On-Demand Webinar

Church Financial Management in Challenging Times

CPA Michael E. Batts helps churches navigate financial concerns created by the pandemic in this on-demand webinar.

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The COVID-19 (coronavirus) outbreak, and the accompanying “stay-at-home” directives underway in most states, present numerous challenges to churches, particularly with respect to financial management.

This one-hour webinar with CPA Michael E. Batts directly addresses these financial management challenges for pastors and church leaders.

Batts, managing partner of a CPA firm serving churches and nonprofits nationwide and the author of Church Finance, Second Edition, covers church giving methods, communication approaches with the congregation, and the financial fundamentals necessary to reduce costs, shore up cash reserves, create operational efficiencies, and maintain sound internal controls.

Download the presentation slides here.

To stay updated on the latest COVID-19 news and advice from Church Law & Tax, visit: www.ChurchLawAndTax.com/Coronavirus.

An Overview of the CARES Act for Churches

Key highlights from the government’s $2.2 trillion stimulus plan responding to COVID-19.

Editor’s Note: Additional updates regarding the CARES Act and its various provisions can be found on Church Law & Tax’s coronavirus coverage page.

The 900-page, $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act became law on March 27, 2020. It is the third package enacted by Congress in response to the COVID-19 (coronavirus) outbreak.

I have written a detailed analysis regarding key provisions from the CARES Act that are most relevant to churches and church staff. It is accessible to members of ChurchLawAndTax.com. Below is a brief, free overview covering some of these key provisions.

Key Provisions of the Act

Individual help

All US residents with adjusted gross income up to $75,000 ($150,000 married), who are not a dependent of another taxpayer and have a work eligible Social Security number, are eligible for the full $1,200 ($2,400 married) rebate. In addition, they are eligible for an additional $500 per child. This is true even for those who have no income, as well as those whose income comes entirely from non-taxable means-tested benefit programs, such as Supplemental Security Income (SSI) benefits.

Key point. The rebate is treated like other refundable tax credits, such as the child tax credit and earned income tax credit, and is not considered taxable income. For the vast majority of Americans, no action on their part will be required to receive a rebate check since the Internal Revenue Service (IRS) will use a taxpayer’s 2019 tax return if filed (or their 2018 return if they haven’t filed their 2019 return).

Employee retention credit

  • This is a credit designed to prevent layoffs and keep workers on the job.
  • Tax-exempt employers are eligible.
  • Eligible employers are allowed a credit against employment taxes (FICA, income tax) based on a specific formula. The fully refundable credit would be available to any business or non-profit that has a furloughed or reduced workforce as a result of a forced closure or the quarantining of employees. The credit would also be available to any business that has seen a 50 percent drop in gross receipts when compared to the same quarter last year.
  • A special rule applies to eligible small employers (those with 100 employees or less) that provides a 50-percent credit for all wages paid, regardless of whether employees are furloughed or not.
  • The credit is capped and is refundable against payroll taxes.

Key point. If an eligible employer receives a forgivable loan under the Paycheck Protection Program (see below), it is not eligible for the employee retention credit under this section.

Paycheck Protection Program (PPP)

  • The Act establishes a new US Small Business Administration loan program called the Paycheck Protection Program for small employers (including nonprofits and churches) with 500 or fewer employees to help prevent workers from losing their jobs and small businesses from failing due to economic losses caused by the COVID-19 pandemic.
  • The program provides federally guaranteed loans to cover payroll and other operating expenses.
  • To be eligible, the small employer must have been harmed by the pandemic between February 15, 2020, and June 30, 2020. The Act requires eligible borrowers to make a good-faith certification that:
    • the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19; and
    • they will use the funds to retain workers and maintain payroll, lease, and utility payments.
  • The program is retroactive to February 15, 2020, to help bring workers who may have already been laid off back onto payrolls.
  • Applicants can apply for this loan until August 8, 2020. (Editor’s Note: Congress passed another bill—which President Trump signed on July 4, 2020—that extends the deadline for PPP loan applications to August 8, 2020.)
  • The program provides loans of up to 250 percent of an employer’s average monthly payroll costs for the one-year period preceding the loan (excluding compensation over $100,000).
  • The loan is forgiven in full if, during the eight-week period beginning when the church receives the loan, the money is spent entirely on:
    • payroll costs (the SBA requires at least 60 percent of the loan eligible for forgiveness be used for payroll costs)
    • group health care expenses
    • interest on any mortgage obligations
    • rent, including rent under a lease agreement
    • interest on debt incurred before February 15, 2020
    • utilities

Key point. 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.

  • The amount of loan forgiveness is reduced based on an employer’s reduction in workers or wages according to a formula (but declines between February 15, 2020, and April 26, 2020, do not reduce the amount of loan forgiveness if the employer returns to pre-decline levels by June 30, 2020).
  • Any portion of a loan not forgiven is carried forward as an ongoing loan with a term of five years at 1 percent interest.
  • The recipient applies for forgiveness through the lender.

Key point. If an eligible employer receives an employee retention credit (see above), it is not eligible for the Paycheck Protection Program.

Key point. Learn more about how churches can apply for the Paycheck Protection Program through this article.

Key point. The SBA has issued a fact sheet providing additional specific details about the Paycheck Protection Program loans, along with the application form to use.

Paycheck Protection Program and Health Care Enhancement Act (CARES Act II)

The CARES Act appropriated $349 billion for PPP. However, the program met with immediate success and the initial appropriation was depleted in a few weeks. Congress quickly responded by enacting the “Paycheck Protection Program and Health Care Enhancement Act” (PPPHCE), the main provision of which was a boost in appropriated funds for PPP. Starting April 27, 2020, this allows the government to continue providing forgivable loans to cover the cost of payroll and operating expenses for small businesses.

Other provisions in the PPPHCE Act include:

  • $60 billion for the SBA’s economic injury disaster loans and grants, including: $50 billion for economic injury disaster loans up to $2 million with interest rates not to exceed 4 percent and long-term repayment periods of up to 30 years, and $10 billion for grants of up to $10,000 that do not have to be repaid.
  • $75 billion to support the American healthcare system, including additional funding to reimburse hospitals and healthcare providers for lost revenues and expenses related to the outbreak.
  • $25 billion to expand testing, which will provide information on where cases are occurring, and support continued efforts to reopen communities and reignite the economy.

Unemployment insurance provisions

The CARES Act was designed to mitigate the economic effects of the COVID-19 pandemic in a variety of ways. One important way is the creation of a new temporary federal program called the Pandemic Unemployment Assistance (PUA) program that provides (through December 31, 2020) payment to those not traditionally eligible for unemployment benefits. PUA provides up to 39 weeks of unemployment benefits. Individuals receiving PUA benefits may also receive the $600 weekly benefit amount (WBA) under the Federal Pandemic Unemployment Compensation (FPUC) program if they are eligible for such compensation for the week claimed.

Eligibility for PUA includes those individuals not eligible for regular unemployment compensation or extended benefits under state or federal law, including those who have exhausted all rights to such benefits. Covered individuals also include self-employed individuals, those seeking part-time employment, and individuals lacking sufficient work history.

The application of these provisions to church employees is unclear. State and federal laws exempt from unemployment taxes “service 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.”

Does the CARES Act’s temporary Pandemic Unemployment Assistance program apply to church employees on the ground that they “are not traditionally eligible for unemployment benefits”? A recent Department of Labor “Unemployment Insurance Program Letter” (No. 16-20) suggests that it may. It reads, in part:

The CARES Act was designed to mitigate the economic effects of the COVID-19 pandemic in a variety of ways. The CARES Act includes a provision of temporary benefits for individuals who have exhausted their entitlement to regular unemployment compensation as well as coverage for individuals who are not eligible for regular unemployment compensation . . . . These individuals may include . . . clergy and those working for religious organizations who are not covered by regular unemployment compensation, and other workers who may not be covered by the regular unemployment compensation program under some state laws.

Check with your state unemployment office to see if church employees in your state qualify for the PUA and WBA programs.

Charitable contributions

The Act encourages Americans to contribute to churches and charitable organizations in 2020 by permitting them to deduct up to $300 of cash contributions, whether they itemize their deductions or not.

Payroll taxes

  • The Act provides a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis. The credit is available to employers whose (1) operations were fully or partially suspended, due to a COVID-19-related shut-down order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year.
  • The Act allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees. Deferral is not available to employers receiving assistance through the Paycheck Protection Program of the CARES Act.

Delay of certain deadlines

  • In March of 2020 the IRS announced that taxpayers generally have until July 15, 2020, to file and pay federal income taxes originally due on April 15. No late-filing penalty, late-payment penalty, or interest will be due. This means that anyone, including Americans who live and work abroad, can now wait until July 15 to file their 2019 federal income tax return and pay any tax due. IR-2020-58.
  • A few weeks later, in Notice 2020-23, the IRS expanded this relief to additional returns, tax payments and other actions. As a result, the extension now applies to all taxpayers that have a filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020. This includes quarterly estimated tax payments (Form 1040-ES) that would have been due before July 15, 2020, including the first two estimated tax payments due on April 15 and June 15 of 2020. This means that any individual who has a quarterly estimated tax payment due on or after April 1, 2020, and before July 15, 2020, can wait until July 15 to make that payment, without penalty.

More provisions

Read my detailed summary for more details regarding provisions pertaining to “affiliation” rules pertaining to employee counts for PPP, more details about the availability of federal Economic Injury Disaster Loans (EIDL), education provisions, foreclosure moratorium and forbearance, utility shutoffs, and more.

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

What We Know: Tax Payments and Filings for Churches and Individuals

How the coronavirus is affecting the current tax season—and beyond.

The US Department of Treasury, the Internal Revenue Service (IRS), and state agencies continue to issue new instructions and guidance regarding tax-related matters for the country in response to the COVID-19 (coronavirus) outbreak. Church Law & Tax continues to update this page as relevant new advisories and information become available.

Income tax-filing

The Treasury Department has pushed back the deadline for Americans to file their income tax returns in response to the COVID-19 (coronavirus) outbreak.

All taxpayers and businesses now have through July 15, 2020, to file their returns—and the IRS will waive all interest and penalties. As a result, the extension now applies to all taxpayers that have a filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020.

Separately, in Notice 2020-23, the IRS expanded this relief to include quarterly estimated tax payments (Form 1040-ES) that would have been due before July 15, 2020, including the first two estimated tax payments due on April 15 and June 15 of 2020. This means that any individual who has a quarterly estimated tax payment due on or after April 1, 2020, and before July 15, 2020, can wait until July 15 to make that payment, without penalty.

Estimated Quarterly Tax Payments for 2020

QuarterOriginal Due DateRevised Due Date
Jan-MarApril 15, 2020July 15, 2020
Apr-JunJune 15, 2020July 15, 2020
July-SeptSept. 15, 2020Sept. 15, 2020
Oct-DecJan. 15, 2021Jan. 15, 2021

Individual taxpayers who need additional time to file beyond the July 15 deadline can request an extension to October 15, 2020, by filing Form 4868 through their tax professional, tax software, or using the Free File link on irs.gov. An extension to file is not an extension to pay any taxes owed. Taxpayers requesting additional time to file should estimate their tax liability and pay any taxes owed by the July 15, 2020, deadline to avoid additional interest and penalties.

Key point. This provision is especially relevant to pastors who typically use the estimated tax procedure to prepay their federal taxes since they are exempt by law from income tax withholding.

Treasury Secretary Steven Mnuchin still encourages taxpayers to file income taxes as soon as possible, especially those who are expecting refunds, the Wall Street Journalreported.

The IRS also encourages people who have failed to file returns from previous years to do so now. The agency says “[m]ore than 1 million households that haven’t filed tax returns during the last three years are actually owed refunds; they still have time to claim these refunds.” For taxpayers with a tax liability, the IRS says they “should consider taking the opportunity to [enter] into an Installment Agreement or an Offer in Compromise.”

At the state level, the American Institute of Certified Public Accountants has assembled this chart tracking state income tax-filing deadlines. California has already pushed its filing and payment deadline to June 15, and the state waived interest, late-filing, and late-payment penalties. Connecticut and Maryland have extended their deadlines for business returns (June 15 for Connecticut and June 1 for Maryland). Oregon and Washington have issued guidance offering certain provisions and accommodations as well.

Church reporting requirements

Separately, in Notice 2020-23, the IRS said its deadline extensions also apply to tax-exempt organizations required to file an annual Form 990, Form 990-N, and/or Form 990-T; Form 4720; or other commonly required reports used under certain circumstances. Section 6033 of the Internal Revenue Code exempts churches from filing annual Form 990s or Form 990-Ns, however, if a church generates $1,000 or more annually in unrelated business income from a church-run business or the renting of its space to outside groups, it is required to file a Form 990-T.

Installment Agreements

The IRS says individuals with outstanding tax liabilities are still able to enter into new Installment Agreements (a monthly payment arrangement set in advance with the IRS). For existing Installment Agreements, the agency says payments that would have been due between April 1 and July 15, 2020, are now suspended. Taxpayers who cannot comply with the terms of an Installment Payment Agreement (including a Direct Deposit Installment Agreement) may also suspend payments during this timeframe if they wish, the IRS says.

The IRS will not default on Installment Agreements through July 15, 2020. However, interest will continue to accrue on unpaid balances.

Offers in Compromise

The IRS says taxpayers with a pending Offer in Compromise application will now have until July 15, 2020, to provide any requested additional information. The agency also will accept new applications for Offers in Compromise.

Regarding existing Offers in Compromise:

  • Taxpayers may suspend all payments until July 15, 2020. However, interest will continue to accrue on unpaid balances.
  • The IRS will not default on an existing Offer in Compromise for a taxpayer that is delinquent on a 2018 return. But the agency says the taxpayer should file the delinquent 2018 return, along with their 2019 return, on or before July 15, 2020.

Audits

The IRS will not start new field, office and correspondence examinations until July 15, 2020, unless such an examination is “deemed necessary to protect the government’s interest in preserving the applicable statute of limitations.”

Stay updated

Continue to follow ChurchLawAndTax.com and its free e-newsletters and social media for updates on this page as well as its coronavirus coverage. In the meantime, track ongoing tax-related deadlines through Church Law & Tax’s tax calendar.

Also get updates directly from the IRS and the Treasury Department.

5 Ways to Protect Your Church

How to implement thorough policies and procedures.

No matter which side of the gun control debate you fall on, as someone in ministry at a church, news of gun violence hits close to home. The devastating news of gun violence rank among some of the greatest fears of contemporary church leaders.

So what can your church do in the wake of such a tragedy?

With churchgoers around the country wondering if it’s truly safe to attend services, now is the time to create a security plan at your church—one that addresses active shooters. The best way to do this is by listening and learning.

We can listen to the people in our churches about how they have been impacted by the news of gun violence at church and what kind of actions your church could take to help them feel safe. Some of the thoughts and ideas they have may be worth implementing in your church security plan.

Another important way to learn is to look through your own security plans with your leadership team. Listen to the people on your team, learn from each other, and see if there are any changes you need to make. If you discover there are elements missing from your security plan, then you’ll need to have your team work together to resolve them.

To help your discussion get started, here are five key elements to consider for a security plan:

  1. Consider armed security on campus. It may seem like a peaceful approach to not allow armed security, but the Department of Homeland Security and the FBI report that in over 95 percent of active shooter incidents, an active shooter doesn’t stop shooting until someone who is armed shows up. In this circumstance, what would your church do? Among the different ways of approaching armed security, attorney Richard Hammar recommends churches use uniformed off-duty police officers.
  2. Build a proper security team. It’s important to have the right people on your security team: people who have proper training in law enforcement or the military. You’ll also need to conduct proper background checks and training that is specific to your church security plan.
  3. Develop a church communication plan for a crisis. How much does your church congregation need to know about your security team? They don’t need to know everything, but after national news like this, it is important to let your church members know that you have a plan to keep them safe. It is equally important for them to know what they should to do in case of an emergency on your church campus.
  4. Plan for different types of critical events. You should have a plan for an active shooter on your church campus and another plan for an active shooter who may be nearby. Many church security plans only cover an active shooter on the church campus, but it’s just as important to have a plan for a nearby active shooter so you can keep the shooter from coming to your campus and keep your church members from inadvertently running into the shooter’s path.
  5. Don’t overlook domestic violence. The most common active shooter scenarios on church campuses involve a spillover of domestic violence. Thus the most effective active shooter programs for churches will have a specific plan when it comes to domestic violence cases.
  6. Proper security, training, and communication are all key elements to creating both an active shooter program and a successful church security plan. For more articles and resources to help your church, check out our Creating a Church Security Plan page.

Advantage Member Exclusive

Six Goals Churches Should Set in 2020

Prioritize these key tasks to strengthen your ministry in the year ahead.


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

In the December 2019 Advantage Members article, we offered six developments for church leaders to watch in 2020, based on responses we received from members of our Senior Editorial Advisory Board.

This month, we asked the question: If you could advise a church to set one specific goal to accomplish with respect to its legal, tax, finance, or risk management matters in 2020, what would it be and why? Here’s the six goals churches should set in the year ahead, again based on the expertise offered from our Senior Editorial Advisors.

Address the Threat of Child Sexual Abuse

Richard R. Hammar, attorney, CPA, and senior editor, Church Law & Tax

“There is no greater risk faced by churches today than the risk of child sexual abuse on church property or during church activities. I base this conclusion on the following two considerations. First, according to my comprehensive research into church litigation, child sexual abuse has been the number one basis of church litigation and liability for 23 out of the last 25 years. There is no risk that occurs more frequently than this.

Second, churches will find it increasingly difficult to obtain adequate levels of insurance, if any insurance at all, to cover this risk. This means we must be vigilant to protect the most vulnerable among us. It also means that the greatest legal risk faced by churches today, in terms of frequency, may be uninsured.

Even if there is coverage, it often is limited. This poses the greatest existential threat to churches in America today. It’s imperative for church leaders to adopt effective policies to mitigate this risk, and to have those policies drafted or reviewed by an attorney familiar with this issue.”

Next Steps: Review Richard Hammar’s 13-step plan for minimizing the risks of child molestation in churches and implement Hammar’s comprehensive screening, selection, and supervision resource, Reducing the Risk , as an ongoing training tool.

Conduct a Risk Assessment

Vonna Laue, CPA

“Churches should complete a thorough risk assessment if they have not yet done so and update any assessments previously completed. This comprehensive look at church operations identifies existing risks and determines if there is adequate mitigation in place to protect the congregation.

Surprises are seldom pleasant when they are related to finances or risks. Being proactive will allow leadership to plan for, rather than respond to, situations and may allow you to avoid some negative situations entirely.”

Next Steps: Read more about how church staffs and boards can collaborate to build a culture of risk management.

Understand Political Advocacy Laws in an Election Year

Midgett S. Parker, Jr., Attorney

“Be vigilant in knowing the history and current status of the prohibitions regarding politicking for or against candidates and elected officials by religious institutions. Bring in trusted advisors who are knowledgeable on these topics and provide training for your church leaders and staff. Stay out of politics. Encourage the flock to vote. But do not endorse or demonize anyone seeking elected office. Focus on bringing folks to Christ.”

Next Steps: Learn the tax and legal guidelines every church and pastor should know regarding political activities.

Get Smart about Data Security

Michael E. Batts, CPA

“Get the basics of data security right. Don’t let the seemingly complex nature of this topic hinder you from covering the basics, which are not complex. Good policies. Good practices. Good education. Good insurance.”

Next Steps: Learn how to protect your church from cyber threats, how to integrate best practices for avoiding data breaches, and how to select cyberliability insurance to help reduce the financial risks associated with data breaches. Also, go deeper on policies, procedures, and technology that can help with data protection.

Review Employment Practices

Erika Cole, Attorney

“Review your employment practices. From hiring and firing to negligent retention, churches as employers have many areas of legal consideration. Such a review should also include any needed updates to the church’s employment manual. Moreover, due to the new overtime law that took effect on January 1, 2020, many employees who work more than 40 hours per week are eligible for overtime pay under the Fair Labor Standards Act (FLSA).

Most churches assume that the FLSA does not apply to them, but that is likely not that case, and the penalties for not following the FLSA rules are stiff. Rather than assuming the law does not apply, a church should consult competent legal or tax counsel and do so now that the new overtime law has taken effect. Reviewing the church’s employment practices now might save a church a lot of heartache in the future.”

Next Steps: Find out how the new overtime law works. Get help with employee handbooks. Learn the basics of wage-and-hour laws.

Conduct a Compliance Review

Elaine L. Sommerville, CPA

“Do a compliance review. Different from a financial audit, a compliance review will evaluate a church’s compliance with federal tax law as well as many areas of federal employment law. A review can pinpoint critical areas of weakness in a church’s operations as well as provide meaningful guidance for structuring church operations in these critical areas.The gold standard of the compliance review involves both an attorney and a CPA, but even one performed by the CPA alone can provide valuable information to the church.”

Next Steps: Obtain help with federal tax law compliance in Richard Hammar’s annual Church & Clergy Tax Guide.

Matthew Branaugh is editor of content and business development for Christianity Today’s Church Law & Tax.

Advantage Member Exclusive

Six Developments to Watch in 2020

What church leaders should monitor throughout the upcoming year.


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

In this December 2019 Church Law & Tax Advantage Members article, we offer six developments for church leaders to watch in 2020 based on guidance we received from members of our Senior Editorial Advisory Board. In the January 2020 Church Law & Tax Advantage Members article, we offer six goals churches should set in the year ahead, again based on the expertise offered from Senior Editorial Advisors.

What is one development related to church administration/management that you are watching closely in 2020, and why?

Richard Hammar , attorney, CPA, and senior editor, Church Law & Tax: Student Aid and Religious Institutions

“I am monitoring a few cases pending before the United States Supreme Court. In one case, Espinoza v. Montana Department of Revenue, the Court will decide if a state can shut down a student aid program because parents can select a religious school. Obviously, this case is directly relevant to any church or denomination that operates a private school. Prior decisions by the Court suggest that student-aid programs that provide funds to low-income parents for tuition at a school of their choice, including a religious school, are constitutionally permissible. We shall see. Any ruling affirming the student-aid program will be a huge boost to religious education.”

What’s next. Oral arguments for the case take place before the Supreme Court on January 22, 2020. A decision is expected by June.

Vonna Laue , CPA: Employee Classifications

“California passed Assembly Bill 5 (AB5, the so-called “Uber law”), which will take effect in January. While this may not directly impact churches, it highlights an ongoing concern. There has been significant attention on classifying employees and independent contractors and yet many churches have not addressed the issue. California’s legislation will likely cause additional work and penalties in the future. The federal government focused on this issue previously and it now appears states are beginning to join the cause. Churches nationwide need to be aware of the regulations and make sure they are compliant as a matter of good stewardship and good citizenship.”

Watch for a “ripple effect.” JD Supra, a legal news website, reports 20 states previously adopted employment classification tests similar to the one California just passed. “The passage of AB5 could certainly hasten the . . . trend and expand it not only to other states but to other claim types,” the site notes. “Because California’s economy is larger than any other US state, legal and political developments there tend to have a ripple effect both across other states and at the federal level.”

More guidance. This Church Law & Tax article provides more details regarding how to classify a worker as either an employee or an independent contractor.

Midgett Parker , attorney: The Church and the 2020 Election

“The one development that I hope we will not see would be our faith institutions getting involved in political campaigning for those running for elected positions. As far as retaining tax-exempt status, there is a clear separation between church and state that will be closely watched this election cycle. There are some who are waiting to see if the faith community will support or oppose individuals running for political office. There are elements within our American society waiting for lines to be crossed by our institutions of faith in order to promote an agenda to strip faith institutions of their preferred tax-exempt status.”

What is politically permissible? For a comprehensive view on the tax and legal guidelines churches and clergy need to know for the upcoming 2020 election—including what is and is not permissible as far as tax-exempt organizations are concerned—check out Politics and the Church, a 28-page, downloadable resource from Church Law & Tax.

Michael E. Batts , CPA: Virtual Churches

“The Internal Revenue Service’s position with respect to churches that do not have physical gatherings has been that they do not qualify as churches under federal tax law. The IRS applies an ‘associational’ test. Given the reality that church congregations do meet virtually, and the fact that ‘virtual’ church gatherings are an increasingly significant part of the church arena, I expect the authoritative guidance in this area to evolve.”

Go deeper. Read the IRS’s current definition of churches, as well as this 2014 letter the agency issued when it rejected a web-based church’s application for recognition as a tax-exempt entity. Continue monitoring ChurchLawAndTax.com and the free weekly Church Finance Update e-newsletter for future updates.

Erika Cole , attorney: Gay Rights and Employment

“While the Obergefell v. Hodges decision in 2015 legalized same-sex marriage in our country, the legal issues surrounding the balancing act between LGBTQ rights and the religious community are far from over. By June of 2020, we expect to have rulings from the US Supreme Court in Bostock v. Clayton County, Georgia, Altitude Express v. Zarda, and Equal Employment Opportunity Commission v. Harris Funeral Homes cases—all three cases involve a gay or transgender employee who claims discrimination. Neither of the three involve a church as a party. Nevertheless, these cases will likely shed additional light on how LGBTQ matters and religious beliefs may be viewed by the courts in the employment arena, especially if LGBTQ rights are expanded in a manner that would impact religious employers.”

For a closer look. The November 2019 Church Law & Tax Advantage Members article takes a closer look at these three cases and their potential implications for churches and religious organizations with respect to employment decisions involving their nonministerial employees.

Elaine Sommerville , CPA: The Parking Lot Tax

“The one headline we are watching is if Congress will repeal the inclusion of expenses associated with transportation fringe benefits as unrelated business income (what many have called the “parking lot tax”). We know the repeal of the law has broad nonpartisan support, but Congress has yet to gain the coordination between the two parties to repeal the burdensome tax. While the tax has minimum effect on the majority of churches, it creates a compliance consideration that must be considered by churches. It also creates a tax burden for many nonprofits, such as hospitals, universities, and others.”

Update. The provision that disallowed deductions for transportation fringe benefits provided to employees was repealed in late 2019. Churches that had paid the tax were able to file an amended Form 990-T for a refund. See ‘“ParkingLot Tax’ Officially Repealed” for more details, including the provision’s backstory.

Matthew Branaugh is editor of content and business development for Christianity Today’s Church Law & Tax.

Are We Keeping It Confidential?

Nine question checklist to ensure financial and personal confidentiality.

Last Reviewed: February 4, 2025

Confidentiality is always a high priority among church staff and members. Use this checklist to guage how your church is doing at securing confidential information.

Download a PDF version of this checklist.

Creating a Culture of Confidentiality

Verbal sharing is sometimes overlooked in discussions about church-office confidentiality. On the phone or in person, office employees field questions about personal appointments or express concerns about church members.

Put it in writing.

One church administrator at a large Baptist church on the West Coast said that all office workers must sign a statement of confidentiality before being hired. Employees that breach this rule are dismissed. Several churches include a confidentiality clause in their employee handbooks.

Clear the area.

Information can be leaked unintentionally. If a secretary gets a phone call from a distraught person, the secretary may have to ask questions before directing the call. The secretary should make sure others are not present who might hear this confidential conversation. If potential eavesdroppers are nearby, the caller should be put on hold until the area can be cleared.

Put a lid on the log.

Many offices log in phone calls or keep copies of messages. This information could be harmful if shared with others. It might be wise to limit access to the church office, particularly after office hours.

Stress confidentiality.

People who work in the church office should be regularly re­minded of their role in maintaining confidentiality. What each person should ask prior to divulging information is, “Does this person have a qualified need to know it?” If not, the information should be kept quiet.

To learn more about confidentiality, check out attorney Richard R. Hammar’s commentary on the topic in Pastor, Church & Law: Your ultimate reference guide to understanding the legal issues and responsibilities of the church in America. Full access to this guide is available to with a Church Law & Tax membership.

IRS Releases Proposed Revision for Form W-4 for 2020

New form should make accurate withholding easier for church employees.

The Internal Revenue Service (IRS) has issued a draft of a new Form W-4, Employee’s Withholding Allowance Certificate (IR-2019-98), that is designed to make accurate withholding easier for employees starting next year.

The revised form implements changes made following the 2017 Tax Cuts and Jobs Act, which made major revisions affecting taxpayer withholding. The redesigned Form W-4 no longer uses the concept of withholding allowances, which was previously tied to the amount of the personal exemption. Due to changes in the law, personal exemptions are currently not a central feature of the tax code.

The IRS and US Department of the Treasury collected extensive feedback over the past year while working closely with the payroll and tax community to develop a redesign that best serves taxpayers.

“The primary goals of the new design are to provide simplicity, accuracy and privacy for employees while minimizing burden for employers and payroll processors,” said IRS Commissioner Chuck Rettig in a prepared statement.

The IRS expects to release a near-final draft of the 2020 Form W-4 soon to give employers and payroll processors the tools they need to update systems before the final version of the form is released in November.

Note that this draft Form W-4 is not for current use. It is a draft of the form to be used starting in 2020. Employees who have submitted a Form W-4 in any year before 2020 will not be required to submit a new form merely because of the redesign. Employers can continue to compute withholding based on the information from the employee’s most recently submitted Form W-4.

Tip. Churches should encourage their employees to do a “Paycheck Checkup” on the IRS website as soon as possible to see if they are withholding the right amount of tax from their paychecks, particularly if they had too much or too little tax withheld when they filed their most recent income tax returns. People with major life changes, such as a marriage or a new child, should also check their withholding.

IRS Q&A

The IRS has provided several questions and answers to assist employers and employees in understanding the new form. Here are five from the site that are the most relevant to churches:

Does this mean our software will need two systems—one for forms submitted before 2020 and another for forms submitted after 2019?

Not necessarily. The same set of withholding tables will be used for both sets of forms. You can apply these tables separately to systems for new and old forms. Or, rather than having two separate systems, you may prefer to use a single system based on the redesigned form. To do this, you could enter zero or leave blank information for old forms for the data fields that capture the information on the redesigned form but was not provided to you under the old design. Additional guidance will be provided on the payroll calculations needed based on the data fields on the new and old forms.

How do I treat employees hired after 2019 who do not submit a Form W-4?

New employees who fail to submit a Form W-4 after 2019 will be treated as a single filer with no other adjustments. This means that a single filer’s standard deduction with no other entries will be taken into account in determining withholding. The IRS and the Treasury Department anticipate issuing guidance consistent with this approach.

Are employees hired after 2019 required to use the redesigned form?

Yes. Beginning in 2020, all new employees must use the redesigned form. Similarly, any employees hired prior to 2020 who wish to adjust their withholding must use the redesigned form.

What about employees hired prior to 2020 who want to adjust withholding from their pay dated January 1, 2020, or later?

Employees must use the redesigned form.

May I ask all of my employees hired before 2020 to submit new Forms W-4 using the redesigned version of the form?

Yes. You may ask, but as part of the request you should explain that:

• they are not required to submit [a] new Form W-4, and

• if they do not submit a new Form W-4, withholding will continue [to be] based on a valid form previously submitted.

For those employees who furnished forms before 2020 and who do not furnish a new one after 2019, you must continue to withhold based on the forms previously submitted. You are not permitted to treat employees as failing to furnish Forms W-4 if they don’t furnish a new Form W-4. Note that special rules apply to Forms W-4 claiming exemption from withholding.

For more answers to questions about taxes, see my annual Church & Clergy Tax Guide.

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The 10 Commandments of Church Management

The 10 commandments of church management cover everything from intellectual property to unrelated business income.

The 10 Commandments of church management offer a basic framework for ensuring your church does not veer too far off the path of sound financial, tax and governance matters.

I. Thou shalt not allow the church’s intellectual property to be used for personal purposes.

Rule: Under the work for hire doctrine, any property developed within the scope of the job duties of an employee is the property of the employer.

Practice Tip: An intellectual property policy should be carefully crafted and adopted. It should address all areas of concern, such as curriculum, sermons, and music.

II. Thou shalt not have a substantial amount of revenue derived from unrelated business income.

Rule: An organization may have some unrelated business income, but too much can endanger the exempt status of the church.

Unrelated business income is generated from activities that are r egularly carried on; not substantially related to exempt purposes, and trade or business.

Practice Tip: The rules are complicated and there is an exception to every exception. Each activity must be separately analyzed. The commercial manner in which an activity is conducted can create unrelated business income even if the activity seems to be related.

III. Thou shalt carefully design outreach programs to provide for the benefit of a charitable class.

Rule: The church’s programs cannot create unacceptable private benefit to individuals and organizations. Therefore, all programs have to be able to pass a test that any benefit to an individual is permissible private benefit and will not endanger the exempt purposes of the church. Such programs include the benevolence program and scholarship programs.

Practice Tip: The church should construct policies and guidelines to be followed for these programs that comply with the applicable rules.

IV. Thou shalt not allow any transactions with another party to be conducted at more than or less than fair market value.

Rule: Any transaction may benefit the church, but the transaction may not provide a greater benefit to the other party (with the exception of another nonprofit organization). Transactions with disqualified persons may be subject to intermediate sanctions of 25 percent to 200 percent under IRC Section 4958.

Practice Tip: Fair market value should always be established for a transaction. Where a control party is involved, this should be determined and documented in writing. For example, competitive bids should be obtained for transactions involving outside services, purchases, or sales.

V. Thou shalt not endorse any candidate for any public office, nor dedicate a substantial amount of your assets to legislative activities.

Rule: No support or opposition may be given to a political candidate and only limited support can be dedicated to legislative activities.

VI. Thou shalt fully document every aspect of a control party’s (disqualified person’s) compensation package within the requirements of IRC Section 4958.

Rule: A disqualified person is someone who carries influence in the church, either currently or within the past five years. Examples include the senior pastor and other senior leaders (whether credentialed ministers or not); board members; committee members who oversee key areas of the church; and, family members of any of those individuals.

The compensation paid to a disqualified person must meet the following criteria:

• It must be decided by the independent persons.

• It must be based on outside, comparable data.

• It must be documented in writing along with the basis for the amount of compensation determined.

Practice Tip: Each year, analyze every benefit provided to a disqualified person and re-document these in writing prior to the start of the next year. This includes cash compensation, noncash compensation, and fringe benefits. (To go deeper on compensation-setting, and the topic of disqualified persons, see Chapter 2 of CPA Elaine Sommerville’s Church Compensation, Second Edition.)

VII. Thou shalt document all expenditures as to the exempt purpose of the expenditure and maintain documentation as required by law for those special expenses involving meals, entertainment, and travel.

Rule: Every expenditure of a church must be documented as to the exempt purpose of the expense. For meals, entertainment, and travel, the “who, what, when, where, and why” must be documented.

Practice Tip: The following should be adopted and maintained by the church:

• An accountable plan for all business expenses.

• A credit card acceptance policy that requires employees to submit receipts for all charges.

• A formal policy should be adopted to require immediate repayment of any expense that is determined to be a personal expense.

VIII. Thou shalt conduct all designated fundraising programs with the greatest of care and caution and don’t mess up the contribution receipts.

Rule: Designated contributions must be used as designated unless the restriction is released by the donor or by the appropriate state office or court.

Practice Tips:

• Attempt to build in a provision that allows excess funds to be redirected to another ministry of the church or to the general fund.

• Make sure everyone is familiar with the rules regarding events that include a contribution where benefits may be exchanged.

IX. Thou shalt adhere to all payroll/labor rules—even the ones you don’t like.

Rule: Churches are subject to many of the same payroll tax rules as other organizations, with the complication of special rules for ministers. Additionally, the majority of labor law rules apply to churches and religious ministries.

Practice Tip: Pay special attention to the following areas:

• Classification of ministers.

• Classification of employees vs. independent contractors.

• Deposit rules for payroll taxes and filing requirements for Forms 941, 944, W-2, and 1099-Misc.

• Taxation of fringe benefits.

• Designation of housing allowance.

X. Thou shalt endeavor to determine good governance procedures and adhere to them consistently.

Rule: Good governance equals good organization. Follow the basics:

• Knowledge of what the organization’s exempt purposes are.

• Good governing documents.

• Well-documented actions of the governing body(ies).

• Good policies.

• Good people.

• Keep the corporate status up to date and in good standing.

Practice Tip: Review governing documents, policies, and procedures and make sure that they are actually being followed.

Adapted from “The Ten Commandments of Religious Organizations,” by Frank and Elaine Sommerville. Used with permission.

Additional resource:

Church Compensation – Second Edition with 2023 Updates: From Strategic Plan to Compliance.

Few Church Leaders Discuss Abuse Crisis Says Pew Research

Most startling is how little church-goers in Protestant faith traditions indicated leaders actively raised the topic.

The News

In a news release issued July 10, Pew Research Center said it conducted a survey this spring asking US adults (those who say they attend religious services a few times a year or more) whether “the clergy or other religious leaders at their place of worship have spoken out about sexual harassment, assault or abuse.” The survey results: “[A]bout three-in-ten say their clergy have spoken out about sexual abuse (29%), while two-thirds say they have not heard their clergy say anything about this topic (68%).”

Pew Research Center also notes:

  • “There are similar patterns among religious groups, with the exception of Catholics. Catholics are more likely than other U.S. Christians to hear clergy talking about sex abuse in general (41% among Catholics vs. 27% among Protestants). And Catholics who attend Mass at least a few times a year are more likely to say they hear their clergy talk only about supporting victims (24%), compared with a smaller share among Protestants (11%).”
  • “Among those who attend religious services at least a few times a year, one-in-ten say their clergy have spoken out both in support of victims of sexual abuse and to caution against false accusations. In terms of regular attenders who are only hearing one type of message from their clergy, more hear only about supporting victims (14%) than only about false accusations (2%).”

The Church Law & Tax Take

These results are surprising. Based on the Pew Research Center study, less than one-third of church leaders have publicly discussed concerns recently regarding sexual abuse, sexual harassment, and other forms of sexual misconduct. Perhaps most startling is the fewer number of respondents from Protestant faith traditions who indicated leaders actively raised the topic.

All of this comes despite ample headlines over the past 18 months revealing numerous incidents and cover-ups involving houses of worship. The Catholic Church has faced this controversy for decades. But Protestant denominations have quietly faced their own crisis (and attorney Richard Hammar, Church Law & Tax’s co-founder and senior editor, has long noted the abuse threat in churches and religious communities). The continuing #MeToo and #ChurchToo movements promise to keep these matters in the spotlight for years to come.

Churches ignore these developments at their own peril. The old cliché says “what gets measured gets done.” Similarly, one can argue that “what gets discussed gets addressed.” The ability to shape a culture or environment, particularly within a congregation, depends largely on what the church’s leadership prioritizes. If leaders avoid discussing the threat of abuse and misconduct in their congregations, they very well may allow ongoing cases occurring in their midst to continue, not to mention leave their churches more vulnerable to future cases.

How can leaders respond? Consider conversations at upcoming staff and board meetings. Raise awareness and discussions about how to begin talking about this threat within the congregation. Awareness and education can go a long way toward identifying harmful activity, bringing it to light, and discouraging future attempts.

The following articles can help with these conversation-starters and education:

Matthew Branaugh is an attorney, and the business owner for Church Law & Tax.

Annual Nondiscriminatory Policy Reporting Deadline Looms for Church-Run Schools

Filing Form 5578 is one of the most commonly ignored federal requirements of church-run schools and preschools.

Last Reviewed: April 15, 2024

Filing the certificate of racial nondiscrimination (IRS Form 5578) is one of the most commonly ignored federal reporting requirements of private schools and preschools, including ones operated, supervised, or controlled by churches and other religious organizations.

But it is due every year.

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.

Private schools must meet certain requirements

The IRS requires that a private school have:

  • a statement in its charter, bylaws, or other governing instrument, or in a resolution of its governing body, that is has a racially nondiscriminatory policy toward students.
  • a statement of its racially nondiscriminatory policy toward students in all its brochures and catalogs dealing with student admissions, programs, and scholarships.

The IRS also requires that a school make its racially nondiscriminatory policy known to all segments of the general community served by the school either online, in the local newspaper, or via broadcast media (see below).

    What is an acceptable public notice?

    The IRS has offered this template:

    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.

    Exceptions to the public notice requirement

    The publicity requirement is not required if one or more exceptions apply. These include the following:

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

    Online notice options

    Private schools can post their racially nondiscriminatory policy online, per IRS Revenue Procedure 2019022 (2019).

    To do that, a school must display 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.

    Per the IRS, a publicly accessible Internet 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 to be considered 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 it 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.

    Other notice options

    A school may publish its racially nondiscriminatory policy at least once a year in a newspaper of general circulation, or via broadcast media.

    Filing the certificate of racial nondiscrimination

    The certificate of racial nondiscrimination is due by the fifteenth day of the fifth month following the end of the organization’s fiscal year.

    However, for organizations that operate on a calendar-year basis, the Form 5578 deadline is May 15, 2024. Schools must also maintain supporting records documenting compliance with the policy in order to retain their tax-exempt status.

    Form 5578 is easy to complete. 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.”

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

    Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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    Are Employee Discounts on Church Retreats and Events Taxable?

    Churches offering employee discounts on retreats and events must determine whether these benefits are taxable. IRS Publication 15-B allows certain exclusions, but restrictions apply, especially for highly compensated employees. Get expert insights on compliance and best practices.

    Q: We want to offer all staff who work 32 hours a week or more discounts to church retreats and functions. Does the “employee discounts” exclusion outlined in IRS Publication 15-B apply or must discounts be treated as taxable income to the employees? The publication says: “This exclusion applies to a price reduction you give your employee on property or services you offer to customers in the ordinary course of the line of business in which the employee performs substantial services.”

    I would also like to point out that Publication 15-B says, “You can generally exclude the value of an employee discount you provide an employee from the employee’s wages, up to” certain limits—including “a discount on services, 20% of the price you charge nonemployee customers for the service.”


    There are some caveats to this discount, and this one may apply to your executive leadership: “You can’t exclude from the wages of a highly compensated employee any part of the value of a discount that isn’t available on the same terms to” other employees.

    If you are giving a discount of 20 percent or less to any employee, it is nontaxable. If the discount is more than 20 percent, then the term “substantial services,” as you quoted above, will need clarification from a tax expert.

    For some additional insights, I reached out to nonprofit CPA Mike Batts, a nationally noted expert, an editorial advisor of Church Law & Tax, and author of Church Finance: The Church Leader’s Guide to Financial Operations. He concludes his remarks by dealing specifically with the terms “line of business” and “substantial services,” which relates specifically to whether an employee needs to work in the department conducting the discounted activity in order to be eligible for the discount.

    Here, then, is what Mike had to say:

    The nontaxable fringe benefit rule that your reader is referring to is the “qualified employee discount” exclusion found in Internal Revenue Code Section 132(a)(2). Under this rule, an employer can generally exclude from an employee’s wages the value of an employee discount of up to 20 percent of the price charged to nonemployee customers for the same service. An employee discount provided to “highly compensated” employees is nontaxable only if the discount program does not discriminate in favor of highly compensated employees. In other words, the discount given to highly compensated employees should not be more favorable than that given to other employees. For this purpose, the term “highly compensated employee” generally refers to individuals whose total compensation exceeds $125,000. This is the amount applicable to 2019 and it is indexed annually for inflation. Note that for this purpose, the compensation used in determining whether an individual is highly compensated is the compensation of the prior year. The definition of “compensation” varies depending on the circumstances, but it generally does not include a validly designated clergy housing allowance within allowable limits. As far as the “substantial services” question, unfortunately, neither the Internal Revenue Code nor the related Regulations provide a definition or “bright-line” test for what constitutes “substantial services.” However, the Regulations do indicate that an employee who performs substantial services that directly benefit more than one line of business of an employer is treated as performing substantial services in all such lines of business. In our experience, we believe it is likely that all of the ministry activities of a traditional church taken together would comprise a single line of business for purposes of this fringe benefit rule. In practicality, churches rarely consider their employees to work in separate lines of business as that concept would be applied to this issue.

    Visit ChurchLawAndTaxStore.com and check out these resources for additional insights:

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    David Fletcher has more than 35 years of experience as a pastoral leader in churches. In 2003, he founded XPastor, a resource website for executive pastors, and XP-Seminar, an annual church leadership conference.

    Preventing Abuse in Youth Ministries

    Churches need to develop solid boundaries and a good reporting structure.

    When I started doing research for the Church Law & Tax resource, Youth Ministry in a #MeToo Culture, my stomach was in knots. I began my process by Googling “youth pastor in jail sexual abuse,” expecting to find a few news stories. Within two days, I had over 30 individual cases, and I’d barely scratched the surface of the abuse allegations that took place. My heart broke for these students, for these pastors, and for these church bodies.

    Youth ministry is important to me; it was a safe space for me in junior high and high school, and as a post-college young adult, I was a youth leader. I see youth ministry as a vital space for transformation, safety, and teaching teenagers how to live in Christian community and develop stronger relationships with God. It’s also a place for having innocent fun.

    But when abuse creeps in, that innocence is destroyed. Telling families, let alone students, that the man or woman who led their ministry for years turned out to be a sexual abuser, a predator, or a liar, is crushing.

    As Millennials seem to be walking away from their faith in droves, I have to ask myself if constant allegations of two-faced pastors sleeping with students or congregation members has anything to do with it. How can a teenager trust God when everything they were taught about him was taught by a man who is now no longer allowed on the church premises? How can the world trust the church when the top reason churches go to court each year involves an abuse allegation?

    It’s uncomfortable to think about. If you’re reading this as a youth pastor, I know your desire is to protect your students. But you’re fallible. And so are your leaders. The only way you’ll be able to ensure your ministry is a safe place is through boundaries, and a strong, no-shame reporting structure. You won’t go to jail for telling your supervisor that you’re struggling with feeling attracted to one of your students.

    That honesty will open up doors to help prevent anything from happening. It may preserve your career, and it might save your ministry from heartbreak. But the most dangerous thing you can do in the situation of student attraction is to not recognize it for what it is: the greatest threat to your future life you may ever experience.

    Where there is no accountability, there is no safety. Even with all the accountability rules and procedures, no one can assure that you or one of your volunteer leaders will not victimize one of your youth. However, following rules and procedures such as the ones discussed in Youth Ministry in a #MeToo Culture will greatly reduce the odds of sexual abuse taking place in your ministry.

    This article is adapted from Youth Ministry in a #MeToo Culture .

    Child Abuse Prevention and Reporting: Protecting Your Church in the #MeToo Era

    Webinar Recording: Create a plan for your church to help prevent child abuse and sexual harassment.

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    How Should Items Donated for a Silent Auction Be Treated for Tax Purposes?

    Discover if silent auction items are tax-deductible and how churches can comply with IRS guidelines for noncash donations.

    Q: My church is planning a silent auction to raise money for a missions trip. What should we say to potential donors to help them understand any tax implications for their donations—whether it involves a donated item, a service, or, say, the use of a vacation cottage for a week?


    Are Silent Auction Items Tax Deductible?

    Items donated to a silent auction are treated as noncash contributions under federal tax law. Donors are responsible for determining the value of their noncash gifts and calculating the appropriate amount to deduct as a charitable contribution. However, it’s important to note that certain donations, such as services or the use of property (e.g., a vacation cottage), are not tax-deductible.

    What Are the Rules for Noncash Contributions?

    For items donated to a silent auction, donors who contribute noncash items valued at more than $500 must generally file IRS Form 8283 with their tax returns. Depending on the type of item and the claimed deduction amount, donors may also need a church official’s signature on the Form 8283 to confirm receipt of the donation.

    If the church sells, exchanges, or disposes of a donated item within three years of the contribution date and previously signed a Form 8283, the church must file IRS Form 8282 within 125 days. A copy of Form 8282 should also be provided to the donor.

    What Acknowledgment Should the Church Provide?

    The church should issue a contribution acknowledgment that includes:

    • The date of the gift;
    • A description of the property donated (but not its value);
    • A statement indicating whether the donor received any goods or services in exchange for the gift.

    If no goods or services were provided, the acknowledgment should clearly state that. If goods or services were provided, the acknowledgment must include their estimated value and a statement noting that the donor may only deduct the excess of their gift amount over the value of the goods or services received.

    What About Donations of Services or Use of Property?

    Donors should be aware that contributions of services (e.g., professional skills or labor) and gifts of the right to use property (e.g., a vacation home for a week) are not tax-deductible. While the church can acknowledge such gifts, the acknowledgment should state that these types of donations are generally not deductible, and donors should consult a tax advisor for guidance.

    Special Rules for Vehicle Donations

    For donations of vehicles such as cars, boats, or airplanes, special IRS rules apply. Donors should refer to IRS Publication 4303 for detailed guidance on vehicle contributions.

    Additional Resources

    For more information about charitable contributions and IRS requirements, refer to Chapter 8 of the Church & Clergy Tax Guide. This resource provides comprehensive details on acknowledgment requirements, filing forms, and other aspects of charitable giving.

    Frequently Asked Questions

    Are silent auction items tax-deductible?

    Physical items donated to a silent auction are generally tax-deductible, but donors must determine their value. Services or the use of property are not deductible.

    What forms are required for noncash donations?

    Donors must file IRS Form 8283 for noncash contributions over $500. If the church sells the item within three years, it must file IRS Form 8282.

    What should be included in a donation acknowledgment?

    The acknowledgment must include the date of the gift, a description of the donated property, and whether goods or services were provided in exchange for the gift.

    How should the church handle vehicle donations?

    Vehicle donations are subject to special rules outlined in IRS Publication 4303. Donors must follow specific IRS guidelines for these contributions.

    Kaylyn Varnum is a partner and the assistant national director for tax services at Batts Morrison Wales & Lee (BMWL), an Orlando-based national CPA firm serving churches and nonprofits. Varnum’s primary responsibilities involve serving and advising tax-exempt organizations.

    Planning Your Pastor’s Retirement

    Webinar Recording: What you need to create and follow a successful retirement plan.

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    Taking the Next Steps

    Action steps your church can take to implement or strengthen your child-protection program.

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    Spokesperson David Staal wraps up the training and offers action steps your church can take to implement or strengthen your child-protection program.

    Responding to an Allegation

    The story of how one church handled an allegation of child sexual abuse.

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    What would your church do if it were faced with an allegation of child sexual abuse? This video depicts the story of how one church handled this situation. Experts add insights to this first-person story.

    Supervising Scenarios: What Would You Do?

    Interactive segment teaches principles of good supervision.

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    This fast-paced, interactive segment teaches principles of good supervision. It helps children and youth volunteers think through common scenarios of supervision.

    Legal Requirements: The Church’s Responsibility to Protect Kids (with Richard Hammar)

    Richard Hammar explains legal requirements for protecting children in your ministry.

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    Viewers receive more training by the most trusted name in church law—Richard Hammar. In this segment, he explains legal requirements for protecting children in your ministry, plus practical tips on how your ministry can meet the “reasonable standard of care.”

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