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Q&A: Can a Church Glorify God via the Property Tax Process? Absolutely.

What churches should know, especially when an unexpected property tax bill arrives.

The Editors

Churches meeting certain criteria are considered automatically exempt for federal tax purposes. That’s why many are caught off-guard when an unexpected bill arrives from the local assessor. Attorney Midgett Parker, a long-time senior editorial advisor for Church Law & Tax, explains what happens when property tax gets assessed, why it might happen, and how churches can work to avoid such problems by building good relationships and maintaining strong communications in the community.

Q: Churches meeting certain criteria are considered automatically tax-exempt for federal tax purposes. Does this mean any property they own is also automatically exempt from taxes?

No. Real property owned by a religious entity is not automatically tax-exempt. Churches that own property or rent their space are still paying property taxes until they apply for, and receive from the local jurisdiction, their tax exemption status for the real property.

In other words, churches must take steps to find out what the procedures are in their local jurisdiction to apply for the tax exemption status for the real property. In today’s world, it’s easy: just conduct an online search by typing in “real property tax exemption for churches in …” followed by the county and state name.

Did you know the practice of exempting religious organizations from property taxes is both ancient and widespread? From Joseph protecting priests’ lands from Pharoah to Constantine exempting churches from property taxes in the fourth century, the concept is not new to the United States. Pick up a copy of Richard R. Hammar’s 2023 Church & Clergy Tax Guide today to learn more.

Once you’ve found the address and phone number of the local tax assessment office, pick up the phone, ask for help applying for the exemption and perhaps even visit that office.

Build relationships. Look at it as a positive experience—an opportunity to spread the word that your church is in the community; that it has acquired a property or is leasing a property.

The next thing to do is talk to other church leaders. Ask them if their property is exempt and what processes they went through. Again, it’s about building relationships not just for advancement of the kingdom, but to obtain relief for your congregations whose tithes and offerings are supporting the church. It’s worth the time.

Q: What should a church be prepared to have ready when going through a tax exemption application at the local level?

The primary purpose behind the exemption is that the property is used exclusively for religious worship purposes (which is basically the standard across the United States). You want to present evidence (through written documentation and oral testimony) to show how the property is used EXCLUSIVELY for religious worship purposes.

If you’re not ready to build on a vacant property, obtain a permit for a tent, have a revival. Print out your program or have available a program showing the property is being used for religious worship purposes.

Sure, your church can have picnics, create exercise and meditation gardens, have and serve refreshments, but again, the primary use is religious worship.

Also, make sure you have a site plan that shows the actual property boundaries. You might even want to take a surveyor to the site and put stakes in the ground outlining the shape and size of the property.

Q: What about churches that lease space?

Storefront churches, and churches using similar spaces, are a growing trend because it’s easier to move into an existing building than build a new one from the ground up.

When renting space, the reality is that a portion of your rent is going to pay local real property taxes. And typically, in lease documents, they outline what the rent rate is and maybe mention your responsibility for your portion of the real property taxes. If the lease agreement includes such information, ask the assessor for any exemptions from real property taxes for your religious use on a portion of the real property in the lease.

Tip: Sometimes, a county government will offer an exemption from real property taxes for space used by a religious entity exclusively for religious worship purposes. Prince George County, Maryland, for example, offers an exemption that might make a good template to take to your local assessor or governing body to ask for a similar arrangement.

Q: Why is a church property tax exemption not permanent?

Because land uses change—and there are eyes watching you all the time. So be careful.

A church may sell its property and the government wants to receive its share of taxes, so it will add the property back to the tax rolls.

Learn how to evaluate your church’s property tax exemptions each year.

Or maybe a church owns the property and changes the use. For example, the church adds affordable housing or housing for the elderly, making it a residential use.

Another example: a church lost its exemption from real property tax when it decided to begin renting parking spaces in direct competition with the local metropolitan parking lot – typically near a mass transit rail line. As a result, it lost its property tax exemption for the portion of the property being used as a commercial parking lot.

Q: What if a church sells its property to another church?

Typically, the exemption will remain in place. But, again, relationships and communication are key. Talk to the assessor’s office, let them know what is going on, and remind them that the property will continue to be used exclusively for religious worship purposes.

Q: What types of situations might trigger a property tax assessment for a church, even if it has a valid exemption on record with its local assessor?

When activities cause others to question the activities on the property, it might bring a challenge.

Food banks are a good example, or perhaps a clothing thrift shop. An outsider might see such activity as a non-religious use without being aware the food bank or thrift shop is part of your mission. So, let the assessor know the missional aspect of the activity because, chances are, you will be challenged.

Q: What about building on vacant property or vacating an existing building to allow renovations or an addition? What should church leaders expect from the local taxing authority in these situations?

The period during construction for the church’s use may be targeted to be taxed because you’re not using the space exclusively for religious worship purposes. The key, though, is to continue worshiping there, even during construction.

Another key: building a morals and religious worship clause into all construction contracts spelling out that the property is God’s property and is to be treated as holy ground. Turn the project into a worship experience.

Dig Deeper: A New Jersey church was forced to pay taxes for a converted building. Click here to find out why.

Think creatively. Find a biblical basis—the nexus between what your activity is (construction) and the worshipful aspect of that activity. And be prepared to take your argument to the local tax assessor and your elected officials. They could change the local tax code to allow that a church in the midst of a construction project while continuing to hold religious worship services on the property does not violate the exclusive use requirement.

I’m an optimist about these things!

Q: If a church receives an unexpected property tax bill, what are the best steps that leaders can take to appeal it with the local assessor?

First, do not panic. Pray. Then, read the tax notice in detail, front-to-back, top to bottom. There ought to be in that tax bill a statement of how the recipient can appeal the assessment, along with an address and phone number. Be sure to call the number provided and ask about the appeal process.

Again, be communicative in a positive way. Typically, there is a very limited window of time to initiate an appeal of an adverse decision—often 30 days from the date of the letter. Missing the window means you’ll likely have to wait until the next year to appeal.

One of the best steps a church leader can take is to accept where you are now. If an appeal is possible, do it. If your church got taxed because its exemption lapsed for one reason or another, rededicate your use of the real property toward EXCLUSIVE religious worship purposes and then apply for the exemption. Then, renew the exemption every year going forward. Don’t look back. Look forward and continue to use the property EXCLUSIVELY for religious worship purposes.

Dig Deeper: 7 common tax-related reasons churches land in court.

(Editor’s Note: This interview was edited for length and clarity.)

Key Tax Dates April 2023

Filing returns, key quarterly deadlines, exemptions, and more.

Richard R. Hammar, Attorney, CPA
Bio

Monthly requirements

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

Monthly deposits are due by the 15th of the following month. Note, however, that if withheld taxes are less than $2,500 at the end of any calendar quarter (March 31, June 30, September 30, or December 31), the church need not deposit the taxes.

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

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

Semiweekly requirements

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

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

Note further that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day. The deposit days are based on the timing of the employer’s payroll. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes (7.65 percent of wages), and the employer’s share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

April 18, 2023: Tax returns, amended returns, extension, exemption from Social Security, and quarterly payment

Individual tax returns

Federal income tax and self-employment tax returns by individuals for calendar year 2022 are due by this date.

Extension for filing tax returns

Filing Form 4868 by this date gives taxpayers until October 15, 2023, to file their 2022 tax return but does not grant an extension of time to pay taxes due. Taxpayers should pay their federal income tax due by April 18, 2023, to avoid interest and penalties.

Exemption from Social Security coverage

April 18, 2023, is the last day to file an exemption from Social Security coverage (Form 4361) for most eligible clergy who began performing ministerial services in 2021 (deadline extended if applicant obtains an extension of time to file Form 1040). This is filed by individuals who are opposed on the basis of religious considerations to the acceptance of benefits under the Social Security program or another public insurance system.

For ministers who are eligible to opt-out of Social Security, CPA Elaine Sommerville recommends they should first answer these six questions.

Quarterly estimated tax payments for certain employees and churches

Ministers who have not elected voluntary withholding and self-employed workers must file their first quarterly estimated federal tax payment for 2023 by April 18, 2023 (a similar rule applies in many states to payments of estimated state taxes).

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

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

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

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

Stay on top of the latest developments and trends, interact with the experts, and learn something new.

The Editors

Last Reviewed: April 11, 2024

These church management conferences are training and education to help build effective church leadership skills.

The commitment to continually learn helps ensure pastors, staff members, board members, and volunteers stay current on key developments and trends—an even greater priority amid ever-deepening political divisions and the stresses and strains of adapting to a post-pandemic world.

But choose wisely. Not all conferences are created equal and many demand significant investments of both time and money.

WATCH Making Sense of Retirement Planning for Church Leaders, a free, Church Law & Tax webinar.

And not only that, unscrupulous individuals target churches by purporting to provide tax and law information that is either erroneous, inaccurate, or misleading.

Let us help take some of the guesswork out of it by recommending these conferences to round out your year, all involving individuals and organizations you can trust to provide accurate information and whose ministry-minded focus will serve you well.

JOIN Church Law & Tax today as an Advantage Member to begin receiving great discounts, exclusive content, and more.

The Church Network National Conference

The Church Network (TCN) hosts the longest-running national conference serving church business administrators. The 2024 event again will offer multiple days with general keynote speakers, a wide range of workshops, and an exhibit hall with vendors that serve the church market.

Dates: July 9-12, 2024

Location: Lexintgon, KY

Registration information is here.

Can’t make it? TCN also has more than 80 local chapters that meet monthly. These chapters offer guest speakers who cover various topics related to church administration.

BMWL National Nonprofit Conference

CPA firm Batts Morrison Wales & Lee covers recent developments and trends on tax, financial, and regulatory topics affecting nonprofit organizations and churches through an annual event. CPA Michael Batts, managing partner of the firm, is a senior editorial advisor for Church Law & Tax, and CPA Kaylyn Varnum, a partner at the firm, is an advisor-at-large for Church Law & Tax.

Date: August 27, 2024

Location: Virtual

Registration cost: TBD.

Request an invitation to the conference through the conference website.

Christian Legal Society National Conference

The Christian Legal Society (CLS) is the largest national organization serving attorneys and law students who are Christians. The CLS conference provides training and encouragement to legal professionals, including those who serve churches, ministries, and nonprofits. Matthew Branaugh, attorney and editor of Church Law & Tax, will present a workshop during the conference’s general counsel session. Continuing education credits are available to attorneys who attend.

Dates: Oct. 31-Nov. 3, 2024

Location: Washington, D.C.

Registration cost: TBD.
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Q&A: Can Pastors and Staff Deduct Expenses Incurred While Working from Home?

The Tax Cuts and Jobs Act of 2017 changed what’s allowed for tax purposes—but employer reimbursements of certain employee business expenses is still a tax-advantaged practice.

Michael E. Batts, CPA
Bio

Q: More churches have allowed pastors and employees to work from home one or more days a week. For income tax purposes, can those individuals deduct the business expenses they incur while working from home?

In general, employees can no longer deduct unreimbursed business expenses from their personal income tax returns for income tax purposes.

That’s because of provisions contained in the Tax Cuts and Jobs Act of 2017.

But that doesn’t mean churches can’t help pastors and staff with their home office expenses.

Two key points come to mind:

First, for ministers, remember that they are treated uniquely under the tax code. They have “dual tax status,” meaning they are treated as employees for income tax purposes, but they are treated as self-employed for purposes of Social Security and Medicare (the Self Employed Contributions Act, or SECA).

Because of this unique status, ministers still may be able to deduct their unreimbursed business expenses in arriving at their net income subject to self-employment tax. They should consult with qualified tax counsel to further explore this possibility.

And second, churches that allow, or perhaps even require, ministers and staff members to work from home in some capacity should recognize that the costs for equipment and supplies used by these individuals may constitute valid business expenses.

Expenses incurred by an employee for supplies and equipment used exclusively in connection with his or her employment are typically valid business expenses that can be reimbursed tax-free by the employer under an accountable reimbursement arrangement.

Advantages to reimbursements

There may be additional advantages to reimbursing some of these expenses. Requiring a certain type of computer or laptop may make sense for cybersecurity and productivity purposes.

Accountable reimbursement arrangements rank among the top 15 things that attorney and senior editor Richard Hammar wants pastors to know. For an in-depth look at these arrangements, including key points and illustrative examples, see Chapter 7 of Hammar’s annual Church & Clergy Tax Guide.

Covering all or part of the monthly internet service may make sense for ensuring minimum speeds required by the employer for video calls and other activities requiring large bandwidth.

Other costs that may qualify include office supplies, a printer, a scanner, and, depending on the circumstances, office furniture.

But two cautions should be noted:

Pastors and employees: Remember that if the employer pays or reimburses the cost for furniture or equipment, the employer owns the items purchased. So, individuals have a responsibility to steward these items well—and recognize that they will need to return them if their employment ends.

Churches: Remember that reimbursements have a budgetary impact. But also remember that reimbursing employees for costs they incur for required elements of their job is very helpful to them financially … and generally not taxable.

Michael (Mike) E. Batts is a CPA and the managing partner of Batts Morrison Wales & Lee, P.A., an accounting firm dedicated exclusively to serving nonprofit organizations across the United States.
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Keeping Your Church’s Deposits Safe in a Jittery Bank Environment

Silicon Valley Bank’s failure shows we never really know whether a bank is truly safe and sound.

Michael E. Batts, CPA
Bio

Editor’s Note: This article, which is provided for information only and is not an endorsement, has been edited and republished with permission from Batts Morrison Wales & Lee.

Many church and nonprofit leaders are wondering if their organizations’ bank deposits are safe in the current banking environment. And for good reason.

Join Church Law & Tax today as an Advantage Member and begin receiving unlimited access, product discounts, exclusive webinars and events, and much, much more!

Immediately before Silicon Valley Bank (SVB) was taken over by the FDIC on March 10, 2023, one major ratings agency had an “A” rating outstanding for the bank, and another had a “B” rating outstanding.

SVB’s failure was the second largest in US history, according to The Wall Street Journal, which offered a truly remarkable observation about it: “The bank was in sound financial condition on Wednesday, the regulator said. A day later, it was insolvent.”

When a bank with “A” and “B” ratings is considered by regulators to be sound one day, and taken over by the FDIC two days later, it’s only logical to wonder how any reasonable, prudent person can know whether any bank is in healthy financial condition.

For more help with managing liquidity and financial position, see chapter 6 of Church Finance, Second Edition, by Michael E. Batts

Fortunately for SVB’s depositors, federal banking officials have indicated that all SVB depositors will be made whole, even beyond the $250,000-per-depositor FDIC coverage cap because of SVB’s systemic importance.

But a logical corollary is that one cannot assume that the same will be true for the next bank that fails. Another bank, Signature Bank, also recently failed.

Assessing where your organization banks

Given the practical limitations on the ability to know whether any bank is truly safe and sound, what can–and should—church and nonprofit leaders do to ensure that their organizations’ bank cash deposits are safe?

Some people are suggesting that perhaps the only safe banks are the very largest banks in the country … those that many believe regulators deem are “too big to fail.” It is important to note that the assumption that regulators would make all depositors of a very large bank whole in any failure scenario is just that…an assumption. There is no federal guarantee of regular deposits in any bank beyond the FDIC’s $250,000 per depositor insurance coverage.

Additionally, If all depositors decided to bank only with the largest banks, smaller local and regional banks would be wiped out, and local banking relationships could be more difficult to maintain. And depending on the size of your organization’s deposit balances, it may not be practical to try to spread deposits among multiple banks keeping balances below the FDIC coverage cap of $250,000 per depositor.

So, let’s turn to the topic of making deposits in the banking system.

Clearly, there are ways to protect cash outside of the banking system in an investment portfolio, such as investing (with the help of a properly credentialed investment advisor) in short-term US Treasury securities or in appropriate investment funds that hold such securities. But what about cash that your organization simply wants to keep in the bank?

It is probably true that the larger the bank, the more likely it is that federal regulators would deem it too big to fail.

So, if your organization wants to bank with a big bank, that could be an appropriate strategy. Bankrate offers a list of the 15 largest banks in the US. It is interesting to note, however, that #14 on the list, First Republic Bank, recently had a severe challenge. Bankrate’s website includes an update on First Republic Bank dated March 17, 2023, which states:

It’s also important to note that First Republic recently faced turmoil that threatened its solvency following the collapse of Silicon Valley Bank and Signature Bank. However, 11 of the largest US banks came together to save the bank, depositing $30 billion into First Republic to keep it afloat.

Just know the fact that a bank is large–even very large–is not, in and of itself, assurance of the bank’s financial health.

A word of caution: Any organizations or persons considering any strategy to manage the risk of their bank deposits or other assets should perform their own due diligence before taking action.

Tapping into IntraFi

Is there a way to ensure that an organization’s bank cash deposits are safe, even with a local or regional bank?

Many such banks would answer that question with a resounding “Yes!,” and a number of them would point to their participation in programs offered by IntraFi Network, LLC (IntraFi). IntraFi’s website describes its two main programs, ICSand CDARS, as follows:

Using IntraFi Cash Service℠, or ICS, and CDARS you can access millions in FDIC insurance for cash deposits from IntraFi® network banks and enjoy the simplicity of banking with just one trusted, local institution. Conveniently and easily secure funds placed into demand deposit accounts, money market deposit accounts, or CDs.

Banks that participate in the IntraFi network allow customers to maintain a relationship with one bank and have FDIC insurance coverage for deposits well beyond the standard FDIC coverage cap of $250,000 per depositor per bank. The network allows for the larger deposits to be spread among multiple banks in the network in amounts below the $250,000 FDIC cap while maintaining one point of contact with one participating bank.

IntraFi offers programs for demand deposit (checking) accounts, money market accounts, and CDs. Participation in the IntraFi program with a participating bank can carry a cost or fee . The cost can apply as a reduction in the interest rate you earn on your deposit balances. For example, in another alert about earning interest on your organization’s excess checking account funds, I quoted Texas Security Bank president, Craig Scheef, who stated that his bank reduces the interest rate it pays on money market accounts (currently, approximately 4% annualized) by 0.15% for deposits that participate in the IntraFi program.

The IntraFi website, which says that thousands of financial institutions across the country participate in its programs, has a web page that allows you to find banks that participate in the program as well as an FAQ page. In the current environment, interest in the IntraFi program has increased significantly, according to Scheef.
Michael (Mike) E. Batts is a CPA and the managing partner of Batts Morrison Wales & Lee, P.A., an accounting firm dedicated exclusively to serving nonprofit organizations across the United States.
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Church-Run Schools Face Annual Deadline for Federal Form

Leaders should not overlook the Form 5578, an oft-forgotten IRS requirement.

Richard R. Hammar, Attorney, CPA
Bio

Churches and other religious organizations that operate, supervise, or control a private school must file a certificate of racial nondiscrimination (Form 5578) each year with the Internal Revenue Service (IRS).

The certificate is due by the 15th day of the fifth month following the end of the organization’s fiscal year. This is May 15 of the following year for organizations that operate on a calendar-year basis. For example, the Form 5578 for 2022 is due May 15, 2023.

Learn more about tax-related requirements like this one in Richard Hammar’s annual Church & Clergy Tax Guide.

What is a “private school?”

A private school is defined as an educational organization that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly conducted. The term includes primary, secondary, preparatory, or high schools, as well as colleges and universities, whether operated as a separate legal entity or an activity of a church.

Key point. The term school also includes preschools, and this is what makes the reporting requirement relevant for many churches. As many as 25 percent of all churches operate a preschool program.

Key point. Independent religious schools that are not affiliated with a church or denomination and that file Form 990 (see above) do not file Form 5578. Instead, they make their annual certification of racial nondiscrimination directly on Form 990 (Schedule E).

Filing the certificate of racial nondiscrimination is one of the most ignored federal reporting requirements.

Churches that operate a private school (including a preschool), as well as independent schools, may obtain Form 5578 through the IRS website.

Completing Form 5578 is easy

Form 5578 is not complicated. A church official simply identifies the church and the school and certifies that the school has “satisfied the applicable requirements of sections 4.01 through 4.05 of Revenue Procedure 75-50.”

Become a Church Law & Tax Advantage Member today and enjoy access to exclusive webinars and events, a copy of the annual Church & Clergy Tax Guide, and more.

The applicable requirements are:

(1) The school has a statement in its charter, bylaws, or other governing instrument, or in a resolution of its governing body, that it has a racially nondiscriminatory policy toward students.

(2) The school has a statement of its racially nondiscriminatory policy toward students in all its brochures and catalogs dealing with student admissions, programs, and scholarships.

(3) The school makes its racially nondiscriminatory policy known to all segments of the general community served by the school in one of the following ways:

• publishing a notice of its racially nondiscriminatory policy at least annually in a newspaper of general circulation,

• utilizing broadcast media, or

• displaying a notice of its racially nondiscriminatory policy on its primary, publicly accessible Internet homepage at all times during its taxable year (excluding temporary outages due to website maintenance or technical problems) in a manner reasonably expected to be noticed by visitors to the homepage. IRS Revenue Procedure 2019-22.

The IRS has clarified that “a publicly accessible homepage is one that does not require a visitor to input information, such as an email address or a username and password, to access the homepage.

Factors in determining whether a notice is reasonably expected to be noticed by visitors to the homepage include the size, color, and graphic treatment of the notice in relation to other parts of the homepage, whether the notice is unavoidable, whether other parts of the homepage distract attention from the notice, and whether the notice is visible without a visitor having to do anything other than simple scrolling on the homepage.

A link on the homepage to another page where the notice appears, or a notice that appears in a carousel or only by selecting a dropdown or by hover (mouseover) is not acceptable. If a school does not have its own website, but has webpages contained in a website, the school must display a notice of its racially nondiscriminatory policy on its primary landing page within the website.”

The IRS has drafted the following statement that satisfies the publicity requirement:

Notice Of Nondiscriminatory Policy As To Students

The (name) school admits students of any race, color, national and ethnic origin to all the rights, privileges, programs, and activities generally accorded or made available to students at the school. It does not discriminate on the basis of race, color, national and ethnic origin in administration of its educational policies, admissions policies, scholarship and loan programs, and athletic and other school-administered programs.

The publicity requirement is waived if one or more of the following exceptions apply:

• During the preceding three years, the enrollment consists of students at least 75 percent of whom are members of the sponsoring church or religious denomination, and the school publicizes its nondiscriminatory policy in religious periodicals distributed in the community.

• The school draws its students from local communities and follows a racially nondiscriminatory policy toward students and demonstrates that it follows a racially nondiscriminatory policy by showing that it currently enrolls students of racial minority groups in meaningful numbers.

(4) The school can demonstrate that all scholarships or other comparable benefits are offered on a racially nondiscriminatory basis.

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

Making Sense of Retirement for Church Leaders

Learn how to address the most common issues in retirement planning for pastors and church staff.

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Retirement compensation and benefits are frequently a concern of church leaders and pastors. It is common for churches to provide an option through denominational affiliations. While others may offer their own plan, they aren’t confident it is the best. Others offer nothing at all.

This webinar recording is presented by Matthew Branaugh, Church Law & Tax attorney and content editor, and attorney Danny Miller, covering retirement plan options, managing costs, and rules and regulations for pastors and church staff.
Panelists:

Danny Miller | Attorney

Matthew Branaugh | Attorney & Content Editor for Church Law And Tax
Reading & Resources: 

Download the resources and templates mentioned in this webinar below.
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Protecting Church Fleets from Catalytic Converter Theft

Thieves are looking to cash-in on catalytic converters and your church’s fleet could be at risk.

Richard R. Hammar, Attorney, CPA
Bio

A Texas man was found guilty of criminal mischief causing more than $2,500 in losses after using a reciprocating saw to cut the catalytic converter from a church bus.

The arresting officer said when someone called to complain of noise coming from the church parking lot in the middle of the night, he arrived to find a man sleeping in a black truck parked next to the church buses. A catalytic converter was found in the man’s toolbox.

Meanwhile, the church’s property manager testified that the church paid almost $3,000 to a repair shop for installation of a new catalytic converter on this bus.

Tip: Spend a little to save a lot—download Church Law & Tax’s downloadable resource, “Protecting Your Church from Crime & Violence,” to assess your church’s overall security and learn how to help prevent crime within your ministry.

Catalytic converters make easy targets

Catalytic converters are relatively easy to steal because they are accessible from the underside of a vehicle and can be sawed off with no specialized equipment in as little as 90 seconds.

And because they contain rhodium, platinum, and palladium, they’re valuable.

Platinum and palladium are both selling at about $1,000 per ounce as of February of 2023 while rhodium is fetching thousands of dollars per ounce.

Catalytic converters in a typical passenger vehicle may contain a total of about 2/10ths of an ounce of these three metals, while those in larger vehicles and trucks may contain up to one ounce.

Congress introduced the Preventing Auto Recycling Theft Act in early 2022 that would require the vehicle identification number (VIN) to be stamped on catalytic converters of new vehicles and would create a grant program for VIN stamping of existing vehicles.

In the meantime, take these steps to reduce the risk of catalytic converter theft at your church:
  • Check with your church insurance agent to determine if catalytic converter thefts represent a covered risk under your policy. Often, they do.
  • Keep church parking lots well-lit and install video cameras to monitor them.
  • Install vibration-sensitive alarm systems in all church vehicles.
  • Spray paint catalytic converters. Painted converters are much less desirable to thieves.
  • Etch the vehicle’s VIN on the converter.
  • Consider an all-electric fleet, as electric vehicles do not have catalytic converters.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Key Tax Dates March 2023

Monthly and semiweekly requirements for depositing payroll taxes.

Richard R. Hammar

Monthly Requirements

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

Monthly deposits are due by the 15th of the following month.

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

Semiweekly Requirements

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

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

Note further that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day. The deposit days are based on the timing of the employer’s payroll. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes (7.65 percent of wages), and the employer’s share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

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

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

Note: You must use electronic funds transfer to make all federal employment tax deposits. This is generally done using the Electronic Federal Tax Payment System, a free service provided by the U.S. Department of Treasury. If you don’t wish to use EFTPS, you can arrange for your tax professional, financial institution, or payroll service to make deposits on your behalf. Failure to make a timely deposit may subject you to a 10-percent penalty.
Image: Image: Getty Images/Infadel

The Employee Retention Credit: Helpful Benefit or Significant Risk?

A legitimate, COVID-era tax credit available to churches could offer huge cash benefits—but beware potential predators.

The Editors

Editor’s Note: On September 14, 2023, the Internal Revenue Service (IRS) announced it has immediately stopped processing new Employee Retention Credit (ERC) claims “amid [a] surge of questionable claims.”

Concerns raised by tax professionals, coupled with aggressive marketing to ineligible applicants, “highlights unacceptable risk to businesses and the tax system,” the agency said.

The IRS will continue processing previously filed claims and pay out claims it approves, it said, but processing times will take longer as the agency applies more scrutiny to address fraud concerns.

The IRS also said it is finalizing details to help entities victimized by “aggressive promoters” who have used repeated advertising and direct-contact methods to entice claim applications without carefully evaluating whether an entity truly qualifies for the credit.

Taxpayers who already have a claim submitted, but fear they were misled–including churches and small businesses–will be eligible for a special withdrawal option as well, the IRS said. It plans to announce details for the option soon.

The IRS said more than 600,000 claims remain unprocessed.

Church Law & Tax will continue to monitor developments.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, designed to stimulate the economy during the early days of the COVID-19 pandemic, contained a provision few initially noticed: the Employee Retention Credit (ERC).

The ERC provides employers, including tax-exempt entities like churches, funds in the form of financial credits for retaining employees during financial downturns or during times when pandemic-related mandates disrupted operations.

The credits are generous, and could prove quite large, depending on an employer’s size.

In 2021, Church Law & Tax published a comprehensive article by CPAs Kaylyn Varnum, Michele Wales, and Mike Batts. It further explains the credit, how it works, and how churches can determine their eligibility and potentially pursue it.

Because of the amount of money potentially available, interest in the ERC has exploded, much of it driven through massive advertising efforts by businesses seeking to assist employers.

Unfortunately, many of these third parties have provided incorrect—if not fraudulent—guidance while advising employers to seek the credit. Employers can face significant penalties if they claim a credit that is improper.

Last November, the Internal Revenue Service (IRS) issued a Tax Tip outlining these concerns. By some estimates, the potential fraud could prove sizable. The Treasury Inspector General for Tax Administration’s “Semiannual Report to Congress” last September noted a Utah case in which a man attempted to claim more than $11 million in ERC claims. An Accounting Today article contends fraudulent claims made using the ERC may already total $2 trillion, suggesting the ERC could be the largest tax-related scam in the country’s history.

On March 20, 2023 the IRS upped the ante and added the ERC to it’s annual dirty dozen list. “The aggressive marketing of these credits is deeply troubling and a major concern for the IRS,” said IRS Commissioner Danny Werfel. “Businesses need to think twice before filing a claim for these credits.”

However, efforts by these third parties have only intensified in the form of television, radio, and internet advertising and direct calls to employers. That’s likely only going to continue since employers can generally seek the credit through April 15, 2025.

Church Law & Tax asked Batts, one of its longtime senior editorial advisors, for help in understanding why churches should still explore their eligibility, but exercise caution as they do.

Q: You’ve advocated for the ERC, but your recent article for your firm describes “the biggest tax fraud scandal of all time is probably happening now.” What’s happening?

Hardly anyone knew the ERC existed 18 months ago, let alone understood the financial benefit available to them if they met the criteria. We spent a lot of time and energy trying to get employers to pay attention and pursue it.

What’s happening now is that we have a growing number of bad actors who are targeting employers, promising them the moon on a contingency-fee basis, then getting the employers to claim credits…some of which are improper. In many cases, the bad actors do not adequately consider the facts and the law to determine if the employers truly qualify.

We have clients, including churches, getting contacted all the time by these third parties.

Q: Just how large of a problem has it become?

The average ERC claim for one of our clients is worth about $500,000. Some are less. Some are in the millions. Many churches are rightfully eligible and would very much benefit from this.

Now think about claims being made erroneously or fraudulently. If one church that does qualify can validly claim several hundred thousand dollars or more, when you extrapolate the numbers on a nationwide basis, the overall amounts for this tax credit nationally are huge—unlike anything we’ve ever seen.

Q: How do things go wrong?

Multiple criteria must be met for an employer to qualify for the ERC for any particular calendar quarter during the relevant eligibility period (which is generally most of 2020 and the first three calendar quarters of 2021). Those criteria include either a decline in “gross receipts” (a technical term with great significance) or a partial suspension of operations due to specific government orders.
Learn more about determining eligibility for the ERC in this article.

Many of these third parties aren’t doing due diligence to determine whether the employer qualifies or whether the amounts claimed are accurate.

Here’s why the ERC is ripe for fraud: An employer claims the credit through an amended payroll tax return and doesn’t need to submit any documentation or explanation with it.

Q: How do these third parties convince churches to go along?

A provider will call and say the church just needs to answer a few preliminary questions. Do you have employees? Did you operate differently during COVID-19 restrictions? Most everyone, of course, says yes.

An unscrupulous provider may then ask for specific numbers of employees and comes up with a “calculation” of the total credit and says the church should make the claim—and it says it won’t receive its 10- to 12-percent contingency fee unless the church receives the credit funds from the IRS.

Some providers even say they’ll represent the church if the IRS later comes after them. So, a pastor or leader thinks, What have I got to lose?

Q: But does the church potentially have a lot to lose?

Yes. When the church files the amended payroll tax return and says it qualifies for the credit, it does so under penalty of perjury.

If the proper due diligence hasn’t been done in making the claim, that’s a problem. Potentially, a big problem.

When the IRS receives the amended return, it often processes and pays the claim because it’s a relief credit and there’s pressure on the IRS to get the funds out. The IRS is under no legal requirement to pre-audit or pre-verify credit claims, and the IRS isn’t currently adequately staffed to do so.

But by law, the IRS still has up to five years to audit a claim. News reports indicate the IRS has put analytics into place to start flagging suspicious claims. In some instances, some of these bad actors are getting caught, which can put their client lists into the hands of the IRS and can subject those clients to possible audits.

If a church makes a bad claim and the IRS later catches it, the best-case scenario is that the church pays back the credit, plus interest. A worse case is that it pays back the credit, plus interest, and penalties. And the worst case is that the penalties are severe, and if there’s evidence the church leader who signed off knew the claim was false, he or she could potentially face criminal charges.

Q: Given the credit is legitimate, and churches may need help determining eligibility, what guidance would you give them?

I suggest keeping the following tips in mind:
  • Unsolicited calls from unknown providers are a reason to use extra caution, as is a provider who agrees to be paid a percentage of the credit amount you claim or receive. In many cases, the percentage-based fees are several times what other tax professionals (like attorneys or CPAs) may charge to help your organization make a valid ERC claim.
  • Don’t work with a provider solely based on the fact the provider helped other organizations you know.
  • Independently research and compile information about the provider and its reputation, then weigh it carefully.
  • Ask the provider whether it will provide your church—for recordkeeping purposes—with full supporting documentation for the ERC it says you can claim. Similarly, if your church does regular audits with an independent CPA firm, ask whether the provider will provide full documentation to the CPA firm.
  • Evaluate trusted legal, accounting, and tax professionals your church already works with. One may be knowledgeable about the ERC and can help you both evaluate your church’s eligibility and any effort to pursue it.
  • If a provider states that it will represent you before the IRS in the event of an examination, or it will refund its fee for any portion of an ERC claim rejected by the IRS, evaluate the potential risk to your church if the provider does not follow through on such commitments.

(Editor’s Note: This interview was edited for length and clarity and includes excerpts providing further details from a piece recently written by Batts for his firm’s clients.)

Key Tax Dates February 2023

Among other important items, quarterly federal tax returns are due along with Affordable Care Act forms 1095-C and 1094-C for employers with 50 or more FTEs.

Richard R. Hammar, Attorney, CPA
Bio

Monthly requirements

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

The 2023 Church & Clergy Tax Guide is available—preorder your print copy today or download the .pdf version now.

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

Instead, it can pay the total withheld taxes directly to the IRS with its quarterly Form 941.

Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.

Semiweekly requirements

If your church or organization reported withheld taxes of more than $50,000 during the most recent lookback period (for 2023, the lookback period is July 1, 2021, through June 30, 2022), then the withheld payroll taxes are deposited semiweekly. This means that for paydays falling on Wednesday, Thursday, or Friday, the payroll taxes must be deposited on or by the following Wednesday.

For all other paydays, the payroll taxes must be deposited on the Friday following the payday. Note further that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day.

The deposit days are based on the timing of the employer’s payroll. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes (7.65 percent of wages), and the employer’s share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

February 10, 2023: Employer’s quarterly federal tax return due

Churches having nonminister employees (or one or more ministers who report their federal income taxes as employees and who have elected voluntary withholding) may file their employer’s quarterly federal tax return (Form 941) by this date instead of January 31 if all taxes for the fourth calendar quarter (of 2022) have been deposited in full and on time.

February 28, 2023: Filing 1095-C and 1094-C for applicable large employers and ACA compliance

Applicable large employers, generally employers with 50 or more full-time employees (including full-time equivalent employees) in the previous year, must file a Form 1095-C for each employee who was a full-time employee of the employer for any month of the previous calendar year by this date. Generally, the employer is required to furnish a copy of Form 1095-C (or a substitute form) to the employee.

The employer also files a Form 1094-C transmittal form with the IRS (including copies of each Form 1095-C). The purpose of this form is to ensure that applicable large employers are complying with the shared responsibility provisions of the ACA. Generally, you must file Forms 1094-C and 1095-C by February 28 if filing on paper (or March 31 if filing electronically) of the year following the calendar year to which the return relates. For calendar year 2022, Forms 1094-C and 1095-C are required to be filed by February 28, 2023, or March 31, 2023, if

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

10 Key Tax Developments for Pastors and Churches

The latest on church tax reporting, tax filing, housing allowances, Social Security exemptions, private letter rulings, and notable court cases.

The Editors

Several recent developments affect tax reporting and filings by ministers, church staff, and churches in the new year and beyond—and all are found in the 2023 Church & Clergy Tax Guide.

For Church Law & Tax’s Advantage Members, find a deeper overview of 10 key developments covered in the tax guide.

Among the highlights church leaders should note heading into 2023:

Status of the housing allowance
In March 2019, a federal appeals court rejected an atheist group’s challenge to the constitutionality of the ministers housing allowance. Gaylor v. Mnuchin, 919 F.3d 420 (7th Cir. 2019). The atheist group did not appeal this ruling, and there have been no further legal challenges.
Tip: Be sure and check out Church Law & Tax’s update on Designating a House Allowance for 2023 to include recommendations for a variety of situations.

Tax Court cases

Why several cases decided by the Tax Court and federal courts offer cautions for church leaders regarding frivolous tax arguments, embezzlement, and more.

Why a Florida court case underscores the Internal Revenue Service’s (IRS) power to impose tax liens on ministries.

Declining audit rates

What the US Government Accountability Office reports about audit rates for taxpayers.

Private letter rulings

Which “private letter rulings” involving churches, clergy, and charities will no longer be issued by the IRS.

Social Security exemptions

Whether ministers who previously sought exemption from Social Security can now seek to revoke the exemption—and how.

Act Now: Order the 2023 Church & Clergy Tax Guide today or become an Advantage Member to read about the remaining key developments and get a copy of the tax guide included with your membership.

Key Tax Dates January 2023

Noting the key tax forms due this month, along with other recurring deadlines.

Richard R. Hammar, Attorney, CPA
Bio

Monthly requirements

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

Tip: The 2023 Church & Clergy Tax Guide is out—preorder your copy today (it will ship in January).

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


Instead, it can pay the total withheld taxes directly to the IRS with its quarterly Form 941. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.
Non-compliance with IRS tax guidelines can be painful. And as this Florida minister learned, the IRS can–and will—attach a lien on church property in pursuit of an unpaid tax bill.

Semiweekly requirements

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

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

Note further that large employers having withheld taxes of $100,000 or more at the end of any day must deposit the taxes by the next banking day. The deposit days are based on the timing of the employer’s payroll. Withheld taxes include federal income taxes withheld from employee wages, the employee’s share of Social Security and Medicare taxes (7.65 percent of wages), and the employer’s share of Social Security and Medicare taxes (an additional 7.65 percent of employee wages).

January 1, 2023: Payroll taxes

Social Security and Medicare taxes

Employees and employers each pay Social Security and Medicare taxes equal to 7.65 percent of an employee’s wages. The tax rate does not change in 2023.

While federal law exempts ministers from mandatory federal income tax withholding, many states may not have the same exemption available for ministerial employees. Check your specific state for details. Meanwhile, for a more comprehensive guide to church compensation and taxation, check out CPA Elaine Sommerville’s Church Compensation, Second Edition.

The 7.65 percent tax rate is comprised of two components: 1) a Medicare hospital insurance tax of 1.45 percent, and 2) an “old age, survivor and disability” (Social Security) tax of 6.2 percent. There is no maximum amount of wages subject to the Medicare tax. The tax is imposed on all wages regardless of amount.

For 2023, the maximum wages subject to Social Security taxes (the 6.2 percent amount) is $160,200. Stated differently, employees who receive wages in excess of $160,200 in 2023 pay the full 7.65 percent tax rate for wages up to $160,200, and the Medicare tax rate of 1.45 percent on all earnings above $160,200. Employers pay an identical amount. The Medicare tax rate for certain high-income taxpayers increases by an additional 0.9 percent.

Self-employment taxes

The self-employment tax rate (15.3 percent) does not change in 2023. The 15.3 percent tax rate consists of two components: (1) a Medicare hospital insurance tax of 2.9 percent, and (2) an “old age, survivor and disability” (Social Security) tax of 12.4 percent. There is no maximum amount of self-employment earnings subject to the Medicare tax. The tax is imposed on all net earnings regardless of the amount.

For 2023, the maximum earnings subject to the Social Security portion of self-employment taxes (the 12.4 percent amount) is $160,200. Stated differently, persons who receive compensation in excess of $160,200 in 2023 pay the combined 15.3 percent tax rate for net self-employment earnings up to $160,200, and only the Medicare tax rate of 2.9 percent on earnings above $160,200. The Medicare tax rate for certain high-income taxpayers increases by an additional 0.9 percent.

These rules directly impact ministers, who are considered self-employed for Social Security with respect to their ministerial services. Ministers should take these rules into account in computing their quarterly estimated tax payments.

Federal income taxes

Beginning on this date, churches having non-minister employees (or a minister who has elected voluntary withholding) should begin withholding federal income taxes from employee wages. To know how much federal income tax to withhold from employees’ wages, employers should have a Form W-4 on file for each employee. Employees should file an updated Form W-4 for 2023, especially if they owed taxes or received a large refund when filing their previous tax return. Employees should use the IRS Tax Withholding Estimator to determine accurate withholding.

January 17, 2023: Fourth quarter estimated taxes due

Ministers (who have not elected voluntary withholding) and self-employed workers must file their fourth quarterly estimated federal tax payment for 2022 by this date (a similar rule applies in many states to payments of estimated state taxes).

Employees of churches that filed a timely Form 8274 (waiving the church’s obligation to withhold and pay FICA taxes) are treated as self-employed for Social Security purposes, and accordingly are subject to the estimated tax deadlines with respect to their self-employment (Social Security) taxes unless they have entered into a voluntary withholding arrangement with their employing church or organization.

January 31, 2023: Tax forms due

Churches must furnish Copies B, C, and 2 of Form W-2 (“wage and tax statement”) by this date to each person who was an employee during 2022. This requirement applies to clergy who report their federal income taxes as employees rather than as self-employed, even though they are not subject to mandatory income tax (or FICA) withholding. Non-minister church employees must also receive a W-2.

Churches must send Copy A of Forms W-2, along with Form W-3, by this date to the Social Security Administration. If you file electronically, the due date is also January 31, 2023.

Churches must issue Copy B of Form 1099-NEC (“nonemployee compensation”) by this date to any self-employed person to whom the church paid nonemployee compensation of $600 or more in 2022. This form (rather than a W-2) should be provided to clergy who report their federal income taxes as self-employed, since the Tax Court and the IRS have both ruled that a worker who receives a W-2 rather than a 1099-NEC is presumed to be an employee rather than self-employed. Other persons to whom churches may be required to issue a Form 1099-NEC include evangelists, guest speakers, contractors, and part-time custodians.

Churches must send Copy A of Forms 1099-NEC, along with Form 1096, to the IRS by this date.

Churches must distribute a 2022 1099-INT form to any person paid $600 or more in interest during 2022 by this date (a $10 rule applies in some cases).

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
Image: Getty Images/zimmytws

Why the Respect for Marriage Act Preserves Religious Liberty

I’m among four scholars who submitted an analysis to US Senators arguing that the Respect

Thomas Berg, Law Professor
Bio

I’m among four scholars who submitted an analysis to US Senators arguing that the Respect for Marriage Act (RMA) addressed religious liberty concerns for organizations that hold traditional views of marriage—and indeed offers potentially valuable protections for the future.

Let me summarize why.
The US Supreme Court’s 2015 decision in Obergefell v. Hodges already requires states to recognize same-sex marriages. But the Act is an insurance policy against the Court overturning Obergefell. It requires anyone acting “under color of state law” to recognize a marriage “valid in the state where [it] was entered.”
Though legal scholars have much to say about how—and whether—the RMA addresses important religious liberty concerns, Church Law & Tax’s Richard R. Hammar says the law will have little immediate effect on churches.

This does not make private organizations that support only man-woman marriage liable for who they employ or the services they provide. The Supreme Court has repeatedly held that private organizations do not act “under color of state law” even when they’re heavily state-regulated and receive all their income from state funds.

The Court will not overrule those decisions.

Moreover, the Act explicitly protects both churches and religious nonprofits from having to provides services, facilities, or goods “for the solemnization or celebration of a marriage.”

Critics of the RMA still warn that the Act could serve as a bootstrap to justify separate restrictions on conservative religious organizations. By analogy, they reference the Supreme Court’s 1983 decision in Bob Jones University, which allowed the IRS to strip tax exemptions from racially discriminatory private schools—including religious schools—on the basis of a “firm and unyielding” national policy, shown in numerous statutes, against racial discrimination.

But the Act addresses that concern. First, Section 7(a) of the RMA says the Act does not “deny or alter” any tax exemption, funding, license, accreditation, or other “benefit, status, or right of an otherwise eligible entity or person” (including, plainly, a religious organization). Because the Act does not even “alter” such rights (beyond just not “deny[ing]” them), it’s fair to infer that it can’t even be cited as one ground among many for such a step.

Moreover, Section 2(2) states that “[d]iverse beliefs about the role of gender in marriage” (including, plainly, the belief in man-woman marriage) “are held by reasonable and sincere people based on decent and honorable philosophical premises” and “are due proper respect.” This statement distinguishes traditional-marriage beliefs from those opposing interracial marriage, which receive no such affirmation (even as the statute protects interracial marriages). The finding counters the analogy to the Bob Jones University case and racism. It can—and will—be cited as a statement of “national policy” to respect, rather than penalize, organizations adhering to man-woman marriage.

Religious liberty bills that protect conservatives alone have failed in our closely divided times. Although the RMA doesn’t solve all of the religious liberty problems intersecting with gay and lesbian rights, it solves the problems it raises and offers a hopeful, if limited, model for future bipartisan efforts.
Thomas Berg is the James L. Oberstar Professor of Law and Public Policy at the University of St. Thomas School of Law in Minnesota. He teaches and writes on religious liberty, constitutional law, and intellectual property, and supervises students in the school’s religious liberty appellate clinic, which files briefs in cases before the US Supreme Court and appellate courts. Berg is also co-author of a leading casebook, Religion and the Constitution.
Image: Getty Images/ajijchan

6 Church Management Conferences You Don’t Want to Miss in 2023

Stay on top of the latest developments and trends, interact with the experts, and learn something new.

The Editors

Education and training are essential for effective church leadership.

Education and training are essential for effective church leadership. The commitment to continually learn helps ensure pastors, staff members, board members, and volunteers stay current on key developments and trends—an even greater priority amid ever-deepening political divisions and the stresses and strains of adapting to a post-pandemic world.

But choose wisely. Not all conferences are created equal and many demand significant investments of both time and money. And not only that, unscrupulous individuals target churches by purporting to provide tax and law information that is either erroneous, inaccurate, or misleading.

Let us help take some of the guesswork out of it by recommending these six conferences (organized in chronological order), all involving individuals and organizations you can trust to provide accurate information and whose ministry-minded focus will serve you well.


CapinCrouse 2023 National Nonprofit Virtual Seminar

CapinCrouse, the well-known nonprofit CPA firm, will again host its virtual event for nonprofit leaders. The program will include sessions specific to churches. Ted Batson, an advisor-at-large for Church Law & Tax, is a CPA and tax attorney who serves as a partner and Professional Practice Leader-Tax for CapinCrouse.

Date: February 8, 2023

Location: Virtual

Registration: $40

2023 XP-Seminar

This two-day conference, founded 19 years ago by XPastor.org founder David Fletcher, will educate and encourage about 200 select executive pastors, senior pastors, and other church leaders. The workshops and general sessions will cover key leadership and management issues facing medium, large, and multisite churches.

Keynote speakers include Pastor Todd Wagner, Dr. David Anderson, and Dr. Nathan Baxter. Attorney Matthew Branaugh from Church Law & Tax will host roundtable discussions with select executive pastors.

Dates: February 21-23, 2023

Location: Dallas, Texas

Registration cost: $699 (in-person)

The Church Network National Conference

The Church Network (TCN) hosts the longest-running national conference serving church business administrators. The 2023 event again will offer multiple days with general keynote speakers, a wide range of workshops, and an exhibit hall with vendors that serve the church market.

Dates: July 18-21, 2023

Location: Irving, Texas

Registration: Early registration for TCN members is $789 if registered before May 7, 2023. Registration for nonmembers $1,066 if registered before May 7, 2023. Registration costs then gradually increase for members and nonmembers leading up to the event.

Can’t make it? TCN also has more than 80 local chapters that meet monthly. These chapters offer guest speakers who cover various topics related to church administration.

BMWL National Nonprofit Conference

CPA firm Batts Morrison Wales & Lee covers recent developments and trends on tax, financial, and regulatory topics affecting nonprofit organizations and churches through an annual event. CPA Michael Batts, managing partner of the firm, is a senior editorial advisor for Church Law & Tax, and CPA Kaylyn Varnum, a partner at the firm, is an advisor-at-large for Church Law & Tax.

Date: August 29, 2023

Location: Virtual

Registration cost: $595 (early-bird pricing ends August 2, 2023)

Request an invitation to the conference through the conference website.

Church Compliance Conference

Attorney Erika Cole, a senior editorial advisor for Church Law & Tax, and her firm, Whiteford, Taylor & Preston, will host this one-day conference for pastors and church leaders, including executive pastors, trustees, church administrators, and finance officers. The event includes a special in-person session in Baltimore, followed by presentations available in person and virtually. Attorney and CPA Richard Hammar, senior editor of Church Law & Tax, will present a live video keynote address on key recent U.S. Supreme Court decisions. Matthew Branaugh, attorney and editor of Church Law & Tax, will join Cole for audience Q&A. Rev. Dr. Nicole Martin, chief impact officer for Christianity Today, also will attend.

Date: September 21, 2023

Location: In person and virtual

Registration cost: In-person: $995 (early-bird price). Virtual: free

Christian Legal Society National Conference

The Christian Legal Society (CLS) is the largest national organization serving attorneys and law students who are Christians. The CLS conference provides training and encouragement to legal professionals, including those who serve churches, ministries, and nonprofits. Matthew Branaugh, attorney and editor of Church Law & Tax, will present a workshop during the conference’s general counsel session. Continuing education credits are available to attorneys who attend.

Dates: October 5-8, 2023

Location: Boston Park Plaza, Boston, Massachusetts

Registration cost: Varies based on the individual’s membership status with the organization.
Related Topics: Posted:

2023 Church & Clergy Tax Guide for Advantage Members

Download your PDF of the guide as part of your Advantage Membership


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

As part of your Advantage Membership, you get a PDF version of Richard Hammar‘s 2023 Church & Clergy Tax Guide.

This guide helps pastors and churches to:
  • Prepare 2022 tax returns
  • Understand tax laws
  • Correctly report federal income taxes and social security taxes
  • Distinguish relevant exemptions
  • Reduce tax liability

This guide also helps church treasurers, board members, bookkeepers, attorneys, CPAs, and tax practitioners to:

  • Define “income” for the church
  • Handle and report employee business expenses
  • Understand the substantiation rules that apply to charitable contributions and designated contributions
  • Grasp federal tax reporting requirements that apply to churches and church employees

This guide is indispensable throughout the year with in-depth coverage on:

  • Charitable contributions
  • Clergy retirement plans
  • Social Security taxes
  • Church reporting requirements
  • Housing allowance
  • Business-expense reimbursements

Download your 2023 Church & Clergy Tax Guide PDF today.

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Advantage Members

10 Key Tax Developments Affecting Churches and Pastors in 2023

What you need to understand for 2022 filing and 2023 compliance.

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

Several recent developments affect tax reporting by ministers, church staff, and churches in 2022 and beyond. Ten of them are addressed here and are also found in the 2023 Church & Clergy Tax Guide (order yours today – it will ship in January) which covers other key developments.

1. Status of the housing allowance
In March 2019, a federal appeals court rejected an atheist group’s challenge to the constitutionality of the ministers housing allowance. Gaylor v. Mnuchin, 919 F.3d 420 (7th Cir. 2019). The atheist group did not appeal this ruling, and there have been no further legal challenges.

Tip: Be sure and check out Church Law & Tax’s update on Designating a House Allowance for 2023 to include recommendations for a variety of situations.

2. Revoking an exemption from Social Security

Once a minister seeks and receives an exemption from Social Security, it is generally irrevocable. Will Congress give ministers another opportunity to revoke an exemption from Social Security? It does not seem likely, at least for now. No bills were introduced in Congress in 2022 that would have authorized ministers to revoke an exemption from Social Security.

However, in 2020 the Internal Revenue Service (IRS) amended its Internal Revenue Manual (the “Manual”) by adding a section addressing the revocation of an exemption from self-employment taxes that was obtained for economic rather than religious reasons. The section notes that applications “made solely for economic considerations rather than religious opposition” mean the “taxpayer wasn’t qualified for the exemption from self-employment tax … effectively allow[ing] for revocation.”

The Manual then says a minister who notifies the agency about his or her wish to revoke a previously granted exemption because the application was solely based upon economic considerations will be advised the exemption has been revoked. The agency then will notify the Social Security Administration and it will note the change in the minister’s permanent file, along with including copies of all relevant material related to the change.

The section also notes that a minister who sought and received an exemption based on more than economic considerations will not be able to receive a revocation.

3. Charitable contribution deduction for non-itemizers

The CARES Act (2020) encouraged Americans to contribute to churches and charitable organizations by permitting them to deduct up to $300 of cash contributions, whether they itemize their deductions or not. Congress extended this deduction through 2021 and increased it to $600 for married couples filing a joint return. However, the deduction expired at the end of 2021 and Congress has not extended it, meaning it is unavailable for 2022 federal income tax returns.

4. No further private letter rulings on certain matters

According to the IRS, a “private letter ruling (“PLR”) is a written statement issued by the IRS to a taxpayer that interprets and applies tax laws to the taxpayer’s specific set of facts.” The IRS will issue a PLR “to establish with certainty the federal tax consequences of a particular transaction before the transaction is consummated or before the taxpayer’s return is filed.” The taxpayer must request a PLR in writing, and if the IRS responds with a PLR, it is binding on the agency—assuming the taxpayer does not deviate from the facts and circumstances described about the transaction in the request.

A PLR may not be relied on as precedent by other taxpayers or IRS personnel. However, the information can be helpful for understanding how the IRS views different issues, especially when taxpayers may face situations with similar facts and circumstances.

In 2022, the IRS announced that it will no longer issue PLRs under any of the following circumstances involving churches, clergy, and charities:
  • “Whether an individual is a minister of the gospel for federal tax purposes.” This means taxpayers will not be able to obtain clarification from the IRS in a letter ruling on their status as a minister for any one or more of the following matters: (1) eligibility for a parsonage exclusion or housing allowance, (2) eligibility for exemption from self-employment taxes, (3) self-employed status for Social Security, or (4) exemption of wages from income tax withholding. Revenue Procedure 2022-3.
  • “Whether amounts distributed to a retired minister from a pension or annuity plan should be excludible from the minister’s gross income as a parsonage allowance.” Revenue Procedure 2022-3.
  • “Whether a taxpayer who advances funds to a charitable organization and receives therefore a promissory note may deduct as contributions, in one taxable year or in each of several years, amounts forgiven by the taxpayer in each of several years by endorsement on the note.” To illustrate, a church member transfers $5,000 to her church and in return receives a promissory note from the church promising to pay back the note in annual installments over the next five years. Each year, on the due date of the annual installment, the note holder “forgives” the payment. Can the note holder treat the forgiven installment as a charitable contribution deduction? The IRS will no longer address such a question in a PLR. Revenue Procedure 2022-3.
  • “Whether a transfer is a gift within the meaning of section 102” of the tax code. To illustrate, a pastor retires after many years of service to the same church. The church presents him with a check in the amount of $10,000. Is this check taxable compensation or a tax-free gift? This is a question the IRS will no longer address in PLRs. Revenue Procedure 2022-3.
  • “Whether a compensation of property transaction satisfied the rebuttable presumption that the transaction is not an excess benefit transaction as described in § 53.4958-6 of the Excess Benefit Transactions Excise Tax Regulations.” Revenue Procedure 2022-3.
  • Whether material changes will affect an organization’s tax-exempt status. Generally, tax-exempt organizations are required by the tax code to inform the IRS of “material changes” in their activities or operations. The IRS will no longer send PLRs to exempt organizations to address whether changes in activities or operations will jeopardize their exempt statuses. Revenue Procedure 2022-3. Whether a compensation or property transaction satisfies the rebuttable presumption that the transaction is not an excess benefit transaction as described in section 4958 of the tax code. Revenue Procedure 2022-3.

5. Simplified definition of a “highly compensated employee”

A number of tax-favored provisions in the tax code do not apply to “highly compensated employees” if they are treated more favorably than other employees. These include:
  • simplified employee pensions (SEPs),
  • 403(b) tax-sheltered annuities (churches and qualified church-controlled organizations are exempt from this nondiscrimination rule),
  • qualified employee discounts,
  • cafeteria plans,
  • flexible spending arrangements,
  • qualified tuition reductions,
  • employer-provided educational assistance, and
  • dependent-care assistance.
A highly compensated employee in 2022 was one who (1) was a 5 percent owner of the employer at any time during the current or prior year (this definition will not apply to churches) or (2) had compensation for the previous year (2021) in excess of $135,000 and, if an employer elects, was in the top 20 percent of employees by compensation.

6. Large drop in audit rates

On May 17, 2022, the U.S. Government Accountability Office (GAO) reported that the audit rate declined 44 percent between fiscal years 2015 and 2019, including a drop in the audit rate of 75 percent for individuals with incomes of $1 million or more, raising concerns about the potential for a decline in taxpayers accurately reporting their tax liability. (GAO-22-104960.)

The GAO Report found that, from tax years 2010 to 2019, audit rates of individual income tax returns decreased for all income levels. On average, the audit rate for these returns decreased from 0.9 percent to 0.25 percent. IRS officials attributed this trend primarily to reduced staffing caused by decreased funding.

Audit rates decreased the most for taxpayers with incomes of $200,000 and above. According to IRS officials, these audits are generally more complex and require a staff’s review. Lower-income audits are generally more automated, allowing the IRS to continue these audits even with fewer staff.

The report noted that, although there was a sharper decrease in audit rates for higher-income taxpayers, the IRS generally audited such taxpayers at higher rates compared to lower-income taxpayers. However, the audit rate for lower-income taxpayers claiming the earned income tax credit (EITC) was higher than average.

According to IRS officials, EITC audits require relatively few resources and prevent ineligible taxpayers from receiving the EITC.

With the passage of the Inflation Reduction Act (IRA) in August of 2022, the IRS and related agencies will receive nearly $80 billion through 2031 for tax enforcement activities, such as hiring more enforcement agents, providing legal support, and investing in “investigative technology.”

7. A trio of noteworthy court cases involving tax fraud, tax liens, and tax bills
  1. The Tax Court rejected a minister’s tax arguments, subjecting him to back taxes, interest, and a penalty for filing a frivolous return.
  2. A Florida case underscored the power of the IRS to impose tax liens on ministries.
  3. The Virginia Supreme Court sided with a church in a local tax delinquency case.

8. Inflation adjustments relevant for 2022 tax-filing season

Some tax benefits were adjusted for inflation for 2022. Key changes affecting 2022 returns include the following:
    • The mileage rate for miles driven for business increased to 65.5 cents per mile on January 1, 2023.
    • The mileage rate for miles driven for medical purposes, and for moving, remained 22 cents per mile on January 1, 2023.
    • The charitable mileage rate remains at 14 cents for all of 2023.
    • The Alternative Minimum Tax exemption amount for tax year 2022 increases to $75,900 for single taxpayers and $118,100 for married persons filing jointly. The exemption amount for single persons (and heads of household and married persons filing separately) begins to phase out at $539,900 and the exemption amount for married couples filing jointly begins to phase out at $1,079,800.
    • For estates of any decedent passing away in calendar year 2022, the basic exclusion amount is $12,06,000.
    • For 2022, the foreign earned income exclusion will be $112,000.
    • The maximum earned income credit amount will be $6,935 for taxpayers with three or more qualifying children for 2022.

9. Working after retirement

Many churches employ retired persons who are receiving Social Security benefits. Persons younger than full retirement age may have their Social Security retirement benefits cut if they earn more than a specified amount.

Full retirement age (the age at which you are entitled to full retirement benefits) for persons born in 1943 to 1954 is 66 years. If you are under full retirement age for the entire year, $1 is deducted from your benefit payments for every $2 you earn above the annual limit. For 2023, that limit is $19,560.

In the year you reach full retirement age, your monthly benefit payments are reduced by $1 for every $3 you earn above a different limit. For 2023, that limit is $51,960, but only earnings before the month you reach full retirement age are counted.

10. New per diem rates for substantiating the amount of travel expenses

The IRS allows taxpayers to substantiate the amount of their business expenses by using per diem (daily) rates. Taxpayers still must have records substantiating the date, place, and business purpose of each expense. Separate rates are set for meals and lodging, with separate rates for high-cost localities and all other communities. See the IRS website for applicable rates.

In some cases, using the per diem rates will simplify the substantiation of meals and lodging expenses incurred while engaged in business travel. However, a number of restrictions apply, and these are explained further in the latest Church & Clergy Tax Guide.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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Video

Finishing 2022 Well

Getting year-end tasks right–and setting up 2023 for success.

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The end of the year always brings a flurry of activities to church offices–between year-end giving, holiday bonuses, and 2023 budget plans, leaders can often feel overwhelmed. This free webinar, featuring attorney, CPA, and senior editor Richard R. Hammar from Church Law & Tax, is designed to reduce the stress and give leaders confidence heading into the new year.

Hammar provides key updates and reminders on a variety of fronts, including:

✔ How to correctly handle business expenses for pastors and staff;

✔ How to properly set minister housing allowances;

✔ How to document and process charitable contributions; and,

✔ How to identify and prepare the records and paperwork that ministers, staff members, and the church will need for the upcoming tax-filing season.

Watch now and learn how to finish the 2022 year-end well.

Speaker:

Richard R. Hammar | CPA & Attorney

Reading & Resources: 

Download the resources and templates mentioned in this webinar below. Or read one of the articles for more information that will help you finish the 2022 year-end well.

2023 Webinar Schedule

FREE WEBINAR | Making Sense of Retirement for Church Leaders

Register Now!


Editor’s note. Only Advantage Members have access to this schedule. Learn more on how to become an Advantage Member or upgrade your membership.

Among the many benefits of your Church Law & Tax Advantage Membership is access to exclusive webinars.

During last year’s series, we hosted a handful of webinars exclusively for Advantage Members. For instance, attorney Sarah E. Merkle offered insights on how to run an effective church business meeting. In addition, attorney and CPA Frank Sommerville drew on his more than 30 years of legal and accounting experience to answer members’ employment law questions. You can watch these past webinars and others on demand.

This year, we plan to continue covering current events and topics that will help you lead your church and its various ministries with confidence.

Details and registration links to upcoming Advantage Member and free webinars will be added to this schedule throughout the year. Bookmark this page to stay updated when a new webinar is announced. You can also catch up on webinars you might’ve missed from this series here.

UPCOMING WEBINAR

We are currently making plans for our next webinar. In the meantime, we encourage you to catch up on our most recent webinar below. Also, be sure to check out any webinars you might have missed from this series. They are available to watch on-demand.

Watch this FREE webinar with Matthew Branaugh, Church Law And Tax attorney and content editor, and Attorney Danny Miller to discover retirement planning options available for church leaders, how to manage costs associated with those plans, and to ensure compliance with related rules and regulations. Watch Now.
Posted:

Free Webinar: Finishing 2022 Well

Reduce end-of-year stress and enter 2023 with confidence.

The Editors

As the end of the year approaches, church offices often feel overwhelmed with year-end giving, holiday bonuses, and budget planning for 2023. In this free webinar, attorney, CPA, and senior editor Richard R. Hammar from Church Law & Tax will reduce stress and provide leaders with confidence going into the new year.

Find out how you can finish the 2022 year well and ask questions that will help as you move into 2023, by registering for this exclusive event.

The webinar will cover key updates and reminders, including:

· How to correctly handle business expenses for pastors and staff

· How to properly set minister housing allowances

· How to document and process charitable contributions· How to identify and prepare the records and paperwork that ministers, staff members, and the church will need for the upcoming tax-filing season.
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