question of whether ministers should report their federal income taxes as an employee or as self-employed is a significant one. Most new ministers should report their federal income taxes as employees, because they will be considered employees under the tests currently used by the IRS and the courts. Most clergy will be “better off” reporting as employees, since (1) the value of various fringe benefits will be excludable, including the cost of employer-paid health insurance premiums on the life of the minister, (2) the risk of an IRS audit is substantially lower, and (3) reporting as an employee avoids the additional taxes and penalties that often apply to self-employed clergy who are audited by the IRS and reclassified as employees.

2. Should a Minister Report Social Security Taxes as an Employee or as Self-Employed?

There is one provision in the tax code that has caused more confusion for ministers and church treasurers than any other, and it is this: ministers are always treated as self-employed for Social Security with regard to services they perform in the exercise of their ministry (except for some chaplains). This is true even if they are employees for federal income tax reporting. This is sometimes referred to as the “dual tax status” of ministers.
Should a Minister “Opt Out” of Social Security?

Ministers may elect to opt out of Social Security, but you need to understand the rules and implications before making such a decision. Ministers can exempt themselves from self-employment taxes for Social Security with respect to services they perform in the exercise of ministry by filing a timely Form 4361 with the IRS. The exemption is available only if a minister is opposed on the basis of religious considerations to the acceptance of Social Security benefits rather than to payment of the tax. Several conditions apply. Once an exemption is granted, it cannot be revoked unless Congress approves legislation allowing it. Both the Internal Revenue Manual (section 4.19.6.4.11.3) and IRS Revenue Ruling 70-197 suggest a minister may be able to opt back in if the decision to opt out was based solely on economic considerations. Chapter 9 of the annual Church & Clergy Tax Guide provides further details.

Many new (and even veteran) ministers are surprised to learn that their employment status for income tax purposes has no bearing on their employment status for Social Security taxes. This often creates confusion. Ministers are always self-employed for Social Security with respect to their ministerial services. This is true even if you are treated as an employee for federal income tax purposes. This means you pay the self-employment tax, not “Social Security” and “Medicare” taxes. Your employing church must not treat you as an employee for Social Security, even though it issues you a W-2 for income taxes.

The most important consequence of this dual tax status is that ministers pay the so-called “self-employment tax.” This is the Social Security tax that is paid by self-employed workers. It amounts to 15.3 percent of a minister’s taxable earnings. Employees and employers pay “Social Security” and “Medicare” taxes (sometimes collectively referred to as “FICA” taxes). Like self-employment taxes, these taxes amount to 15.3 percent of a minister’s taxable earnings. But there is a big difference. Employers and employees split the 15.3 percent tax rate, with each paying 7.65 percent. Self-employed persons pay the entire self-employment tax. Many churches pay half, or even all, of a minister’s self-employment tax. This is perfectly appropriate, but any amount paid by the church must be reported as taxable income to the minister.

3. How Does a Minister Pay Taxes?

Many churches erroneously withhold the employee’s share of Social Security and Medicare taxes from ministers’ compensation, and then pay the employer’s share. In other words, they treat their minister as an employee for Social Security. This is understandable, especially when the church treats the minister as an employee for purposes of federal income taxation. But, it is always incorrect for a church to treat a minister as an employee for Social Security. Self-employment taxes for ministers are computed on Schedule SE of Form 1040.

The federal income tax is a “pay as you go” tax. This means that you must pay your tax as you earn income during the year. There are two ways to do this—quarterly estimated tax payments and tax withholding.

Ministers must prepay their income taxes and self-employment taxes using the estimated tax procedure, which can be confusing. Nonetheless, it’s important to understand how to calculate and pay estimated taxes to avoid significant tax liabilities.

Generally, you should make estimated tax payments if your estimated tax for this year will be $1,000 or more and the total amount of income tax that will be withheld from your income will be less than the lesser of (1) 90 percent of your tax liability for the current year, or (2) 100 percent of your tax liability for the previous year (if it covered all 12 months of the year). If you are required to pay estimated taxes, but fail to do so, you will be subject to an “underpayment penalty.” Since the penalty is figured separately for each quarterly period, you may owe a penalty for an earlier payment period even if you later paid enough to make up the underpayment. If you did not pay enough tax by the due date of each of the payment periods, you may owe a penalty even if you are due a refund when you file your income tax return!

The 4-step procedure for paying estimated taxes

Complying with the estimated tax procedure is easier than it seems. Here are the four steps you need to follow:

Step 1–Obtain a copy of IRS Form 1040-ES prior to April 15 of the current year.

Step 2–Compute estimated taxes.

Calculate your estimated tax for the current year by estimating adjusted gross income and then subtracting estimated adjustments, deductions, exemptions, and credits. Multiply estimated taxable income times the applicable tax rate contained in the Tax Rate Schedule reproduced on Form 1040-ES. Include your estimated Social Security tax on the worksheet if you are not exempt, and include your housing allowance exclusion in computing your estimated earnings subject to the self-employment tax.

Step 3–Pay estimated taxes in quarterly installments.

If estimated taxes (federal income taxes and self-employment taxes) are more than $1,000 for the current year, and the total amount of taxes to be withheld from your compensation is less than the lesser of (1) 90 percent of your tax liability for the current year, or (2) 100 percent of your tax liability for the previous year, then you must pay one-fourth of your total estimated taxes in four quarterly installments (by April 15 for January 1 to March 31; by June 15 for April 1 to May 31; by September 15 for June 1 to August 31; and by January 15 for September 1 to December 31). If the due date for making an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be on time if you make it on the next business day.

Payment vouchers. You must send each payment to the IRS, accompanied by one of the four payment vouchers contained in Form 1040-ES.

Starting a job in mid-year. A minister who becomes liable for estimated tax payments midway through a year should submit a payment voucher by the next filing deadline accompanied by a check for a prorated portion of the entire estimated tax liability for the year.

Changing your quarterly payments. Changes in your income, deductions, credits, or exemptions may make it necessary for you to refigure your estimated tax and adjust your remaining quarterly payments accordingly.

Step 4–Compute actual taxes.

After the close of the year, compute your actual tax liability on Form 1040. Only then will you know your actual income, deductions, exclusions, and credits. Estimated tax payments rarely reflect actual tax liability. Most taxpayers’ estimated tax payments are either more or less than actual taxes as computed on Form 1040 (usually less).

Overpayment. If you overpaid, you can elect to have the overpayment credited against your first quarterly estimated tax payment of the following year or spread out in any way you choose among any or all of your next four quarterly installments. Alternatively, you can request a refund of the overpayment.

Underpayment. If you underpaid your estimated taxes you may have to pay a penalty. The penalty is computed separately for each quarterly payment period. Contrary to popular belief, payment of your entire estimated tax liability with your Form 1040 will not relieve you of the penalty if you did not pay the estimated income tax due earlier in the year.

Form 2210. You can use Form 2210 to see if you owe a penalty and to figure the amount of the penalty. If you owe a penalty and do not attach Form 2210 to your Form 1040, the IRS will compute your penalty and send you a bill. You do not have to fill out a Form 2210 or pay any penalty if either of two conditions apply: (1) your total tax less income tax withheld is less than $1,000, or (2) you had no tax liability last year and you were a United States citizen or resident for the entire year. The IRS can waive the underpayment penalty if the underpayment was due to casualty, disaster, or other unusual circumstance and it would be inequitable to impose the penalty.

Special rule for high-income taxpayers. A high-income taxpayer with adjusted gross income for the previous year of at least $150,000 cannot avoid the underpayment penalty by paying estimated taxes for the current year of at least 100 percent of last year’s tax. For such persons, the “100 percent rule” is replaced with a 110 percent rule, meaning that they will be subject to an underpayment penalty unless they have paid estimated taxes for the current year of at least the lesser of (1) 90 percent of the current year’s actual tax liability, or (2) 110 percent of last year’s actual tax liability.

Voluntary withholding

Ministers who report their income taxes as an employee may request “voluntary withholding” of their income taxes and self-employment taxes by filing a Form W-4 with the church. A self-employed minister is free to enter into an “unofficial” withholding arrangement whereby the church withholds a portion of his or her compensation each week and deposits it in a church account, and then distributes the balance to the minister in advance of each quarterly estimated tax payment due date.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
Image: Dowell | Getty

Responding to Highly Contagious Illnesses

Ways to decrease the risk of infection and keep your congregation safe. Plus, link to the free PDF from Christianity Today, “A Concise Coronavirus Guide for Churches”

Lindsey Learn

Mass viral illness outbreaks such as H1N1 in 2009 or COVID-19 in 2020, and the resulting media coverage, have many ministry leaders wondering what to do to keep their congregations healthy and their organizations running.
Download the free PDF “A Concise Coronavirus Guide for Churches”, for additional information.

Quick Ways to Stop the Spread

There are some important steps to take to reduce its spread within your own faith community.

Make adjustments to your typical Sunday morning activities at church. To decrease the risk of the virus spreading through handshakes and other routine touch, your pastors and lay leaders may want to make an announcement that they are suspending physical contact and ask that the congregants respect those who wish to do the same.

Rethink communion. If your church traditionally uses one cup during communion for participants, you may want to switch to individual cups for as long as the threat continues. One common loaf of bread could also pose a problem and an alternative—such as individual wafers—may be a modification.

Encourage handwashing and the use of hand sanitizers. Place signs in restrooms to remind members to wash their hands. Hand sanitizer, placed strategically throughout your building, is also an option. Require those who set up and serve communion to use hand sanitizer (something that already should be a requirement, regardless of a viral outbreak).

Identify “hot” spots. During any flu season, pay closer attention to your nursery and children’s ministry classrooms, bathrooms, and kitchen and coffee areas:
  • Clean toys thoroughly after every use. Nursery workers should try to keep toys from passing from child to child. The nursery should also be completely disinfected after each service or event.
  • Signs should be placed in kitchens encouraging congregants to thoroughly wash their hands before serving or preparing food, and prior to leaving.
  • You may also want to hire a janitor to come in and disinfect the bathrooms every Sunday, or immediately after an event, in addition to their normal duties.
  • If you have food out in your kitchen area on Sunday mornings, remind people to “take what they touch” and to throw away all garbage as soon as they’re finished.

Staff Sick-Leave Policies

If you don’t already have them, create job handbooks for each of the pastoral and administrative positions in your church. This will continue to give your staff and church direction if a staff member is out of commission for a long period of time due to illness. The Salvation Army also suggests you establish the following alternative rules to your current employee handbook in the case of staff infection during a pandemic:
  • Establish mandatory staff leave for ill employees (or those caring for ill family members). This will reduce the possibility of spreading the infection among healthy co-workers.
  • Adopt “leave” policies that do not penalize workers for absenteeism during a serious outbreak when it is related to personal illness or care for sick family members.
  • Be prepared for heavy absenteeism in jobs that interact with “at-risk” populations, such as children, the elderly, or homeless. Workers may fear that working with these groups places them at a higher risk for exposure to infection.

Evaluating Programs

If your church has planned a mission trip to a country with a high risk of a viral outbreak within the next few months, you may want to consider the risks. Make certain to consult with your church’s insurance agent, and consider adding special coverage that assists with securing medical assistance and help in the event someone becomes ill during the trip.

And what about local ministries? Hospital visitations may become more difficult, especially if the virus outbreak shows widespread signs of spreading in your community. Your church may want to establish a phone visitation system, where you can still contact and pray for those in hospital care without endangering your staff. Here are some additional questions to ask before your next outreach:
  • Would the attendees and volunteers be at risk if they attended your planned event?
  • Do these events need to be put on hold for a few weeks or months?
  • What are some permanent preventive procedures you can establish for these events?

Spread the Word

Contact your local public health officials to stay up-to-date on the latest information in your area. Being informed about the latest news will help you make wise decisions about upcoming services and events. The Centers for Disease Control’s website, cdc.gov, also may be helpful.

Finally, as news unfolds, be sure to communicate with your congregation. You may want to consider assigning a point person to manage this detail to ensure that correct information is available in a timely way for your staff and members.

15 Things Richard Hammar Wants Pastors to Know

Governing Documents

Understand the importance of church constitution and bylaws.

Richard R. Hammar, Attorney, CPA
Bio

A church’s governing documents include a corporate charter and a constitution or bylaws (sometimes both). The lead minister should be familiar with these documents and be able to identify the current version. There are several aspects of governing documents ministers should understand, including the following.

Bylaw basics: What are church bylaws?

The Model Nonprofit Corporations Act (3rd ed. 2008), which has been adopted by several states, defines bylaws as “the code or codes of rules (other than the articles of incorporation) adopted for the regulation and governance of the internal affairs of the nonprofit corporation, regardless of the name or names used to refer to those rules.”

One court defined bylaws as follows:

The bylaws of a corporation are the rules of law for its government. The term “bylaw” may be further defined according to its function, which is to prescribe the rights and duties of the members with reference to the internal government of the corporation, the management of its affairs, and the rights and duties existing among the members. Bylaws are self-imposed rules, resulting from an agreement or contract between the corporation and its members to conduct the corporate business in a particular way. Until repealed, bylaws are the continuing rule for the government of the corporation and its officers. Schraft v. Leis, 686 P.2d 865 (Kan. 1984).

Know your current version of your bylaws

In many churches, the bylaws were adopted long ago, and have been amended numerous times over the years. As a result, there may be various “editions” in circulation. Often, these editions are undated, making it difficult (if not impossible) to identify the current one. This can create confusion.

Going forward, here are two ways to prevent confusion over which set of bylaws is the current edition:
  • Identify copies of the church bylaws with a numeric designation. To illustrate, a church identifies its current bylaws as “version 1.0.” During the church’s membership meeting, two amendments are made to the bylaws. Following the meeting, the revised bylaws are printed, and designated as “version 1.1.”
  • Identify copies of the church bylaws by date. For example, designate the current bylaws “Current as of [date].”

In either case, be sure that all printed copies of the bylaws bear the appropriate designation, and dispose of undesignated versions.

Do churches need both a constitution and bylaws?

Some churches have both a constitution and bylaws. This was a common practice a century ago, and it persists to this day. But there is little justification for a church to have both a constitution and bylaws unless the constitution is made superior to the bylaws either by express provision or by a more restrictive amendment procedure.

To illustrate, some churches have:

(1) a constitution that can only be amended by providing members with advance notice of the proposed amendment prior to a membership meeting, and by a two-thirds vote of the membership at the meeting; and

(2) bylaws that can be amended at a membership meeting, without prior notice to the members, and by a simple majority vote. The church places provisions of greatest importance in the constitution, such as church doctrine and the purchase or sale of church assets, since these can be changed only through a more deliberative process involving advance notice and a super-majority vote. Routine provisions are assigned to the bylaws.

Churches that have both a constitution and bylaws typically address many of the same issues in both documents. Over time, this often leads to conflicts, since amendments in one document may not be made to similar provisions in the other.

Identifying a single body of rules as the “constitution and bylaws” without any attempt to distinguish between the two is a common but inappropriate practice.

Provisions you may want to include in your bylaws

There are a number of potentially helpful provisions that are often omitted from church bylaws, including:
  • An arbitration or mediation provision requiring specified disputes to be resolved through mediation or binding arbitration.
  • Choice of parliamentary law to govern membership meetings. Many church leaders assume that Robert’s Rules of Order Newly Revised governs church business meetings. But this is not the case. There are dozens of competing models of parliamentary procedure, and a church should formally select the model that will be applied. If your church intends to use Robert’s Rules of Order Newly Revised, then your bylaws should say so.
  • If your church bylaws contain a provision addressing the discipline of members who violate your standards of membership, they should clarify that members who have been charged with conduct in violation of the standards of membership waive their right to resign from membership in the church. Without such a provision, members can preempt a church’s disciplinary procedure by simply informing their pastor that they are resigning as members. Guinn v. Church of Christ, 775 P.2d 766 (Okla. 1989).
  • A clause specifying how contracts and other legal documents are to be approved.
  • State who has the authority to sign church checks. It is a basic tenet of internal control that two persons sign checks, and a church’s bylaws should specify which two officers have this authority.
  • “Bonding” of officers and employees who handle church funds.
  • An annual audit by independent certified public accountants (CPAs). There are compelling reasons why a church should consider having an annual audit. Most importantly, an audit promotes an environment of accountability in which opportunities for embezzlement (and therefore the risk of embezzlement) are reduced. And, the CPAs who conduct the audit will provide the church leadership with a “management letter” that points out weaknesses and inefficiencies in the church’s accounting and financial procedures. This information can be invaluable to church leaders. Smaller churches that cannot afford a full audit may want to consider two other options: (1) Hire a CPA to conduct a review, which is a simpler and less expensive procedure. If the review detects irregularities, a full audit may be considered worth the price. (2) Create an internal audit committee if there are accountants or business leaders within the church who have the ability to review accounting procedures and practices and look for weaknesses. These people often are very familiar with sound internal control policies, and will quickly correct weaknesses in the church’s financial operations.
  • An indemnification clause providing for the indemnification of officers and directors who are sued as a result of actions or decisions made in the course of performing their duties on behalf of the church.
  • Specification of the church’s fiscal year.
  • “Staggered voting” of directors (a portion of the board is elected each year to ensure year-to-year continuity of leadership).
  • The bylaws should specify if the church board can act without conducting a formal meeting. To illustrate, section 8.21 of the Model Nonprofit Corporation Bylaws, which has been adopted by several states, specifies that “except to the extent that the articles of incorporation or bylaws require that action by the board of directors be taken at a meeting, action required or permitted to be taken by the board of directors may be taken without a meeting if each director signs a consent in the form of a record describing the action to be taken and delivers it to the nonprofit corporation. . . . A consent signed under this section has the effect of action taken at a meeting of the board of directors and may be described as such in any document.”
  • The bylaws should authorize the church board to conduct meetings by telephone or a video conference, or allow the “attendance” of an otherwise absent director through telephone connection or video conference, if desired.
  • The bylaws should specify if absentee voting is permitted at membership meetings. Absentee voting is not ordinarily permitted unless expressly authorized by an organization’s bylaws. Robert’s Rules of Order Newly Revised specifies: “It is a fundamental principle of parliamentary law that the right to vote is limited to the members of an organization who are actually present at the time the vote is taken in a legal meeting. Exceptions to this rule must be expressly stated in the bylaws. . . . 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.”
  • The bylaws should specify if proxy voting is permitted at membership meetings.
  • State who is authorized to have custody of the minutes of church membership and board meetings.
  • State who is authorized to have custody of the church’s financial records. These documents are church records, and ordinarily should not be entrusted to the treasurer’s personal possession.
  • Most state nonprofit corporation laws give members a right to inspect specified corporate records at a proper time and for a proper purpose. Usually, these laws provide that this authority to inspect corporate records exists unless limited or abolished by the corporate bylaws. To illustrate, the Revised Model Nonprofit Corporation Act, which has been enacted by several states, gives a member a right to inspect the minutes of board meetings if the member’s demand is made in good faith and for a proper purpose; the member describes with “reasonable particularity” the purpose and the records the member desires to inspect; and the records are directly connected with this purpose. The Act specifies that a church’s articles of incorporation or bylaws “may limit or abolish the right of a member under this section to inspect and copy any corporate record.”
  • Clarify the meaning of all voting requirements specified in the bylaws. For example, a church’s bylaws may call for a “two-thirds vote” for certain actions. This can have various meanings, including a vote that is precisely two-thirds of the membership; at least two-thirds of the total voting membership, regardless of how many come to a business meeting; or, at least two-thirds of the members present at a duly called meeting at which a quorum is present. This kind of ambiguity has caused countless internal church disputes.
  • Suspension or removal of board members who miss a specified number of board meetings. Board members owe various “fiduciary duties” to their church, and one of these is the duty to exercise “due care” in the performance of their responsibilities. Board members who miss most board meetings eventually will be in violation of this duty, and some churches have chosen to address this issue in their bylaws with a provision calling for the suspension or removal of such persons. The fiduciary duty of due care goes to the very heart of the status of a board member.
  • It is common for church board members to resign their position when they relocate or become incapacitated. However, church bylaws usually do not address when and how such resignations will occur. This is an important and frequently overlooked issue, since board members generally remain liable for the actions of the board until their resignation is effective. If the timing of a resignation is ambiguous, then this can create lingering exposure to liability. To avoid this, a church’s bylaws should clarify precisely how and when a board member’s resignation will be effective.

Seek legal assistance. The drafting of church bylaws is a complex task that should not be attempted without the assistance of an attorney. Knowing what to include and exclude from your bylaws are important tasks that require legal knowledge and experience.

Is it time to rewrite our bylaws?

Do church bylaws ever need to be rewritten? That depends on several factors, including the following:
  • How old are the bylaws? The older they are, the more likely they are in need of a legal review, and possibly revisions or a new and updated document.
  • Who drafted the bylaws? If the bylaws were drafted by one or more attorneys with experience in corporate governance, ideally involving churches or other nonprofit organization, there is less need to rewrite the bylaws. On the other hand, many churches have bylaws that were drafted by a committee of laypersons with little if any specialized knowledge in corporate governance. In such a case, there may be a greater need for revisions or a new document.
  • Some church bylaws are mandated by the denomination with which they are affiliated, and the church has little if any authority to make changes. Church leaders should be familiar with any such limitations.

The application of denominational governing documents

In many denominations, affiliated churches are limited in their ability to compose or revise their bylaws. In some cases, the church’s bylaws are entirely prescribed by the denomination’s governing documents. In others, the church is free to compose its own bylaws, but must include terms mandated by the denomination’s governing document. As one court noted, “For religious nonprofit corporations, bylaws may partly be prescribed by, and may be an important tie to, a related superior or affiliated religious organization.” New v. Kroeger, 84 Cal.Rptr.3d 464 (Cal. App. 2008).

Church charters

The application for incorporation that is filed with the secretary of state generally is called the articles of incorporation or articles of agreement. This document, when approved and certified by the appropriate government official, is commonly referred to as the corporate charter.

Church charters typically set forth the following information:
  • corporate name
  • corporate address
  • period of duration
  • purposes of the corporation
  • names and addresses of incorporators and directors

Additional Reading

For deeper readings on bylaws, charters, and other areas related to governing a church, see the following:

Go to the next article, “Parliamentary Procedure” or return to “15 Things Richard Hammar Wants Pastors to Know,” to choose an article of interest or that fits a particular need.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

15 Things Richard Hammar Wants Pastors to Know

Parliamentary Procedure

Learn the basics of running church meetings.

Richard R. Hammar, Attorney, CPA
Bio

Ministers are not expected to be experts in parliamentary procedure, but familiarity with five common and recurring issues can help clear up confusion as they seek to conduct meetings in a proper and orderly way.

Which parliamentary authority applies to meetings of our board and membership?

Robert’s Rules of Order Newly Revised, or any other body of parliamentary procedure, is not applicable unless specifically adopted.

Churches can and should select a specific body of parliamentary procedure by an appropriate clause in the church’s governing document. If a particular system of parliamentary procedure has been used by common consent long enough to constitute a church practice or custom, then it probably would be considered as binding as if specifically adopted by a provision in the church’s governing document.

If no body of parliamentary procedure has been adopted, either by reference in a church’s governing document or by custom, then the ordinary or “common law” rules of parliamentary law should be observed in the conduct of a meeting.

Churches should not assume that Robert’s Rules of Order Newly Revised is the only parliamentary authority. It is not. On the contrary, there are alternative systems of parliamentary procedure, some of which are excellent (and some would say superior).

Caution. Many churches adopted the original Robert’s Rules of Order, or one of the early revisions. The original text was published in 1876, and it has been revised ten times. The current (12th) edition was released in 2020. Obviously, churches that select “Robert’s Rules” should be sure to identify this system of parliamentary procedure as “the most recent revision of Robert’s Rules of Order.” Otherwise, they may have to resort to obsolete rules to resolve parliamentary questions.

Can a church’s bylaws be “suspended”?

Can church members vote to “suspend” the church bylaws during a membership meeting? Consider the following scenario. A church’s bylaws state that board members serve a maximum of six years in office. The church is in the midst of a construction project, and a board member is a contractor who has provided invaluable assistance to the church during this project. Several church members want this person to remain on the board following the expiration of his term of office. A member made a motion at an annual church business meeting to “suspend the bylaws” to allow this to happen. Can church members, at a duly called business meeting, take action to suspend the bylaws?

In most cases, the answer is no. Consider the following ten points.

1. State nonprofit corporation laws under which many churches are incorporated generally make no provision for the suspension of bylaws.

2. Suspension of bylaws is an extraordinary action that is not found in most church bylaws, but it is important to confirm that this is the case.

3. If your church bylaws allow for their own suspension, then be sure to comply with any procedural requirements. For example, the bylaws of some public charities and for-profit corporations provide for their own suspension, but they typically require a supermajority vote, such as two-thirds or three-fourths of the members present.

4. Many churches have adopted the current version of Robert’s Rules of Order as their official body of parliamentary procedure governing church business meetings. Section 25 of Robert’s Rules of Order Newly Revised states:

Rules contained in the bylaws (or constitution) cannot be suspended no matter how large the vote in favor of doing so or how inconvenient the rule in question may be unless the particular rule specifically provides for its own suspension, or unless the rule properly is in the nature of a [procedural] rule of order.

For churches that have not formally adopted any body of parliamentary procedure, Robert’s Rules of Order Newly Revised is persuasive authority. Section 2 of Robert’s Rules of Order Newly Revised states:

Although it is unwise for an assembly or a society to attempt to function without formally adopted rules of order, a recognized parliamentary manual may be cited under such conditions as persuasive.

5. Some corporations have amended their bylaws to remove a provision authorizing their suspension. One common reason for doing so is that a provision authorizing bylaw suspension is antidemocratic. That is, the bylaws are adopted by the corporate membership following an intensive period of drafting and consideration. Permitting this fundamental legal document, or a provision therein, to be suspended by a specified percentage of members present at an annual or specially called meeting of the members typically will result in a relatively small minority of the total membership dictating a suspension of the bylaws.

6. Churches that choose to provide for the suspension of their bylaws can limit potential problems by requiring a supermajority vote and by limiting the suspension option to specific bylaw articles or sections.

7. In a famous case, Supreme Court Justice Oliver Wendell Holmes noted that “hard cases make bad law.” The point being that bad precedents often result from difficult circumstances. Churches that feel compelled to suspend their bylaws, even when legally authorized, may end up regretting doing so. At a minimum, they will be establishing a precedent that may be referenced on many future occasions whenever an emergency arises. The very concept of corporate bylaws being subject to suspension is at odds with the fundamental nature of bylaws as a set of rules governing corporate practice and administration. In one sense, the bylaws are the one document that protects a church against anarchy. Any compromise to the stability of a church’s bylaws raises the potential for future problems.

8. Proper drafting of bylaws often can avoid the clamor for their suspension that may arise out of temporary emergencies. Church leaders should periodically have their bylaws reviewed by legal counsel.

9. Suspending the bylaws, when not authorized, will result in a “cloud” over the integrity and legitimacy of whatever action is taken while the bylaws are suspended.

10. Bylaw amendment should be viewed as an alternative to bylaw suspension. Bylaws typically provide for their own amendment. In many cases, bylaw amendments take effect immediately.

Improper and dilatory motions

A number of parliamentary rules are designed to facilitate the efficient consideration of business. Two of these rules are the prohibitions against improper and dilatory motions. These rules limit the ability of church members to hijack church business meetings with bizarre and irrelevant motions.

Improper motions

Robert’s Rules of Order Newly Revised lists the following examples of improper motions:
  • Motions that conflict with the corporate charter, constitution, or bylaws.
  • Motions that conflict with procedural rules prescribed by national, state, or local laws.
  • In some cases, motions that conflict with a previously adopted motion that has not been rescinded, or considered and rejected.
  • Motions presenting practically the same question as one that is still under consideration.
  • Motions that are outside the objective of the organization as specified in its governing documents.

Dilatory motions

Robert’s Rules of Order Newly Revised defines a dilatory motion as one that “seeks to obstruct or thwart the will of the assembly.” It is the duty of the chair to rule that such motions are out of order as dilatory.

Section 10 of Robert’s Rules describes another kind of improper dilatory motion:

Motions to reaffirm a position previously taken by adopting a motion or resolution are not in order. Such a motion serves no useful purpose because the original motion is still in effect; also . . . if a motion to reaffirm failed, it would create an ambiguous situation.

What is meant by receiving, accepting, or adopting a report?

It is common for motions to be offered at church board and membership meetings to “accept,” “receive,” or “adopt” a report. For example, after the church treasurer makes a report to the church board at a monthly meeting, a board member moves that the report be “received.” Is this an appropriate motion, or would some other motion be more appropriate? Consider the following explanations.

“Receiving” a report

A report of an officer or committee is “received” by a board or assembly when it is presented or read. In other words, the person making the report presents it, while the listeners receive it. As a result, it is incorrect parliamentary practice for a motion to be made at a board or membership meeting to “receive” a report after it is presented, since the act of presenting it constitutes reception by the hearers.

Example. A church treasurer makes a report of the church’s finances at a monthly meeting of the church board. Following the presentation of the report, and the treasurer’s response to questions and requests for clarification, a board member moves “to receive the treasurer’s report with appreciation.” This motion is nonsensical, since the treasurer’s report was received when it was read.

Adopting or accepting a report

Robert’s Rules of Order Newly Revised states that motions to adopt or accept the report of an officer or committee are synonymous, and signify that the entire report becomes “the act or statement of the assembly.” Such motions are common in church board and membership meetings.

To illustrate, it is common for motions to be made and passed to accept a treasurer’s report or the minutes of the previous meeting. It is important to understand, however, that such motions have the effect of “the assembly’s endorsing every word of the report, including the indicated facts and reasoning, as its own statement.” This may not be a problem in some, or even most, cases. For example, a board may want to formally adopt the minutes of each meeting, since they reflect the actions of the board itself. But, there can be situations in which it would be more appropriate for a board or assembly to merely receive a report (by having it presented).

Some reports of officers or committees contain one or more recommendations for action. In such cases, it is appropriate and necessary for a motion to adopt the recommendation. Usually, such a motion is made by the person presenting the report.

No action

Many reports made by officers and committees to a board or assembly are for informational purposes and contain no recommendations or motions. For example, at a regularly scheduled meeting of a church board, a committee member reads a report that contains no proposed actions. It would be appropriate for the chairperson to thank the committee and request that the report be placed on file, and then move to the next item of business. A motion to accept or adopt the report is not necessary, since it is informational.

In this regard, Robert’s Rules of Order Newly Revised states: “Apart from filing such a report . . . no action on it is necessary and usually none should be taken.”

In some organizations, the treasurer’s periodic reports to the board of directors are not accepted or adopted (so long as they contain no specific recommendations for action). Instead, the chairperson requests the secretary to file these reports without action. At the end of the fiscal year the board adopts a motion to accept the report of the CPA firm that audits the organization’s books. This has the effect of relieving the treasurer of any personal culpability for his or her reports (excepting fraudulent or illegal activity). It also may minimize the board’s culpability that might otherwise exist if it adopted or accepted each report of its treasurer. The organization itself, at its annual business meeting, also adopts or accepts by motion the CPA’s audit report.

Special rules for small meetings

Robert’s Rules of Order Newly Revised permits certain parliamentary rules to be relaxed in “small boards and committees,” which it defines as those “consisting of not more than about a dozen members.” The reason for less formality in small boards and committees is to facilitate the conduct of business. Note that larger boards and committees (those with more than about a dozen members), are subject to the same parliamentary rules as a large deliberative assembly.

Here are the parliamentary rules that are relaxed in small boards and committees, according to Robert’s Rules of Order Newly Revised:
  • Members are not required to obtain the floor before making motions or speaking, which they can do while seated.
  • Motions need not be seconded.
  • There is no limit to the number of times a member can speak to a question, and motions to close or limit debate generally should not be entertained.
  • Informal discussion of a subject is permitted while no motion is pending.
  • Sometimes, when a proposal is perfectly clear to all present, a vote can be taken without a motion having been introduced. Unless agreed to by unanimous consent, however, all proposed actions of a board must be approved by vote under the same rules as in other assemblies, except that a vote can be taken initially by a show of hands, which is often a better method in such meetings.
  • The chairperson need not rise while putting questions to vote.
  • The chairperson can speak in discussion without rising or leaving the chair, and, subject to rule or custom within the particular board (which should be uniformly followed regardless of how many members are present), he or she usually can make motions and usually votes on all questions.

Additional reading

For more on parliamentary procedure, see the following:

Go to the next article, “Church Insurance” or return to “15 Things Richard Hammar Wants Pastors to Know,” to choose an article of interest or that fits a particular need.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

15 Things Richard Hammar Wants Pastors to Know

Church Insurance

Determine if your church has the right insurance.

Richard R. Hammar, Attorney, CPA
Bio

There are few areas more important for a minister to master than those dealing with insurance coverages and exclusions. Consider the following.

What kinds of insurance should your church have?

Some insurance is essential, and should be obtained by every church. Other kinds of insurance coverage are desirable, meaning that they are not absolutely necessary but may be highly desirable depending upon a church’s circumstances. Most church leaders would consider property and liability insurance to be essential. Other forms of insurance should be regarded as essential depending on the circumstances. These include:

Property Insurance Coverage

Covers many major risks to church property, including fire, smoke, lightning, hurricane, and tornado.

Action points
  • Check to see if unique items such as stained glass windows, pipe organs, handbells, artwork, and sound equipment require special endorsements.
  • Obtain appraisals of unique items to be sure they are adequately insured.
  • Conduct periodic inventories of property to prove claims in the event of loss or destruction.
  • Check to see if coverage is limited to the market value of damaged or destroyed property. If so, consider obtaining replacement cost coverage.
  • Check on coverage for items of personal property owned by members or employees. Examples include expensive coats left in a coat room and an employee’s personal laptop computer.
  • Check to see if boilers require a special endorsement.
  • Check the exclusions under the policy. Some risks, such as earthquakes, mold, and sewer or drain backup, may be excluded and require special endorsements.
  • If your church is located in one of 22,000 communities that participate in the National Flood Insurance Program (NFIP), you can obtain flood insurance from insurers that participate in the NFIP. Coverage amounts are often inadequate.
  • Check to see if your policy contains a coinsurance clause. If so, you are required to insure your property for a specified percentage of its replacement value. If you don’t, you become a coinsurer, meaning that your policy will pay less than the stated limits in the event of a partial loss. These clauses make it essential for churches to have adequate coverage. This review should be done annually.

Liability Insurance Coverage

Covers many forms of personal injury and damage to the property of others. Common examples includes slips and falls, sexual misconduct (coverage may be limited to the church, and exclude the offender).

Action points
  • Check to see if sexual misconduct coverage is limited, and if higher amounts can be obtained by complying with specified procedures.
  • Check to see if liability insurance is provided on an “occurrence” or “claims made” basis.
  • Some policies provide minimal medical benefits to persons injured on church property. Additional coverage should be considered.

Church-owned Vehicles Insurance Coverage

Covers injuries and damages resulting from the use of church-owned vehicles.

Action point
  • Check to see if your property or general liability policy contains coverage for church-owned vehicles. If not, obtain a separate endorsement for this coverage.

Non-owned Vehicles Insurance Coverage

Covers injuries and damages caused by members who use their own vehicle while performing services for their church. The driver’s personal car insurance is also available, but if inadequate, the church will likely be sued. This coverage often must be obtained as a separate endorsement. Essential for churches that allow members or employees to drive personal vehicles on church business.

Action point
  • Check to see if non-owned vehicle coverage applies to rented vehicles.

Counseling Insurance Coverage

Covers injuries caused during counseling activities. Often must be obtained as a separate endorsement. Essential for churches that provide counseling services.

Action point
  • Check exclusions carefully. For example, some policies exclude sexual misconduct.

Employment Practices Insurance Coverage

Covers certain employment-related claims such as wrongful dismissal and some forms of discrimination. These are among the most common types of church litigation today. Many church leaders erroneously assume that their general liability policy covers these claims. In most cases it does not.

Action point
  • If your church has employees, you should consider this coverage. The more employees you have, the more essential this becomes.

For other important considerations, see “What You Need in an Employment Practices Liability Insurance Policy.”

Directors and Officers (D&O) Insurance Coverage

Covers several potential legal claims that can be brought against officers and directors directly. D&O policies also may cover claims not covered by general liability policies. While uncompensated directors of nonprofit organizations have “limited immunity” from personal liability under both state and federal law, this protection does not cover compensated directors and does not cover acts of “gross negligence.” Must be obtained as a separate endorsement or policy.

Action point
  • If your church lets children ride in fully-loaded 15-passenger vans, does not screen youth workers, or engages in other high-risk activities that may be deemed “grossly negligent,” then you need to purchase this coverage.

Theft Insurance Coverage

Covers embezzlement and other misappropriations of church funds and securities by employees and others having access to money or property. Often must be obtained as a separate endorsement. This form of insurance is also referred to as bonding.

Action point
  • Remember, the opportunity to steal, rather than a need for money, is often the primary reason for employee theft. Institute procedures to minimize unsupervised access to funds.

Foreign Travel Insurance Coverage

Provides medical benefits for injuries occurring during foreign travel. Costs of a medical evacuation may also be covered. Often must be obtained as a separate endorsement or policy.

Action points
  • Check to see if your general liability policy excludes any injuries or damages occurring outside of the US (most general liability polices do exclude such coverage).
  • Make sure your church is covered if it sends groups on mission trips to foreign countries.

Umbrella Insurance Coverage

Covers legal judgments in excess of the limits on other insurance policies.

Action point
  • Does your church have substantial assets to be protected, or inadequate liability insurance? If so, you need to purchase umbrella coverage to protect against catastrophic damages.

Workers’ Compensation Insurance Coverage

Workers’ compensation insurance provides benefits to employees who are injured or become ill in the course of (or because of) their employment. Many church leaders erroneously assume that churches are not covered by state workers’ compensation laws. In most cases, this assumption is incorrect and exposes a church to a substantial uninsured risk.

Action point
  • Check to see if churches are subject to workers’ compensation law in your state. If so, obtain insurance to cover potential claims.

What amounts of coverage should your church have?

Church leaders often ask, “How much insurance should we purchase?” Unfortunately, there is no simple answer to this question. Here are a few points that may help:
  • In general, the amount of coverage should be based on two primary considerations: (1) the nature and frequency of your activities, and (2) the net value of the church’s assets. To illustrate, if your church has a youth program that has frequent meetings involving several minors, or your church provides counseling, or hosts community activities, then your liability risks are increased and you should be looking for higher insurance limits. Further, as a general rule, liability insurance should have limits in excess of the net value of the church’s assets, so that the assets are protected in the event of litigation.
  • Annually review all church insurance coverages to be sure they are adequate.
  • Periodically obtain appraisals of church property (real property, personal property, and fixtures) to be sure that you have adequate coverage.
  • Be sure that your church is insured for an amount in excess of what is required by a coinsurance clause in your insurance policy. A coinsurance clause is often difficult to understand, but the idea is this: unless a church is insured for a specified amount (e.g., 80 percent of market value) then the church becomes a “coinsurer” in the event of a partial loss, and is responsible for paying part of that loss. This is done by a reduction in the amount that the insurer has to pay. The purpose of such clauses is to persuade property owners to insure their property for an amount equal to or approaching its market value. Over time, a church’s failure to increase the amount of its property insurance to reflect the current value of the church property will reduce the insured amount to less than the coinsurance amount, and this can result in an unpleasant and unbudgeted expense when the insurer only pays a portion of a substantial partial loss.

What are exclusions?

An exclusion is a loss that is not covered under an insurance policy. In some cases, excluded losses can be covered by a separate endorsement or “rider” by paying an additional premium. Church leaders should be familiar with exclusions under the church’s insurance policies, and obtain all desired endorsements.

For example, commercial general liability (CGL) insurance policies generally exclude intentional or criminal acts from coverage. Some policies specifically exclude coverage for sexual offenses. Insurers often assert such exclusions in cases of sexual molestation of minors by church employees and volunteers, since such acts are both intentional and criminal. But churches typically respond to such coverage denials by asserting that the exclusion does not apply since they were not guilty of intentional or criminal acts. Rather, they ordinarily are being sued on the basis of negligence. The courts have come to different conclusions in such disputes. This illustrates the importance of church leaders being familiar with the terms of their church’s CGL policy, and providing for sexual misconduct coverage as a separate policy or endorsement if necessary.

Most CGL policies exclude employment practices. As a result, churches that are sued for an employment-related claim may be denied coverage and the insurer will provide neither a legal defense nor indemnification. The most common employment-related claims involving churches include wrongful termination and various discrimination claims under state and federal law.

The duty to notify

Church insurance policies impose upon the church a duty to promptly notify the insurer of any potential claims when the injury or loss occurs, and not when a lawsuit is filed. This gives the insurance company sufficient time to investigate the incident and provide a defense. Notice is a condition of coverage and a church that fails to promptly notify its insurer of a potential claim may be denied coverage.

When faced with a “no coverage” letter due to failure to promptly notify, a church may argue that its delayed notification was not sufficiently long to violate the prompt notice requirement, or that its delay did not result in prejudice to the insurer. If it can be established that the insurer was not materially prejudiced by the insured’s delayed notice, the delay may not be fatal to the insurer’s obligations to defend and indemnify.

Additional reading

For deeper readings on church insurance and liability, see the following:

Go to the next article, “Child Abuse Reporting” or return to “15 Things Richard Hammar Wants Pastors to Know,” to choose an article of interest or that fits a particular need.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

15 Things Richard Hammar Wants Pastors to Know

Child Abuse Reporting

Learn what it means to be a mandatory reporter and state-by-state reporting requirements.

Richard R. Hammar, Attorney, CPA
Bio

Every state has a child abuse reporting law that requires persons designated as “mandatory reporters” to report known or reasonably suspected incidents of child abuse. It is imperative for ministers to be able to answer the following questions.

What is the definition of reportable “child abuse”?

All 50 states have enacted child abuse reporting statutes in an effort to protect abused children and prevent future abuse. Child abuse is defined by most statutes to include physical abuse, emotional abuse, neglect, and sexual molestation. A child ordinarily is defined as any person under the age of 18 years.

Some states specifically limit the definition of “child abuse” to abuse inflicted by a parent, caretaker, or custodian. Such a statute, if interpreted narrowly, might not require ministers and lay church workers who are mandatory reporters of child abuse under state law to report incidents of abuse inflicted by custodians, associate ministers, adolescents, or volunteer youth workers.

Am I a mandatory reporter of child abuse?

All 50 states enumerate categories of persons who are under a legal duty to report abuse to designated civil authorities. In most states, such “mandatory reporters” must report both actual and reasonably suspected cases of child abuse. Failure to do so is a crime (usually a misdemeanor).

Some states define mandatory reporters to include any person having a reasonable belief that child abuse has occurred. Obviously, ministers will be mandatory reporters under these statutes. The remaining states define mandatory reporters by referring to a list of occupations which generally includes physicians, dentists, hospital employees, nurses, coroners, school employees, nursery school workers, law enforcement officers, and licensed psychologists. Ministers are specifically identified as mandatory reporters under many of these statutes. But even if they are not, they may be mandatory reporters if they fall within a listed classification, such as school or child care workers, school administrators, or counselors. In summary, many ministers have a mandatory duty to report child abuse. Ministers should not assume that they have no duty to report.

Ministers who are not mandatory reporters under their state’s law generally are considered “permissive reporters,” meaning that they may report cases of abuse to the designated civil authorities but are not legally required to do so.

What if I learn of child abuse in the course of a conversation that is protected by the clergy-penitent privilege? Am I still required to report?

Ministers who are mandatory reporters of child abuse under state law are under a profound ethical dilemma when they receive information about child abuse in the course of a confidential counseling session that is subject to the clergy-penitent privilege. They have to choose between fulfilling their legal obligation to report or honoring their ecclesiastical duty to maintain the confidentiality of privileged communications.

A number of states have attempted to resolve this dilemma by specifically exempting ministers from the duty to report child abuse if the abuse is disclosed in the course of a communication protected by the clergy-penitent privilege. Other states, while not specifically excluding ministers from the duty to report, provide that information protected by the clergy-penitent privilege is not admissible in any legal proceeding regarding the alleged abuse. Some state child abuse reporting statutes do not list the clergy-penitent privilege among those privileges that are abolished in the context of child abuse proceedings. The intent of such statutes may be to excuse ministers from testifying in such cases regarding information they learned in the course of a privileged communication.

Even if the clergy-penitent privilege applies in the context of child abuse reporting, it is by no means clear that the privilege will be a defense to a failure to report, since (1) the information causing a minister to suspect that abuse has occurred may not have been privileged (that is, it was not obtained in confidence, or it was not obtained during spiritual counseling); and (2) a privilege ordinarily applies only to courtroom testimony or depositions, and not to a statutory requirement to report to a state agency.

Unfortunately, the failure by many states to recognize the clergy-penitent privilege in the context of child abuse reporting disregards the therapeutic purpose of the privilege. Many child abusers will be discouraged from seeking spiritual counsel if the privilege does not assure the confidentiality of their communications. This will only compound the problem. If, on the other hand, the privilege were preserved, many child abusers would seek out ministers for spiritual counseling, and the underlying causes of such behavior could be isolated and in some cases corrected.

Caution. Several states have enacted laws allowing child abuse victims to sue mandatory reporters who failed to report known or reasonably suspected incidents of abuse to the authorities. Such laws expose ministers and churches to potentially significant monetary damages. As a result, ministers should seek legal counsel before choosing not to report known or suspected incidents of abuse.

How do I report child abuse?

Persons who are legally required to report child abuse generally make their report by notifying a designated state agency by telephone and confirming the telephone call with a written report within a prescribed period of time. The reporter generally is required to (1) identify the child, the child’s parents or guardians, and the alleged abuser by name, and provide their addresses; (2) give the child’s age; and (3) describe the nature of the abuse. Most states have toll-free numbers that receive initial reports of child abuse.

Key point. Be aggressive in reporting child abuse. This means that consideration should be given to the following points (with input from legal counsel):

1. Resolve all doubts in favor of reporting.
2. Report even if you are a permissive rather than a mandatory reporter.
3. Report even if you are not certain the alleged abuse occurred (all that is required is reasonable cause).
4. Report even if information concerning abuse was obtained in a communication protected by the clergy-penitent privilege.
5. Report regardless of the status and reputation of the accused offender.

Such steps not only will protect ministers and churches from potentially substantial monetary damages in civil lawsuits, but more importantly, may reduce the risk of future incidents of abuse by placing the alleged offender in the criminal justice system thereby making it more likely that future searches of his background will reveal prior incidents of abuse.

What steps should clergy take after receiving an allegation of child abuse?

Clergy who learn of allegations of child abuse should consult with a local attorney and address the following questions:
  • Am I a mandatory or a permissive reporter under state law?
  • If the allegations are true, do they constitute child abuse as defined under state law? Remember, in some states the definition of child abuse is limited to abuse inflicted by a parent or person responsible for a child’s care.
  • Do I have reasonable cause to believe that abuse has occurred? Be sure to interpret this broadly. An alleged offender’s denial of any wrongdoing does not preclude reasonable cause. Remember, offenders typically deny any wrongdoing.
  • Did I receive the information in the course of spiritual counseling? If so, does the clergy-penitent privilege protect me from disclosing this information? In a few states, it does. But this is often a difficult legal issue that should not be made without legal counsel.
  • Do I (or my church) have any risk of civil liability under state law if I choose not to report the abuse? It is possible that abuse victims will be permitted to sue clergy who fail to report (even if they are not mandatory reporters) if their injuries are aggravated and perpetuated because of the failure to report.
  • Can child abuse be reported to law enforcement officials in my state? Some states permit this. If you are in such a state, and you have a law enforcement officer in your congregation, consider reporting to that person.

Additional reading

For deeper readings on child abuse reporting and prevention, see the following:

Go to the next article, “Incorporating a Church” or return to “15 Things Richard Hammar Wants Pastors to Know,” to choose an article of interest or that fits a particular need.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

15 Things Richard Hammar Wants Pastors to Know

Incorporation

Learn the fundamentals of incorporating a church and how it affects church governance.

Richard R. Hammar

What is incorporation?

Incorporation is a simple process by which an organization is recognized by the state as a legal entity.

Two forms of church corporations are in widespread use in the United States. By far, the more common form is the membership corporation, which is composed of and controlled by church members. Several states also recognize trustee corporations. The trustees of a trustee corporation constitute and control the corporation.

A few states also permit certain officers of hierarchical churches to form a corporation sole, which is a corporation consisting of a single individual.

Is your church incorporated? Many ministers don’t know. But there are several reasons why ministers should know whether or not their church is incorporated, including these four.

1. Members’ immunity from liability

The members of a corporation may be liable for their own acts and omissions, but they are not liable for the acts or omissions of other members or of the corporation itself. Many regard this as the most compelling advantage of the corporate form of organization. To illustrate, if a member molests a minor during a church activity, and the church is sued by the victim and is awarded an amount in excess of the church’s insurance coverage, the plaintiff cannot collect anything from other members who did not participate in or facilitate the injury.

The Model Nonprofit Corporation Act, which serves as the nonprofit corporation law for several states, specifies that “a member of a corporation is not, as such, personally liable for the acts, debts, liabilities, or obligations of the corporation.”

2. Annual reports

The Model Nonprofit Corporation Act requires that all nonprofit corporations file an annual report with the secretary of state’s office. A few states have amended this provision to require reports less frequently, such as once every two years.

The report is filed on a form provided by the secretary of state, and ordinarily sets forth the name of the corporation, the address of the corporation’s registered office in the state of incorporation, the name of the registered agent at such address, the names and addresses of the directors and officers, and a brief statement of the nature of the affairs the corporation is actually conducting. A nominal fee must accompany the report.

States that have adopted the Act differ with regard to the penalties imposed upon corporations that fail to file the annual report by the date prescribed. The Act itself imposes a nominal fine ($50) on corporations that fail to comply with the reporting requirement. Many states have followed this provision, but others call for the cancellation of a corporation’s certificate of incorporation. Cancellation of a certificate of incorporation has the effect of terminating the existence of a corporation. This is an extraordinary penalty, generally available only after the secretary of state’s office has sent the corporation a written notice of the impending cancellation.

If a corporation fails to respond to the written notice, the secretary of state issues a certificate of cancellation, which is the legal document terminating both the certificate of incorporation and the corporation’s legal existence. Many states permit reinstatement of terminated corporations. Reinstatement generally is available upon the filing of a formal application within a prescribed time. Because of the potentially adverse consequences resulting from a cancellation of a church’s corporate charter (including joint liability of members for the wrongful acts of other members) church leaders should periodically check with the office of their secretary of state to ensure that the church is a corporation in good standing. Many churches will find that they are not, either because they failed to file an annual return, or because their corporation was created for a specified period of time that has expired.

3. Duration

If your church is incorporated, what do your articles of incorporation say about the duration of the church’s corporate existence? Most pastors don’t know. But they should know because of the potentially adverse consequences (including joint liability of members for the wrongful acts of other members) resulting from an expiration of a church’s corporate charter. A church’s corporate charter should specify “perpetual” as its duration.

Key point. Be sure to check your church’s corporate duration (it’s specified in your articles of incorporation or charter) to confirm that it says “perpetual.”

4. Corporate governance

Incorporated churches are free to adopt bylaws addressing issues of internal administration, and a church’s bylaws generally take precedence over conflicting provisions in state nonprofit corporation law. In other words, state nonprofit corporation law may be viewed, in most cases, as a “gap filler”—filling gaps in a church’s bylaws. For example, if an incorporated church’s bylaws do not address how vacancies on the board are to be filled, or do not define a quorum, the nonprofit corporation law will “fill the gaps.” This feature can be helpful because it insures that issues of governance inadvertently omitted from a church’s bylaws will be, in most cases, addressed by the applicable nonprofit corporation law. In most cases, this is an effective defense against the chaos that otherwise can occur when a church’s governing documents provide no guidance. Here are a few issues that are addressed in nonprofit corporation laws in the event that a church’s governing documents are silent:

  • merger
  • consolidation
  • dissolution
  • quorum
  • meetings
  • limited liability
  • loans to officers
  • indemnification
  • inspection of records
  • fiduciary duties of board

How can you determine if your church is incorporated?

You can check to see if your church is incorporated through your secretary of state’s website. If you are informed that your church is incorporated, then you may wish to ask for a certificate of good standing (the name of this document varies somewhat from state to state) that confirms the corporate status of your church. You also should request a certified copy of your charter (articles of incorporation), to be sure that you have a copy of the document on file with the state.

Additional Reading

For deeper readings on church incorporation, see the following:

Go to the next article, “Clergy-Penitent Privilege,” or return to “15 Things Richard Hammar Wants Pastors to Know,” to choose an article of interest or that fits a particular need.
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