Q: A member of our church owns a cookie business. She would like to bake cookies in our church kitchen for sale to the public because our equipment is much better than what she has been using. Can we allow this as an accommodation to her? Are there legal or other concerns we should consider?
A: Before agreeing to such an arrangement, church leaders should consider several legal and tax issues, including the following:
- It exposes the church to legal risk in the event that tainted cookies cause death or injury to people who consume them. The church may be liable in such a case based on agency principles as well as other grounds.
- It likely would subject the church to complex and extensive public health regulations under state and local laws.
- It may expose the church to the unrelated business income tax if it receives rental income as a result of the arrangement. This would require the church to file annual unrelated business income tax returns (Form 990-T) with the IRS and pay a tax on net earnings. Some exceptions may apply.