Key Tax Updates December 2023

Housing allowance designations, year-end transactions, 2023 donations, and more.

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.

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.

Lead your church with confidence! Become a Church Law & Tax member today!

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 semi-weekly.

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, and the employer’s share of Social Security and Medicare taxes.
Key Tax Dates December 2023Download

December 15, 2023
  • Complete all year-end transactions to be sure that they are reportable on your income tax return.
  • A church must make quarterly estimated tax payments if it expects an unrelated business income tax (UBIT) liability for the year to be $500 or more. Use IRS Form 990-W to figure your estimated taxes.
  • For 2023, 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 using Electronic Federal Tax Payment System (EFTPS).

December 31, 2023
  • Churches must designate a portion of each minister’s compensation as a housing allowance by this date in order for ministers who own or rent their homes to receive the full benefit of a housing allowance exclusion for calendar year 2024.

The designation should be adopted during a regular or special meeting of the church board and should be contained in the written minutes of the meeting.
  • Churches should designate a parsonage allowance for any minister who lives in a parsonage and who is expected to pay some of the expenses of maintaining the parsonage (e.g., utilities, furnishings, repairs, improvements, yard care, insurance).
  • Donors must deliver checks on or by this date to claim a charitable contribution deduction for 2023. Checks that are placed in the church offering during the first worship service in 2024 will not qualify for a charitable contribution deduction in 2023, even if the check is predated to 2023 or was written in 2023. However, checks that are written, mailed, and postmarked in 2023 will be deductible in 2023 even though they are not received by a church until 2024.
  • An employee’s marital status on this date determines his or her filing status for the year.
  • If you have a minister or lay worker who is treated as self-employed for federal income tax reporting purposes, but who you would like to reclassify as an employee, the ideal time to make the change is on January 1, 2024.

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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Asked, Answered: Are Gift Cards Really Just Gifts?

Gift cards are a simple yet powerful way of blessing others. But there are some very real tax strings attached.

The Editors

It’s a common question we field here at Church Law & Tax—are the gift cards we’re giving to our pastor, or lay minister, or volunteer, really just gifts?

Gift cards are a natural expression of the sort of love Christ commands we show to one another. They are a simple way of saying “thank you” for serving.

Upgrade to an Advantage Membership today for unlimited access to Church Law & Tax’s storehouse of curated content on how to manage church finances, address HR issues, understand taxes, stay legal, and keep safe.

We’ve tackled this topic here, here, and here.

So has Elaine Sommerville, starting on page 165 of Church Compensation—From Strategic Plan to Compliance. Pick up a copy today.

Meanwhile, as Matt Branaugh explains, a gift card does carry weight with the Internal Revenue Service. And there’s a good chance they’re taxable income for employees:
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A white country church on a grassy prairie invokes the idea of religious land use protections.
Image: getty/Joanna McCarthy

DOJ Unveils ‘Place to Worship’ Initiative

The Department of Justice’s ‘Place to Worship’ initiative highlights the protections afforded under the Religious Land Use and Institutionalized Persons Act of 2000.

The Editors

The US Department of Justice (DOJ) has unveiled the “Place to Worship” initiative, which highlights a landmark, decades-old federal law protecting individuals, churches, and religious organizations.  

The initiative explains the protections afforded under the Religious Land Use and Institutionalized Persons Act of 2000 (RLUIPA), and lays out the steps religious leaders can take when they encounter resistance or challenges to their property-related activities by local, state, and federal government agencies and officials.

For Members:

This five-part virtual roundtable, featuring a group of attorneys and RLUIPA experts, shares RLUIPA’s origins, and key provisions, along with insights into how RLUIPA might help your church if the need ever arises.

RLUIPA violations

Examples of RLUIPA violations by government actors, the DOJ says, can include:
  • A city or county denies a church a building permit to add Sunday school classes. But, the city cannot provide a compelling reason for the denial.
  • A mosque leases a storefront space, but the city denies an occupancy permit because zoning restrictions disallow houses of worship. Meanwhile, those restrictions allow fraternal organizations, meeting halls, and banquet facilities.
  • A building official denies a permit to build a Jewish temple that meets all requirements. The building official is later heard making anti-semitic remarks.

“Over the last 23 years, the Religious Land Use and Institutionalized Persons Act has helped to combat religious discrimination by protecting the civil rights of faith communities across the country,” said Assistant Attorney General Kristen Clarke of the Justice Department’s Civil Rights Division. “In light of continued anti-Semitism, Islamophobia and other forms of religious discrimination, the Justice Department stands ready to use federal civil rights law to ensure that communities can use their property for worship and to freely engage in religious exercise. The anniversary of RLUIPA provides an opportunity to underscore our commitment to protecting religious rights and ensuring that people are able to freely use land to worship and practice their faith.”

Click here to report a suspected RLUIPA violation.

It is important to remember local municipalities are sometimes subject to penalties for RLUIPA violations. A good example? A case out of Florida, where a city faces fees and damages for violating RLUIPA.
A stack of $100 bills wrapped in a red bow.
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Q&A: Beware Giving Volunteers Cash, Gift Cards, and Gifts

It’s natural to want to bless volunteers with cash, gift cards, and gifts. But how you do it matters to you, them and the IRS.

Frank Sommerville, Attorney, CPA
Bio

Q: Regarding gifts to volunteers, whether it involves gift cards, cash, tangible gifts (such as a guitar) or a trip, must we report the amount for tax purposes? If so, who reports it? The recipient? The church? And if the church must report it, how is it done?

The volunteer reports the taxable income on their tax return, regardless of the amount. 

Also, if the total value of the gift(s) is $100 or more, the church is responsible for reporting the recipient’s income and payroll tax withholding for the recipient on a form 941 and a form W-2.

Q: But they are volunteers, not employees. They are not in our payroll system. Does this mean all volunteers [who] receive something of $100 or more are now treated as employees? If so, our small church would potentially have over 100 employees.

That’s true. And it’s a testament to the numerous problems raised by providing volunteers cash, gift cards, gifts and other items of value. These problems include:
  • The definition of a volunteer is one who works without compensation in any form. Therefore, the volunteer becomes an employee once the church provides anything valuable in recognizing their efforts.
  • The volunteer [who receives gift cards, cash, or tangible gifts] is a part-time employee, and the church must pay workers’ compensation premiums on the volunteer’s earnings.

For these reasons (and many others), we discourage using cash, gift cards, or tangible items worth more than $100 to recognize the services of volunteers.

Q: Okay, so, can we give volunteers a 1099 at the end of the year for accounting of any gifts we gave to them if the total amount is above $100? Or do we have to enter them into our payroll company as employees? Either way, we would have to get their social security number. 

Unfortunately, the correct answer is usually form W-2. Because the analysis is the same as for every worker. Only in rare and unusual circumstances would a volunteer qualify as an independent contractor. In 99.99 percent of the instances, Form W-2 is correct.

Senior Editorial Advisor Frank Sommerville frequently lends Church Law & Tax members his expertise and insights. Find more of his work here.
Frank Sommerville is a both a CPA and attorney, and a longtime Editorial Advisor for Church Law & Tax.
A wooden cross lying upon an open Bible in front of the Preamble to the US Constitution.
Image: Getty/joebelanger

North Dakota, West Virginia Add Religious Freedom Protections

Legislatures in North Dakota and West Virginia pass religious freedom protections, joining 24 other states with similar laws.

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

Last Reviewed: April 16, 2024

Lawmakers in North Dakota and West Virginia recently passed religious freedom protections, joining 24 other states that have done the same—and with nearly all enacted in the roughly three decades since the US Supreme Court handed down two controversial decisions.

West Virginia’s “Equal Protection for Religion Act” took effect on May 29, 2023, while North Dakota’s law became effective on August 1, 2023.

Both laws are almost identical.

The language follows a “substantial burden/compelling government interest/least restrictive means” standard drawn directly from the federal Religious Freedom Restoration Act (RFRA). Congress unanimously passed RFRA three years after the Supreme Court’s controversial 1990 decision in Employment Division v. Smith.

The Smith controversy

The majority in Smith contended neutral laws and government actions that generally apply to the public could incidentally burden religious exercise without violating the US Constitution.

Religious freedom advocates immediately decried the ruling; many still highly prioritize legal efforts to overturn it.

Based on First Amendment religious freedom protections, they say, the government should meet a higher standard whenever any law, regulation, or other government-initiated action affects an individual or organization’s religious exercise, incidental or otherwise.   

Congress responded with RFRA in 1993, embracing the “substantial burden/compelling government interest/least restrictive means” standard.

When compared to the Smith decision, RFRA’s standard means a claim brought by an individual or organization has a better chance of prevailing—although victory isn’t automatically guaranteed.

Congressional overreach

Four years after RFRA’s passage, though, the Court significantly curtailed the law’s power.

The Court ruled Congress overstepped its constitutional powers when it passed RFRA. Courts have since determined the law applies only to federal laws and federal government actions.

Some states began adopting RFRA-like measures soon after, implementing the “substantial burden/compelling government interest/least-restrictive means” standard for their respective local and state governments.

Fourteen states passed such laws between 1993 and 2005 (with Utah’s religious land use act, passed in 2005, offering RFRA-like protections to churches in property-related matters). Another nine passed RFRAs between 2009 and 2021.

Virginia’s religious freedom protection was included within its constitution codified in 1786.

Become a Church Law & Tax Advantage Member and enjoy 20% off our downloadable 50 State Religious Freedom Laws Report.

Prior to North Dakota and West Virginia, South Dakota and Montana were the most recent to do it. Both passed their respective laws in 2021.

Expanded protections after COVID-19

Like South Dakota, both North Dakota and West Virginia’s new laws also prohibit state and local governments from restricting religious conduct more than secular conduct of “reasonably comparable risk” or “comparable … alleged economic need or benefit.”

The additional provisions address concerns raised by religious liberty advocates throughout the COVID-19 pandemic when government mandates throughout the country affected in-person worship services.

As the pandemic continued, churches and religious organizations began legally challenging mandates prohibiting them from meeting. The challenges often referenced the abilities for similarly situated secular activities to physically gather.

Courts—including the Supreme Court—initially granted state and local governments with greater leeway as they sought measures to slow COVID-19’s spread. Eventually, though, a majority of the Court saw state and local restrictions unevenly applied to churches and determined they were unconstitutional.
Matthew Branaugh is an attorney, and the content editor for Christianity Today's Church Law & Tax.
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Asked, Answered: How to Respond to an Unexpected Property Tax Bill

Did your church receive an unexpected property tax bill? Why does this happen? What can be done? This video can help.

The Editors

An unexpected property tax bill can be a confusing, complex and sometimes shocking development for church leaders.

It’s why Church Law & Tax teamed up with Senior Editorial Advisor Midgett Parker in an in-depth Q & A on property taxes, and why we’ve created this brief overview from attorney and Church Law & Tax Editor Matthew Branaugh.

In it, we cover the basics of:

  • The different exemptions churches usually enjoy
  • The reality of claiming and maintaining church property tax exemptions at the local level
  • Why churches sometimes receive an unexpected property tax bill
  • What to do when it happens
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It’s also important to remember churches are generally exempt from federal and state taxes, but not always at the local level.

In fact, we routinely field questions from church leaders asking why they’ve received a bill from a local municipality.

It can be alarming, it can be frustrating, and it can be difficult to know how to respond. But, it’s always an opportunity to build strong relationships at the local level, bear witness to the Gospel, and find creative solutions in partnership with local government officials.

Meanwhile, are you wondering how to maintain and protect your church’s tax-exempt status?

This downloadable .pdf offers tips on what it means to be tax exempt, and more importantly, how churches sometimes jeopardize that status without even knowing it.

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A Closer Look at COVID-19 and the Church

Church Law & Tax’s sister site takes a closer look at COVID-19 and the Church—how the pandemic changed everything.

The Editors

On May 5, 2023, the UN World Health Organization (WHO) ended its “pandemic” designation for COVID-19.

The declaration came slightly more than three years after COVID-19 first took the world by surprise, triggering more than 765 million known cases and nearly 7 million reported deaths during that time span.

But beyond the numbers, COVID-19 changed everything.

Economies, social structures, educational institutions, governments, and health care systems all shifted to meet changes—and challenges—throughout the pandemic.

So did American churches.

COVID-19 and the church from a pastor’s perspective

But just how much?

A nationwide study by ChurchSalary, a sister site of Church Law & Tax, aimed to find out.

ChurchSalary partnered with Arbor Research Group to do a yearlong study of more than 1,000 pastors and leaders. The study used a wide range of tools including a nationwide survey, focus groups, in-person interviews, and community case studies.

Church Salary’s Aaron Hill shares why this study can be of service to pastors, church leaders, and church members, alike:
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Insights on giving trends, layoffs, PPP loans and more

Several angles will be of special interest to pastors and church leaders who keep tabs on the legal, financial, tax, and risk management matters of their churches and ministries.

Among them:

This resources site also includes a free, downloadable PDF report, a pastor- and researcher-fueled podcast, and several related articles and opinion pieces.

All are created to help leaders better understand their strengths, weaknesses, and opportunities to improve so that they are better prepared to respond when the next crisis—whether local or global—arises.

The full findings are here:

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Key Tax Updates November 2023

Key tax dates for November 2023 include a quarterly Form 941 requirement for nonminister employees.

Richard R. Hammar, Attorney, CPA
Bio

Monthly requirements

Key tax updates for November 2023 relate to depositing withheld payroll taxes. 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.

Lead your church with confidence! Become a Church Law & Tax member today!

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
  • The employer’s share of Social Security and Medicare taxes 
Key Tax Dates November 2023Download

Semiweekly requirements

If your church or organization reported withheld taxes of more than $50,000 during the most recent lookback period noted above, then the withheld payroll taxes are deposited semiweekly.

What this means:

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

Note: 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, and the employer’s share of Social Security and Medicare taxes.

Key Date: November 13, 2023

Other key tax updates for November 2023 relate to churches having nonminister employees (or one or more ministers who report their federal income taxes as employees and who have elected voluntary withholding).

These churches can file their employer’s quarterly federal tax return (Form 941) on November 13 instead of October 31. But only if they deposited taxes for the third calendar quarter in full and on time.

For complete information, consult the 2023 Church & Clergy Tax Guide by Richard R. Hammar, JD, LLM, CPA. Visit ChurchLawAndTax.com for the expert insights you need to manage tax issues with confidence
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
Boy Scout uniforms hanging in closet
Image: getty/Catherine McQueen

Boy Scouts’ Bankruptcy Informs Church Insurance Decisions

The Boy Scouts’ bankruptcy offers many insights and lessons for leaders in the area of church insurance coverage.

Richard R. Hammar, Attorney, CPA
Bio

The Boy Scouts of America (BSA) bankruptcy offers insights that can help inform church insurance decisions.

Several BSA insurers balked at the idea of defending or indemnifying BSA. Among the various reasons is the fact that the statute of limitations barred most of the victims’ claims. Because of this, the court’s decision in the Boy Scouts bankruptcy contemplated several key church insurance issues.

Our analysis reveals three key points for church leaders:

Permanently retain all insurance policies

May sex abuse claims involve incidents that occurred long ago. Therefore, it is entirely understandable that many churches cannot produce them.

However, church leaders should still work to ensure all insurance policies are retained permanently by the church.

Without a policy documenting coverage, an insurer is much less likely to pay for a legal defense. It is also less likely an insurer will pay toward an adverse judgment or settlement awarded to a plaintiff.

Richard Hammar found several other key takeaways for church leaders in the BSA bankruptcy ruling.

Find them all right here.

Church leaders do not want their church to bear sole responsibility of paying substantial legal fees incurred defending such claims.

Work with an insurance archeologist

Consider hiring an insurance archeologist if your church cannot find an insurance policy potentially applicable to an incident occurring long ago. An insurance archeologist has legal and forensic training and can find key elements of old (or discarded) insurance policies.

Understand coverages

Be familiar with the exclusions in a policy before purchasing it.

All policies exclude intentional or criminal acts. Therefore, a question often arises whether such an exclusion applies to sex abuse claims, which are both intentional and criminal.

Some insurance companies say that they do.

Sex abuse claims represent the most significant risk to churches. Therefore, it is imperative churches adequately insure themselves against potential claims. It is also wise to determine whether a church policy offers “claims-made” or “occurrence-based” coverage. Use this checklist to guide that process.

Review state mandatory reporting requirements

Another key step: Becoming aware of and familiar with state-specific mandatory reporting laws. These laws define how, when, and to which agency an incident of abuse must be reported. This downloadable .pdf offers state-by-state guidance along with important facts to help you understand abuse reporting laws.

Boy Scouts bankruptcy provides BSA’s insurance footprint

The bankruptcy court analyzed BSA’s insurance coverage dating back to the mid-1900s.

This is what the court found:

“BSA carried some form of primary and/or excess comprehensive general liability insurance in place covering abuse claims since at least 1935.

The terms of BSA’s policies vary over time and include policies that have a per occurrence limit, an aggregate limit or both.

For the years 1935 through most of 1971, and 1979 through approximately 1996, Insurance Company of North America (Century) issued primary insurance policies to BSA that also contained per occurrence limits, but no aggregate limits for abuse claims.

Beginning in 1969 and through 1982, in addition to primary coverage, BSA began to purchase excess insurance policies.

The vast majority of the excess policies provided per occurrence limits, but no aggregate limit.

Accordingly, once the underlying primary insurance is exhausted, the excess policies may need to pay the per occurrence limits numerous times without exhausting. Certain of the excess policies in these years have settled, but others are available to provide coverage.

Beginning in 1983, BSA insurance policies generally provide for aggregate limits applicable to abuse claims. BSA also began procuring significantly more excess insurance with higher aggregate limits.

From 1986 through 2018, BSA purchased primary and first-layer excess matching deductible policies that require BSA to pay or reimburse deductibles before excess coverage attaches over and above either a primary policy or a first-layer excess policy.

Also, from 1986 through 2018, BSA purchased multiple layers of excess insurance that, in most years, provide over $140 million in excess insurance coverage.

From 1983 forward, certain policies are exhausted, and certain insurers are insolvent, but there is $3.6 billion worth of available aggregated coverage, the actual value of which will not be known until all claims have hit the policies and been paid.”

Local Councils lacked coverage before 1971

Prior to 1971, Local Councils were not covered under BSA insurance policies.

“Beginning in 1971 through 1974, BSA gave Local Councils the ability to pay a premium to become an additional insured under BSA’s general commercial liability policies… . From 1975 through the end of 1977, all Local Councils were additional insureds under insurance policies issued to BSA.

Beginning in 1978 through the present, BSA implemented a General Liability Insurance Program by which all Local Councils were added as named insureds under insurance policies issued to BSA.”
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
Gavel lying on top of 100 dollar bills.
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Takeaways for Church Leaders From the Boy Scouts’ Bankruptcy

Behind the Boy Scouts’ bankruptcy are victim-plaintiffs whose enormous pain, suffering, and loss hold valuable warnings for church leaders.

Richard R. Hammar, Attorney, CPA
Bio

Many helpful takeaways are in the 200-page ruling issued by the judge overseeing the Boy Scouts of America’s bankruptcy proceeding.

We’ve summarized a few of them here:

Takeaway 1: Boy Scouts of America (BSA) is a debtor with tens of thousands of non-debtor entities. The Boy Scouts bankruptcy proceeding is a mass tort case that involves sexual abuse claims. The Boy Scouts bankruptcy case also underscores BSA’s violation of trust as a national nonprofit organization with a household-recognized name and more than 100 years of history. The victims and their families suffered abuse. They now seek compensation. The also want to ensure that, to the extent BSA survives, it does so in an environment where abuse is both exposed and dealt with.

Takeaway 2: More than 82,000 claimants filed proofs of claim asserting sexual abuse. More than 1,000 claimants sent letters to the court, many telling their stories for the first time. Meanwhile, BSA continues its mission by offering more than 1 million boys and girls opportunities to learn self-sufficiency and leadership.

Takeaway 3: Both the national BSA office and its local councils and chartered organizations are defendants in hundreds of lawsuits alleging sexual abuse. These cases contain horrific details into specific abuse cases as well as grooming activities that extend back more than a century. Moreover, the cases suggest BSA maintained secret records of volunteers accused of molesting scouts. These are the “ineligible volunteers files,” or “perversion files.”

Some plaintiffs allege BSA enjoyed “top-down” control over the local councils and chartered organizations. Others allege local councils and chartered organizations acted as BSA agents. Still others allege adult volunteers acted as BSA agents with BSA’s blessing.

Takeaway 4:  Many legal theories are in play as plaintiffs look to hold some—or all—defendants liable for their acts. These theories include:
  • Negligence
  • Gross negligence
  • Negligent retention
  • Negligent supervision
  • Fraudulent concealment
  • Willful and wanton misconduct
  • Constructive fraud
  • Breach of fiduciary duty

Meanwhile, some complaints separate the allegations by defendant. Others lump all defendants together as a single, harmful group.

The plaintiffs seek economic and non-economic damages and punitive damages. They also want names of known abusers made public and letters of apology. They want a toll-free number established so others may report abuse.

It is important to also understand that BSA settled some very large claims before seeking bankruptcy protection. One case involved 16 victims of a notorious abuser from the 1970s named Thomas Hacker. BSA filed and lost statute of limitation motions and later settled with the victims for almost $90 million.

Takeaway 5: At least 16 plaintiffs law firms or entities ran almost 11,000 ads in 90 days (from radio spots to half-hour infomercials) targeting potential claimants in 2020.

Takeaway 6: Many victims want the BSA to adopt new or expanded youth protection procedures as part of any settlement to their claims.

These include:
  • Mandatory routine criminal background checks
  • Registering all adults staying overnight while leading scouting activities
  • Creating a single, accessible youth protection manual
  • Creating trauma-informed, clinical- and evidence-based training materials
  • Teaching scouts how to recognize and report inappropriate behavior
  • Creating better incident reporting procedures to include mandatory reporting anytime an adult offender is placed in the volunteer screening database
  • Creating a place of remembrance for all child abuse survivors in prominent places at all BSA High Adventure bases, along with a survivor-focused path to Eagle Scout
  • Improved volunteer screening through a public-facing volunteer screening database that is also shared with other youth service organizations.
  • Creating better incident reporting procedures to include mandatory reporting anytime an adult offender is placed in the volunteer screening database
  • Creating a place of remembrance for all child abuse survivors in prominent places at all BSA High Adventure bases, along with a survivor-focused path to Eagle Scout
  • Improved volunteer screening through a public-facing volunteer screening database that is also shared with other youth service organizations.

Richard Hammar also found several insurance takeaways for church leaders within the BSA bankruptcy ruling.

Find them right here.

Key revelations in the Boy Scouts bankruptcy

The damages are substantial.

Sexual molestation of minors can come with a heavy financial penalty. Again, the court noted BSA’s almost $90 million settlement with 16 victims. Remember, there are more than 82,000 claims currently pending against BSA.

Churches are not automatically liable for the sexual abuse of minors.

There must be a legal basis for liability in cases of sexual abuse of minors that happens on a church premises or in the course of church activities.

The court mentioned nine of them:
  • Negligence
  • Gross negligence
  • Negligent retention
  • Negligent supervision
  • Fraudulent concealment
  • Willful and wanton misconduct
  • Gross negligence
  • Constructive fraud
  • Breach of fiduciary duty

Victims of child sexual abuse in a church generally cite one or more of these theories of liability in an attempt to hold the church liable for the abuse.

What is “negligence?”

Negligence refers to conduct that creates an unreasonable risk of foreseeable harm to others. It connotes carelessness, heedlessness, inattention, or inadvertence.

But church leaders should understand that churches are not “guarantors” of the safety and well-being of children. They are not liable for every injury that occurs on their premises in the course of their activities. Generally, they are responsible only for those injuries that result from their negligence or some other malfeasance.

One common form of negligence is negligent selection. Negligent selection is when an organization fails to responsibly, and with due care, choose volunteers and paid workers whose duties involve the supervision or custody of minors.

Abuse victims suing churches often allege negligent selection.

What is “negligent retention and supervision?”

Negligent retention means that a church knows an employee or volunteer who interacts with minors may pose a risk of harm to minors, but retains that person anyway.

Negligent supervision means that a church is careless with how it supervises children on the church premises and during off-campus church activities.

Gross negligence and willful and wanton misconduct all can lead to punitive damages not covered by insurance.

Gross negligence, by definition, is more serious than negligence because it indicates a party showed a lack of care that demonstrated reckless disregard for the safety of others. Willful misconduct suggests an intent to injure, while wanton misconduct suggests indifference about whether an act would harm others.

BSA victims alleged gross negligence and willful and wanton misconduct, opening the door for a court to award punitive damages.

Punitive damages go beyond just compensating victims for whatever loss they sustained.

They are designed to punish a wrongdoer for particularly reprehensible or outrageous conduct.

They also represent a potentially uninsured risk.

To illustrate, in one case, a punitive damage award was based on the fact that church officials repeatedly and knowingly placed a priest in situations where he could sexually abuse boys and then failed to supervise him and disclose his sexual problem. Clearly, church officials did not intend for the priest to molest anyone. But, under the circumstances, the jury concluded that the church’s actions were sufficiently reckless to justify an award of punitive damages.

For church leaders, reckless inattention to risks can lead to punitive damages. The problem then becomes one of insurance, as many church insurance policies exclude punitive damages.

One example of gross negligence or willful and wanton misconduct that can potentially  lead to punitive damages is a failure by church leaders to implement effective procedures for the selection and supervision of youth workers.

Gross negligence and willful and wanton misconduct also can lead to the loss of limited liability under state law for uncompensated officers and directors of churches.

State and federal laws provide limited immunity from legal liability to the uncompensated officers and directors of nonprofit corporations (including churches) for their ordinary negligence. This is an important protection.

However, most of these laws do not protect officers and directors from liability for their gross negligence or willful and wanton misconduct.

Gross negligence and willful or wanton misconduct also can bring personal liability.

Church leaders are more likely to be personally sued if they’re found guilty of gross negligence.

Church leaders that show indifference to information that clearly demonstrates improper behavior by a staff member or volunteer worker can be viewed by a court as being grossly negligent. This makes it more likely such leaders will be personally sued.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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IRS Unveils Voluntary Withdrawal Program for Pending ERC Claims

IRS says erroneous ERC claims—many spurred by aggressive third parties—prompted voluntary withdrawal program.

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

Last Reviewed: January 22, 2024

The Internal Revenue Service (IRS) launched its promised voluntary withdrawal program for pending Employee Retention Credit (ERC) claims.

The agency unveiled the process just weeks after suspending new applications for the pandemic-related relief.

In late December, the agency announced additional details, including a March 22, 2024, deadline to participate, and a provision allowing parties who voluntarily participate to only have to repay 80 percent of the credit they received.

Meanwhile, the agency continues warning small businesses, nonprofits, and churches of unscrupulous third parties who aggressively push filings without fully vetting the employer’s eligibility.

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ERC claims can be withdrawn, amended

Under the voluntary process, employers that filed for the ERC—but have not yet received a refund and believe the claim is likely ineligible—can “withdraw their submission and avoid future repayment, interest, and penalties,” the IRS announced.

Employers who received a refund check, “but haven’t yet cashed or deposited it, can still withdraw their claim,” the agency added.

Employers who received and deposited refund checks, and now believe all or part of their claim may not be eligible, can file an amended return.

The agency posted a Q&A series further explaining ERC eligibility, the withdrawal process, and amending a return to correct a previously processed refund.

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Mistaken claims and rampant fraud

The ERC was created in 2020 as part of the congressional response to the unfolding COVID-19 pandemic. The credit aimed to help employers retain employees while government-mandated shutdowns hampered operations.

Many small employers, including churches, are potentially eligible. However, the process for determining eligibility and properly claiming the credit is complex. Depending on the employer’s size, and the demonstrated impact, refunds can amount to tens or hundreds of thousands of dollars—or even larger in very limited situations.

Numerous third parties—many formed specifically for ERC claims—have aggressively marketed their consulting services. They’ve promised large refunds in exchange for sizable contingency fees.

These organizations push employers to submit claims without fully determining  their eligibility.

As a result, fears of mistaken claims and rampant fraud have followed. The agency said it has already denied more than 20,000 claims and sent letters to more than 20,000 recipients indicating likely problems with credits received. The IRS also said it has already received withdrawals totaling more than $100 million.

Matthew Branaugh is an attorney, and the content editor for Christianity Today's Church Law & Tax.
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Key Tax Dates October 2023

Key tax dates for October 2023 include employees with six-month extensions for filing 2022 tax returns, among others.

Richard R. Hammar, Attorney, CPA
Bio

Key tax dates for October 2023 include monthly filing requirements related to payroll taxes, some semiweekly requirements, and a few deadlines unique to the month.

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 deposit withheld payroll taxes each month. Monthly deposits are due by the 15th day 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. 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 the employee’s wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.

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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 deposit withheld payroll taxes semiweekly.

For Wednesday, Thursday, or Friday paydays, deposit payroll taxes on or by the following Wednesday. This is a must.

For all other paydays—deposit payroll taxes on the Friday after the payday. This is also a must.

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 the employee’s wages, the employee’s share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes.
Key Tax Dates October 2023Download

October 16, 2023: Form 1040 due for taxpayers who filed for a six-month extension

Last day to file a 2022 federal income tax return (Form 1040) for taxpayers who obtained an automatic six-month extension by filing a Form 4868 by April 18, 2023 (April 19 if you live in Maine or Massachusetts).

October 30, 2023: File employer exemption (Form 8274)

Churches hiring their first nonminister employee between July 1 and September 30 may exempt themselves from the employer’s share of FICA (Social Security) taxes by filing Form 8274 by this date. (After that, treat nonminister employees as self-employed for Social Security purposes).

Only churches that oppose paying the employer’s share of FICA taxes on the basis of religious principles can use this exemption.

October 31, 2023: File quarterly federal tax return (Form 941) with payment

Churches having nonminister employees (or one or more ministers who report their federal income taxes as employees and who have elected voluntary withholding) must file an employer’s quarterly federal tax return (Form 941) for the third calendar quarter by this date.

Enclose a check in the total amount of all withheld taxes (withheld income taxes, withheld FICA taxes paid by the employee, and the employer’s share of FICA taxes) if less than $2,500 on September 30, 2023.

For complete information, consult the 2023 Church & Clergy Tax Guide by Richard R. Hammar, JD, LLM, CPA. Visit ChurchLawAndTax.com for the expert insights you need to manage tax issues with confidence
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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Does Your Church Have Sexual Abuse Liability Coverage?

Understanding sexual abuse liability coverage is key to a building a strong ministerial insurance portfolio.

Charlie Cutler

These days, churches would do well to pay particular attention to sexual abuse liability coverage as child abuse cases involving churches and ministries are on the rise, especially as states look for ways to extend the time victims have to seek justice.

An essential step in the process is verifying insurance coverage and keeping up with changing laws and regulations.

Why your church needs an insurance check-up

Church insurance has become extremely complicated in recent years due to one reason: child abuse. Tragically, allegations of child sexual abuse remain the number one reason that ministries end up in court. Because of this, sexual abuse liability coverage provides a critical foundation to almost all ministry insurance programs.

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The statutes of limitation (SOL) that allows victims to pursue abuse cases also has been extended in many states—some temporarily, others for longer. Churches need to understand that they may be defending themselves against an allegation made decades from now.

For example, in New York, the statute of limitations (SOL) for filing a civil suit as a survivor has been extended. Previously, survivors could file up to the age of 23; now, they can do so until they reach 55 years old.

In California, the SOL has been increased from 24 years old to 40 years old, or within five years of the survivor discovering that the “psychological injury or illness occurring after the age of majority was caused by the sexual assault.”

The US Congress recently passed the Eliminating Limits to Justice for Child Sex Abuse Victims Act, eliminating statutes of limitation for filing civil lawsuits for numerous federal sex offenses.

While federal civil claims cases occur less frequently than ones filed in state courts, it’s possible this trend of eliminating statutes of limitation altogether may continue at the state level.

The bottom line: Ministries must ensure that their liability limits and coverage terms are adequate to address potential claims alleging abuses from decades ago—as well as ones arising decades from now.

By following the steps outlined here, your board can identify and rectify significant financial vulnerabilities facing your organization.

Caution. This article focuses on insurance coverage and financial vulnerabilities that churches and ministries face based upon abuse allegations. Leaders must also focus on training, screening, selection, and supervision policies and practices to prevent abuse, as well as ministering well when abuse victims come forward.  

Verify sexual abuse liability coverage

The first step to an insurance check-up is to confirm which, if any, of the ministry’s insurance policies contains sexual abuse liability coverage.

Under the list of coverages, you may find this insurance under the names “Sexual Misconduct Liability,” “Sexual Acts Liability,” “Sexual Abuse Liability,” or something similar. If the coverage is included, it is often listed beside directors and officers insurance.

When considering your coverage, it’s important to take note of the liability limit.

You must assess whether your liability limit provides adequate protection given both your involvement in youth activities and the assets you need to safeguard. Keep in mind that these types of allegations can take years or decades to come forward, meaning your ministry may be defending itself far into the future. Due to rising inflation, it’s crucial to recognize that a $300,000, $500,000, or even $1,000,000 liability limit may not hold the same value at the time of a future claim.

Also review your umbrella or excess policy and determine whether it goes over the sexual abuse liability limit. Review this policy’s combined coverage limits. It’s a good idea to review both items with your agent or broker.

How much does sexual abuse liability coverage cost?

Stand-alone abuse liability coverage typically isn’t available, but the coverage can be bundled with your other insurance coverages as part of a package policy. Pricing varies widely, from a few hundred dollars per year for a small ministry with a low limit, to thousands of dollars per year for a larger, more complex ministry with protection extending into the umbrella limits.

Sexual misconduct liability coverage written on an occurrence basis tends to be slightly more expensive due to its permanent protection. On the other hand, claims-made coverage costs less initially but may incur price increases over time as additional years of protection are added.

While price is important, church leadership must be careful when choosing between short-term cost savings and adequate long-term protection.

Claims-made vs occurrence-based coverage

It can take years, even decades, for a sexual abuse allegation to surface.

For this reason, it’s important to verify whether a policy purchased today will provide coverage 20 years from now. The key is knowing the difference between claims-made coverage and occurrence-based coverage.

Occurrence-based: Occurrence-based coverage is essentially ‘lifetime’ coverage. If a covered claim occurred during the policy period, the policy would respond regardless of when the claim was reported.

Claims-made: Claims-made coverage provides ‘temporary’ protection for covered claims during the policy period. To report a claim on this type of policy, the incident must have occurred during the policy period and the claim must have been reported to the carrier within the same period. This period can be adjusted based on a retroactive date (for occurrences before the policy period) or an extended reporting period (granting more time for reporting a claim after the policy expiration date).

It can be tempting for a ministry to purchase claims-made sexual abuse liability coverage for the cost savings. Sexual misconduct liability coverage written on an occurrence basis is typically a bit more expensive because it offers more permanent protection. On the other hand, claims-made coverage costs less initially, but the price may go up you add more years of protection.

However, purchasing claims-made coverage can be a costly mistake. Sexual abuse claims tend to come forward several years after the insurance policy expires. This isn’t a problem for occurrence-based policies; however, the later timing for a reported sexual abuse claim can void coverage under claims-made policies.

For the most adequate coverage, and to pass on a legacy of financial stewardship to the next generation, occurrence-based coverage is typically the better choice for this type of liability.

Legacy liability

At this point, your ministry should have a solid grasp on your current sexual abuse coverage and know where you stand regarding potential future claims. It’s now time to review legacy liability.

By legacy liability, we refer to the risk that your ministry could face a sexual abuse claim today, even though it occurred 5, 10, even 25 years ago.

Document, document, document

Unbroken coverage and good coverage records are crucial in keeping your church well-prepared to address a claim. Your ministry must maintain a file of every insurance policy from today back to its inception, a process sometimes referred to as “insurance archaeology.”

If a claim were to occur, the very first question would be, Who was our insurer back then? This will then raise a few questions:

1. Did we have the right coverage? Review each of your prior insurance policies to ensure that your church, in fact, carried some type of sexual abuse liability coverage.

2. Can we still report a claim? Confirm if your church’s prior policies were written on a claims-made or occurrence basis. If it was claims-made, review the policy to confirm if any coverage still applies.

3. Did we have additional liability coverage? Determine if your church carried any prior umbrella or excess coverage, and whether the sexual abuse liability coverage was an underlying insurance.

Finally, repeat this documentation process for any entities your ministry has acquired or merged with. Merging with or acquiring other organizations carries the risk that unknown liabilities will carry over to the parent entity. If someone sues you over the actions of an acquired organization, your church will want to make sure the absorbed ministry’s insurance will respond.

Retroactive coverage

After performing this exercise, your church may come to the unfortunate conclusion that your legacy insurance policies do not provide adequate coverage. If so, what options remain to avoid a catastrophic financial exposure?

Retroactive coverage provides protection for claims arising from incidents that occurred before the policy’s effective date, ensuring coverage against potential claims that occurred years, or even decades, prior. With retroactive coverage, churches can ensure that they have comprehensive protection for potential claims that may arise from past incidents, even all the way back to the ministry’s inception date.

As more and more sexual abuse claims come forward, this type of coverage is becoming increasingly hard to find. Often, insurance companies will not provide this coverage unless the church signs a statement denying any awareness of potentially pending claims. However, it is still possible to acquire this important coverage. Contact your church’s insurance agent or broker to find out whether your church can.

Your Church Insurance Check-Up Checklist

Regularly reviewing and updating your church’s insurance policies is essential. By following this checklist, you can leave a lasting risk management legacy for your congregation and ministry for years to come.

1. Verify current sexual abuse liability coverage
  • Confirm if your existing policies include sexual abuse liability coverage.
  • Check the terminology: It may be listed as “Sexual Misconduct Liability,” “Sexual Acts Liability,” or similar.

2. Assess liability limits
  • Evaluate whether your liability limit is adequate, considering your ministry’s involvement in youth activities and the assets you need to protect.
  • Account for future inflation and the potential for allegations to surface years later.

3. Review additional coverage
  • Examine your umbrella or excess policy to see if it extends over your sexual abuse liability limit.
  • Consult with your insurance agent or broker to confirm your combined coverage limits.

4. Evaluate coverage type
  • Given the long-term nature of sexual abuse allegations, strongly consider occurrence-based coverage over claims-made coverage.

5. Document previous policies
  • Perform “insurance archaeology” to compile all previous insurance policies, including those of acquired organizations.
  • Review each policy for its type of sexual abuse coverage, if any.

6. Legal consultation
  • Consult your attorney or a specialized church insurance agent regarding your jurisdiction’s statutes of limitations in the context of your insurance history.

7. Assess legacy liability
  • Document any acquired or merged entities, and review their insurance policies for evidence of prior sexual abuse liability coverage.

8. Explore retroactive coverage options
  • Review your legacy policies with the board and church leadership, and if needed investigate purchasing retroactive coverage.

9. Maintain comprehensive documentation
  • Keep all insurance policy records, both current and past, in a well-organized and accessible manner.

By taking these steps, you can ensure that your ministry is adequately protected against potential risks and liabilities, both now and in the future.

Charlie Cutler is managing partner, ChurchWest Insurance Services.
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Q & A: How a Texas Church Navigated A Sticky Tax Situation

Navigating a sticky tax situation is a matter of patience, record-keeping, communication and above-all, due diligence.

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

Matt Gillum, executive pastor at Austin Baptist Church in Austin, Texas, tells Church Law & Tax how his church patiently worked with city leaders to resolve a sticky tax situation.

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Q: Describe your church’s sticky tax situation—why did it receive an unexpected property tax bill?

In 2010, our church purchased 36 acres of vacant land. The land was divided into five sections—or “plats”—but all of it was purchased in one transaction. Before we bought it, a site plan was put together and passed by the city. We constructed a building on part of the property that opened in 2012.

A few years later, the assessor visited our property and noticed two of the plats remained undeveloped. The church hadn’t developed those two plats because the city of Austin is stringent about how certain types of brush can or can’t be cleared, as well as other environmental activities. The assessor determined the two plats weren’t being used for religious purposes and didn’t qualify for property tax exemption anymore.

Q: What was most surprising about this determination?

Church staff didn’t know we need to regularly show our eligibility for a property tax exemption. Staff also didn’t know how it needed to show the ways the two unused plats remained in unity with the rest of our property for religious purposes.

To the city, it could look like the church was holding on to the two plats and keeping them vacant to potentially sell them in the future. That was never our plan.

Q: Did your church appeal the assessor’s decision?

Yes. But once that happens, the situation remains in limbo unless something moves it forward toward a decision. Unfortunately, the property tax potentially owed continues to accrue in the meantime. We hired a lawyer to help move the process forward because the amount of money we needed to set aside to pay the accruing taxes in the event the appeal was denied was becoming sizable.

Q: What was the church’s approach to this sticky tax situation?

We did full due diligence. We pulled together photos providing evidence of how we use the property for church purposes. We dug up meeting minutes describing the master site plan the church developed in 2014, and how all of it worked toward the church’s religious functions. All of this proved to be extremely important in the process because it helped show what our church did, what it planned, and what it planned to do.

Q: How did the assessor respond?

It took five years, but we reached a compromise. The church agreed to pay a portion of the property tax for the year the assessment was made. But that was significant because the assessment in full could have been for four years’ worth of property taxes.

There was criticism within the church at times because of what we were spending to deal with this. I hated the idea of an ongoing property tax dispute sapping resources that could go toward ministry. The expenses did hinder growth in our missions, staffing, and other parts of the church.

It’s an albatross similar to debt.

In the end, though, the expenses proved to be worthwhile.

Dig Deeper: Attorney and Church Law & Tax Senior Editorial Advisor Midgett Parker explains why—and how—the property tax exemption process can honor God.

Q: As you navigated the appeal, what did you and your church learn?

We learned a lot. For instance:
  • Urgent action at the very beginning—when the bill first arrived—probably would have helped. Find experts, such as lawyers and real estate developers, and call upon them right away. Some may even attend your church, and if they have the right expertise, it can be a way for them to serve, especially if they haven’t found another way to serve. We found individuals like this—that was my favorite part of this process.
  • Keep diligent records. For a proceeding like this, you have to gather numerous legal and property documents. When they’re kept organized and accessible upfront, everything works more efficiently.
  • Keep good communication going with the church’s leadership and the congregation. Leadership especially wants to know the ministry staff knows what’s happening and has a plan.
  • Be respectful in public and in private. Don’t get angry or scared—look for solutions. Don’t attack city officials—work with them. Attacking only makes officials defensive and that doesn’t help anybody. We also know we will have to work with the city in the future, whether for building codes or other issues, so we need to maintain relationships. City officials are politicians who need to serve constituents, so it’s important we understand their job. It’s also important we understand their potential need for the gospel. City leaders and officials are part of the mission field, too.

We didn’t go to the media about this, either. We didn’t want to shame anyone. We didn’t want to be viewed as adversarial. We also didn’t want to trigger community debate about whether churches should even receive property tax exemptions.

Becoming contentious only works against you—and for those in your community who are already adversarial toward you, it only adds more fuel to the fire.
  • Empty parts of your church’s property can appear to be unused or irrelevant to worship purposes. Remember that the entire property doesn’t have to have buildings to still be relevant for worship purposes.

As we examined those two plats, and the challenges we faced with environmental restrictions, we realized we could create trails, a picnic area, and a disc golf course—all of which we made available for neighboring residents to use. We still use those plats for religious purposes, too. We host outdoor events, worship services, and other gatherings.

This just goes to show what can be done when you think creatively. If we could have done that sooner, it would have maybe helped avoid all of this.

Above all, good due diligence, intentionality, and consistent communication are good ways to solve this faster.

Editor’s note: This interview was edited for length and clarity.
Matthew Branaugh is an attorney, and the content editor for Christianity Today's Church Law & Tax.
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Navigating Cyberliability Insurance

General liability and cybersecurity insurance are not the same thing, and church leaders do well to understand the differences.

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

As church boards and pastors work to train staff members—and themselves—to spot cybersecurity scams before they take hold, cyberliability insurance may become part of the conversation.

And churches that assume general liability policies cover cyber-related claims could be in for a rude awakening.

It’s why insurance coverage for cyber-related incidents is a growing, albeit imperfect, coverage area. Church Mutual, for instance, offers cyber liability coverage limits that typically range from $50,000 to $1 million for a claim, according to a company spokesperson. 

Cyberliability insurance is expensive

However, leaders should note that the long-term sustainability of cybersecurity insurance remains in question.

The costs for insurers to provide coverage continue to climb, and so monthly premiums are climbing, too.

Marsh, one insurance broker, reported premiums jumped 28 percent at the end of 2022. They jumped another 11 percent at the beginning of 2023, according to business news site Raconteur. As rates climb and become less affordable, insurers are scaling back the scope of policies, according to the article.

Meanwhile, the federal government is considering federal insurance for organizations that maintain minimum security standards, according to the article.

About one-quarter of all cyber-insurance claims do not receive full coverage, due to policy exclusions, according to Today’s General Counsel.

Stay on top of coverage changes

As a result, churches should regularly review what is and isn’t covered with their cyberliability coverage, said Jonathan Smith, technology director for Indiana multi-site church Faith Ministry, and an advisor-at-large for Church Law & Tax

Smith, who also advises other churches and nonprofits in technology cybersecurity issues, said carriers also have been known to push back on claim coverage dates.

One church, in particular, ran into problems regarding whether the carrier would cover a claim based on the date the breach occurred or the date it was discovered, which was months later.

The losses suffered by the church between those dates were sizable, he added, so the carrier’s initial reluctance was a major concern.

Carrier also require policyholders to demonstrate cyber readiness and security to get coverage. Any shortcomings can jeopardize coverage of a future claim, noted Rusty Goodwin.

Goodwin is an organizational efficiency expert who co-presented a July 2023 webinar for the Evangelical Council for Financial Accountability (ECFA). 

Churches also should review their directors and officers insurance, Goodwin said.

The reason: claims brought against a church after an incident sometimes name the individual church leaders as defendants.

Create a culture of compliance

Prioritizing cybersecurity goes beyond insurance, though. Training and technology play a part, too.

Churches should view cybersecurity as a matter of urgency, and such urgency starts with church leadership, Goodwin said during the ECFA webinar.

Churches become more secure when their boards prioritize it, and failure to do so may even constitute a breach of fiduciary duty by board members, he said.

Sometimes church leaders protest the perceived costs associated with building a stronger “human firewall,” and beefing up technology, said Jay Cordova, Goodwin’s co-presenter.

When that happens, Cordova reminds leaders of the actual costs should a cybercriminal ransom a church’s most sensitive data.

While no organization can guarantee 100-percent safety, “compliance as a culture” can harden the defenses of churches, Goodwin said. 
Matthew Branaugh is an attorney, and the content editor for Christianity Today's Church Law & Tax.
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Hacking a Church Is About Exploiting Its Weakest Link

As generative AI improves communications, church hackers are refining their tactics.

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

Email scams on churches in Florida, North Carolina, and Ohio led to millions of dollars in losses, but they also highlight the reality that hacking a church can be about human behavior as much as technology.

Contrary to Hollywood-produced stories, sophisticated work from a remote location to access a victim’s network or computer isn’t what leads to most breaches, says Jonathan Smith, technology director for Indiana-based Faith Ministries, a multisite church.

“‘Hacking’ is a misnomer,” Smith says. “It’s the user usually unwittingly enabling the bad actor.”

AI is making hacking a church easier

Phishing remains the most common tactic, but generative artificial intelligence (AI) is making it harder to spot. Using chatbots, bad actors create error- and typo-free messages, says Allison Ward, a partner with CapinTech.

“Bad actors follow what we do,” Ward tells Church Law & Tax. “They do what we do, and do what’s normal to us, to get us to fall victim.”

Part one and part two of a webinar Allison Ward co-presented on security controls is available from CapinTech.

“The tricks haven’t changed. The methods haven’t changed,” Smith adds. “But now, AI makes the playing field level.”

Phishing, Vishing, SMSishing …

Some of the more common tactics include:
  • Phishing: An email sent to the victim appears to come from a familiar sender. Examples include an online retail website or the security team of a social media platform. The message sounds dire, It also instructs the recipient to take immediate action by clicking on a link or opening an attachment. Either option might contain malicious code, potentially infecting the victim’s computer. Or the messages may redirect the victim to an official looking page that then captures sensitive information shared by the victim.
  • Spear Phishing: This is the same as a phishing attempt, except the email appears to come from someone the victim knows. The email may include specific instructions to coax the victim into doing something—send electronic gift cards, change routing information for making payments.
  • Vishing: A voice mail that uses similar messaging as a phishing email or spear phishing email. Generative AI can mimick the voice of someone the victim recognizes to make the message sound legitimate.
  • SMSishing: A phishing or spear phishing attempt sent via text message to a victim’s mobile phone instead of email.
  • Ransomware: A phishing or spear phishing attempt containing malicious code in a link clicked by the victim or an attachment opened by the victim. The code enables a criminal to access systems and files and hold them ransom. Generative AI now allows bad actors with little programming experience to create ransomware. This means increased attempts are likely to come.
  • Multifactor workarounds: A bad actor obtains the victim’s password to a site or system, either through a breach unrelated to the victim, or through a victim’s weak password. The victim’s church uses multifactor authentication (MFA), a commonly used best practice in which a code is sent via email or text to confirm the victim’s identity. The bad actor has the site or system send the victim repeated MFA requests. Then, the bad actor sends an email or text claiming to be from the church, asking the victim to send the MFA code.

Download and share this glossary of hacker tactics with your church staff, pastors and other key users:
Glossary of Hacker TacticsDownload
Matthew Branaugh is an attorney, and the content editor for Christianity Today's Church Law & Tax.
an red, unlocked padlock in a sea of locked, green padlocks.
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Church Cybersecurity Starts With the Human Firewall

While external threats are real, church cybersecurity starts with strong internal processes and education, experts say.

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

An attack on church cybersecurity rarely comes at the right time, is rarely designed to be easily spotted, and is likely geared at exploiting human vulnerabilities, not firewalls or technological safeguards.

At Lafayette, Indiana-based Faith Ministries, the threat arrived in a staff member’s email inbox a few minutes before an early-morning worship service one Sunday this spring.

“I’m praying with some people,” the pastor wrote, adding he needed the staff member to send him several electronic gift cards for the people he was praying with.

Suspicious, the staff member flagged the email. He later learned the email really came from an outside party attempting to defraud the multisite church.

The human firewall

Jonathan Smith, Faith Ministry’s technology director and an advisor-at-large for Church Law & Tax, says the attack revealed just how well-versed some cybercriminals are in the normal routines and rhythms of the local church:
  • The sender knew the pastor’s name to pose as him.
  • The email described activities commonly occurring on a Sunday morning.
  • The email arrived just before the service started, a moment many church staff members might rush a response rather than verify it.

Thankfully, Smith’s colleague thought twice.

And that’s the key lesson in the never-ending fight against cyber fraud: people, not just technology, are the best defense.

While hardware and software defenses, technological best practices, and even cyberliability insurance, play important roles, training and education can go furthest toward minimizing susceptibilities at every church, technology and security experts say.

“The human firewall is our only hope,” Smith says.

Attacks are on the rise

Several high-profile church cybersecurity breaches have made recent headlines.
  • The Florida Baptist Convention had $700,000 stolen in early 2023 after an email purporting to be from the Southern Baptist Church’s North American Mission Board instead proved to be fraudulent. The instructions in the email tricked convention employees into changing account information for routing funds.
  • In late 2022, a North Carolina church received an email containing a bill, along with new electronic payment instructions, from a party posing as its building contractor. Nearly $800,000 was lost.
  • Another email scam in 2019 cost an Ohio Catholic church $1.7 million after criminals accessed email accounts of parish employees and then sent emails instructing them to change payment information for a construction contractor.

Training and educating

Educating and training church pastors and staff members about these types of tactics—and how they continue to evolve—is critical, says Allison Ward, a partner with CapinTech, a division of church and nonprofit accounting firm CapinCrouse.

Part one and part two of a webinar Allison Ward co-presented on security controls is available from CapinTech.

Repeating this training and education frequently is needed, too, adds Nick Vaernhoej, chief information security officer for Church Mutual Insurance Company, the largest insurer of US houses of worship. While criminal tactics mostly remain the same, the methods for accomplishing them rapidly shift.

The ways the tactics are adapted to trick recipients “change month by month,” Vaernhoej says.

‘Low-tech’ solutions

Building a strong human firewall is about getting people to:
  • Stop before they respond
  • Evaluate what’s happening
  • Take steps to verify what’s being requested through some other form of communication

“In my experience, the best methods for addressing ‘high-tech’ threats are typically ‘low-tech’ in nature,” Vaernhoej says. “For instance, some type of manual verification system, such as placing a phone call to the requester before releasing the funds requested.”

Smith agrees, adding a live confirmation before changing a payment method or process or releasing any funds is a must. Churches should adopt policies requiring live verifications, he adds, noting a live call, live video call, or in-person conversation should be used.

“AI can now mimic voices, so don’t rely on a voicemail left in tandem with an email,” Smith says.

At Faith Ministries, ongoing training comes multiple ways. The church partners with an outside vendor who sends about four test messages per week to staff members. These message are designed to trick an employee into clicking a link or opening an attachment. Those who fail get follow-up messages and tips.

Periodic staff wide training sessions also occur, Smith says.

KnowBe4—the vendor Faith Ministries uses—charges $3 per user per month. As Smith—who also consults for churches and ministries through his company, MBS Inc.—advises other churches to do the same, he frequently encounters resistance.

“How do we communicate the urgency for this? It’s such a simple thing to solve, it’s inexpensive to solve, and yet few are willing to do it,” Smith says.

Setting solid standards

Meanwhile, established standards for good hardware, software, and security protocols are available through the National Institute of Standards and Technology (NIST). These are especially helpful for technical specifications related to firewalls, network security, virtual private networks, password management, and encryption.

Ward and Vaernhoej offer these best practices:
  • Take inventory of the devices and software your church uses. Take inventory of the people who possess them (as well as have access to networks).
  • Keep up on security patching released by hardware and software vendors.
  • Require regular password management and institute multifactor authentication (MFA) preferably through an app-based option from Okta, Microsoft, or Google. This cuts down on the multifactor workarounds that bad actors use with text- and email-based options.
  • Use an email filtering solution. Work to balance the sensitivity levels to screen out problem messages while still allowing legitimate ones. Microsoft’s Office365 and Gmail’s cloud email options, work well for small and large operations. Both offer in phishing and malware prevention techniques.
  • Use combinations of complementary tools to boost overall security. A good example? Pairing a content filtering firewall with antivirus software. This simple mix of foundational tools will stop many problems before they can cause any damage.
Matthew Branaugh is an attorney, and the content editor for Christianity Today's Church Law & Tax.

AG Investigations into Churches and Nonprofits Are on the Rise

AG investigations can lead to both civil and criminal penalties. What triggers such investigations, and how can your church be prepared?

Dustin Gaines, Attorney

While the Internal Revenue Service is seen as the primary watchdog to the nonprofit world, attorneys general also can investigate nonprofits, and AG investigations into nonprofits and churches are on the rise.

This may be surprising, but in most states, attorneys general not only have the power to investigate nonprofits and churches, but they also have the power to render civil and criminal penalties and prosecute and remove board members.

In one non-church nonprofit matter in Minnesota, the attorney general even petitioned to dissolve a nonprofit.

There is certainly an overlap between an attorney general and the IRS’s involvement in investigating churches and nonprofits for financial concerns, but it seems that the attorney general’s offices are picking up in areas where the IRS is not.

Under IRS regulations, the IRS must have a “reasonable belief”—with evidence—that wrongdoing is occurring.

However, “reasonable belief” is not a requirement for attorneys general.

In our law practice—exclusively devoted to representing churches and nonprofits—this has been the fastest-growing trend in years.

From 2010 through 2022, we only saw a handful of these investigations. They predominantly focused on non-church nonprofit organizations.

Since fall 2022, though, we have represented churches and nonprofits in more than a dozen attorney general investigations.

What triggers an attorney general investigation?

Just as Scripture refers to money as the root of all evil, in the nonprofit compliance world, money is indeed the root of all state attorney general investigations.

Due to the potential for fraud, state attorneys general are very interested in how church boards handle money provided by the citizens of their states.

The online complaint process is simple, and can trigger an investigation for reasons that include, but are not limited to, the following:
  • Loans to directors and officers: In many states—such as Florida, Tennessee, New York, and California—it is illegal for a church to loan any money to individual board members. This may even include using church credit cards for personal purchases and reimbursing the church later, which amounts to short-term loans. There are serious legal consequences here for what essentially amounts to the comingling of church and personal funds.
     
  • Misuse of ministry-owned housing: Problems occur in this area when a board member—most often a pastoral staff member—lives in ministry-owned property but does not have a housing allowance set up or in place, and the church does not report the value of the ministry-provided housing on individual tax returns.

  • Questionable expenditures potentially in violation of tax laws: When an attorney general receives a complaint that a board member is personally benefitting, the law treats this as “inurement” (improper personal financial gain from the nonprofit).

Red flags
  • Personal clothing purchases
  • Excessive travel expenses that appear to be personal
  • Personal expenses (food, medical treatment, and other similar items)

Impropriety Related to Unrelated Business Income (UBI): Revenue generated by your church that appears to be substantial and not closely related to its exempt purposes may trigger unrelated business income taxes. Correct legal and accounting counsel on how to properly set up and facilitate your ministry’sUBI is critical. Improperly structuring multi-entity ministries—especially if UBI is involved and board members are involved in the process—can have dire consequences and present the appearance that the church is funneling money to the personal business endeavors of the church’s directors.

What does an attorney general investigation look like?

With an increase in these investigations, church leaders may wonder what to expect if one arises.

At the preliminary stage, there is a unique and limited opportunity to directly refute charges and provide the necessary evidence to do so.

But suppose the investigator sees that the organizational and legal health of the church is in disarray. In that case, it is a sure bet that the attorney general’s office will begin to investigate. At this juncture, this could be a criminal investigation into individual board members. It could also be a civil matter against board members and/or the entity, or a combination of both.

In all matters, hiring competent legal counsel to represent your organization throughout the investigation is critical.

If the matter is potentially criminal, the attorney general will have the option to investigate and present the findings to a grand jury for indictment. In lieu of indictment, some states may allow the church the opportunity to hire its own forensic auditor (holding certified fraud examiner (CFE) and/or certified financial fiduciary (CFF) certifications) to provide an independent report as to whether financial malfeasance occurred.

These audits often require $50,000 to $100,000 to complete. It’s expensive, but it’s better than a criminal indictment. And the state may still choose to indict depending on the findings.

Train your staff on how to avoid—and spot—financial misconduct with the help of Church Law & Tax’s “Safeguarding Your Church’s Finances”— an online course led by CPA Vonna Laue geared for church board members, pastors, church administrators and financial leaders, and even volunteers.

How can my church be prepared for an attorney general investigation?

Our firm has yet to encounter a board involved in an attorney general investigation that had been properly trained on:

Focus on the following areas to reduce the risk of a lengthy investigation:

Board member training covering fiduciary duties, oversight responsibilities, and understanding your church’s governing documents and board policies. Every new board member should also receive this training. Proper board disciplines should include—but not be limited to—keeping accurate minutes and board member recusal of voting as it relates to conflicts of interest.

Written board policies and procedures that promote legal and financial integrity such as:
  • Conflict of interest policy
  • Independent compensation policy
  • Confidentiality policy
  • Restricted funds policy
  • Policy prohibiting cash structuring

Simply ensuring your board members have this information and understand their roles will virtually eliminate this risk.

Dustin Gaines is a pastor and a lawyer who is a partner with My Church Law Firm in Texas. Dustin specializes in litigation related to churches, schools, and religious non-profits.
Human Resources imagery

Wheaton Bible Church’s outside-the-box approach to compensation

Wheaton Bible Church’s compensation philosophy blends a competitive approach with a focus on employee well-being and development.

Scott Landon, Executive Pastor of Administration
Bio

Wheaton, Illinois-based Wheaton Bible Church is working to ensure all 114 pastors and employees feel valued and appreciated as it seeks to serve others.

As executive pastor of administration, I’m responsible for setting staff salary and benefit plans that help achieve that goal.

Toward that end, Wheaton Bible Church’s philosophy spells out how the church will attract, retain, motivate, and reward the most qualified people it can find while also encouraging those same people to grow in their ministry careers.

Follow CPA Elaine Sommerville’s four-step process for determining salaries

The compensation practice strives to be consistent with generally accepted biblical truths and practices.

To do this, the church sets salaries based on position classifications, which in turn are set based on job responsibilities, then compares those salaries to other, comparable evangelical churches each year.

Scott Landon shares a few helpful tips with Church Law & Tax’s Matt Branaugh related to setting church compensation:
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Staying competitive

The church’s goal is to remain competitive and, in the past two years, Wheaton Bible has been able to:
  • Give each employee a raise.
  • Give most employees a bonus in February 2022 and February 2023.
  • Give every employee a Christmas gift in December.
  • Provide each benefit-eligible employee an additional holiday in December 2022 and an additional holiday on July 3, 2023.
  • Maintain health care premium costs in 2022 and for two of our three health insurance plan options in 2023, and kept dental premium costs flat in both 2022 and 2023 for singles and couples, with just a $5 per month increase for family coverage.

Other “wins” include:
  • Increasing anniversary gift awards at the 5-year intervals.
  • Providing additional vacation days for 10-14 years of service.
  • Approving a long-term service retirement gift policy.

But, beyond all that, Wheaton Bible also offers other benefits to full-time employees, including:
  • Remote work one day per week.
  • Flexible schedules to allow better work-life balance.
  • Paid time-off for holidays, vacation, personal, and sick days.
  • Discounts at preschool and ministry events.
  • Health care and dental insurance. On average the church pays 80 percent of the premiums.
  • A Health Savings Account and Flexible Spending Account that allow the cost of medical and dependent care to be minimized through tax-free dollars.
  • The church contributes five percent of employee compensation and matches up to another two percent into a 403b account.
  • The church pays half of a full-time employee’s Social Security insurance and 100 percent of the cost of life, long-term disability, and workers’ compensation insurance.

Wheaton Bible Church: Shepherding the shepherds

In addition, Wheaton Bible’s board established a long-term service retirement gift policy, and a shepherding program whereby elders are assigned three staff members to care for on a quarterly basis.

Pick up the latest edition of Church Compensation: From Strategic Plan to Compliance today.

The church also celebrates full- and part-time employees with benefits upon achieving five-year milestones by offering monetary bonuses and an additional day of paid time off (PTO) per five-year milestone. For a 15-year employee, that translates into a financial gift plus three additional days of PTO during the anniversary year.

Bonuses

Wheaton Bible has expanded bonus pools to all full-time employees and several part-time employees, along with a letter of appreciation for their work that includes a compensation and benefits summary reflecting the church’s investment in them.

Weekly prayer meetings

The church’s senior pastor doubled weekly staff prayer meetings to 60 minutes and includes singing and readings from the Psalms with time for individual reflection.

These meetings also include a time of prayer as tables come together to share ministry and personal needs, along with those offered from the congregation. Table assignments change every two months. A 15-minute time for fellowship and snacks follows each prayer meeting.

Monthly staff lunches

Monthly staff lunches offer individual staff members a chance to share their spiritual journeys. They’re also a good time to provide updates on church matters. Meanwhile, pastors meet monthly to read and discuss a specific book as part of an overall investment in theological growth.

The senior pastor is also engaging employees through lunch meetings with each ministry area. This is a time to ask questions, check-in, and receive input.
Scott Landon is the executive pastor of administration for Wheaton Bible Church in Illinois, where he oversees day-to-day operations.

Yes, Ministries Should Embrace AI

AI is a tool that, if used properly, can advance ministry.

Jonathan Smith, IT Director and Consultant
Bio

There is no doubt that artificial intelligence (AI) has been a significant technological advancement and will continue to revolutionize our lives, with some suggesting AI is to this generation what dial-up internet was to the prior generation. 

But with artificial intelligence comes many questions.

Is it safe?

Can it be trusted? 

And will AI lead to the destruction of life on our planet?

In many ways, our sci-fi imaginations get the better of us: Is AI the Terminator come to life? Have we finally built Mr. Data from Star Trek: The Next Generation? When can I order my first C-3PO droid from Amazon?

Plug in and listen to Church Lawyer Erika Cole tackle how AI intersects with the church.

Think critically about AI

But the more constructive question for church leaders is this: How will AI affect churches and ministries? 

One thing to remember: Artificial has been around for a while and has been used in the form of algorithms to process data and determine outcomes. Algorithms determine our social media feeds, protect our bank accounts and personal information, and even help with traffic management.  

As the algorithms get “smarter,” the appearance of intelligence emerges. Add to that the ability to tackle more complex, subjective questions, such as “Which national park is the best?” and the algorithms behind AI begin to give it the appearance of discernment.

But AI can’t discern. Remember, the data from which it draws its conclusions was provided by humans that may not always agree and are often filled with biases. So, while artificial intelligence does its best with what it has, we’ve found it to be extremely flawed.

You remember the adage, Garbage in equals garbage out? It’s still true. But with AI, the scale makes finding the garbage a challenge, and the subjective nature of what one human programmer views as garbage compared to another programmer’s view further complicates the effectiveness.

It harkens to the early days of the internet when we emphasized that not everything you read online is true. 

Now, the emphasis is on reminding people that, not only is the internet not the ultimate source of truth, but neither is social media—and neither is AI.

Embrace AI, do not fear it

How does all of this affect ministries? 

First, there is no need to be scared. Artificial intelligence is not life—only God can create life. No amount of programming or algorithms can change that. AI can only mimic the creative process.

Second, you can’t always trust it.   Phishing scams and get-rich-quick schemes flourish because we believe what we see online. You don’t know if there is another human trying to scam you or another human using AI to make the scam more complex, but you can’t naively trust AI. 

Third, ministries should embrace AI.  (Yes, you read that correctly.)

Churches and ministries should not run and hide just because AI poses risks. Instead, they should use AI, as they hopefully use other technology, for ministry effectiveness.

Convene conversations around AI

AI offers numerous ministry opportunities. Instead of fearing it, use it as a discipleship opportunity.

Sure, your theology will come into play when evaluating artificial intelligence, but is your church teaching about it with any theological depth? 

Does all this talk of gen AI have you thinking about other IT-related issues? Consider picking up a copy of Nick Nicholaou’s “Church IT.”

Have you considered community events to teach the good and the bad? What about teaching basic online safety, including code words to avoid child voice scamming, or that using AI—or any other method—to cheat on one’s homework is a sin?

I assure you: I typed what you are reading here. But how do you know? How would a school know? Even AI tools used to detect AI-created content had to be shut down because the tools failed more than 60 percent of the time.

In many cases, AI should be an opportunity for the church to look deeper at itself, both beneath the steeple and outside the walls.

AI’s undeniable power

Meanwhile, the power of AI is undeniable and creates questions and concerns.

Its ability to generate lifelike videos is amazing. 

The benefits to church production in not having to record your pastor literally saying every word, but rather, setting up an AI version so you can improve efficiency is incredible.

The sin-cursed side of this is, what happens when the pastor leaves and the church holds on to the likeness and makes it say things the pastor would never say? This side of heaven, powerful technology must be applied through the lens of the Bible.

At a more individual level, what happens when artificial intelligence is used to fake the voice of one of your children calling for help when your child is safe? Social media is another powerful technology that can be used for good and evil. The video you posted of your child giving a speech can also be used to get a sample of a child’s voice that, in turn, could be used to scam you through emotional distress. 

The world is constantly changing. We need to teach that the Bible is forever, providing a strong theological foundation so that, whatever comes next, our people are ready to handle it in a Godly manner. None of these technological developments surprised God, but do we really believe and teach that? The Bible teaches the need to discern right from wrong, and yet we are not teaching that same discernment online.

Using AI to strengthen ministry

Other benefits for churches involve data collection and analytics. I’ve written about the data that churches collect and how to keep it safe, but what about using AI to better evaluate that data? Data is fine, but it’s what you do with the data that really matters.

Artificial intelligence can be an ally in this effort by going through data and providing useful information from which to make decisions.

Using AI to help close the proverbial “ministry back door”where people stop attending before leaders realize it. AI can help us better evaluate attendance patterns and changes in involvement, even comparing attendance with giving trends. This information might help us understand who is at risk for leaving the church or struggling in a manner that a call or visit might prove fruitful. What used to be complex and take hours can now be simplified and assessed in real time. 

Copyright and defamation concerns

We have a long way to go to catch up with the advancements artificial intelligence has provided and the law lags these advancements, too. AI has quickly outdated copyright laws. Personal privacy and intellectual property lawsuits are just starting to head to court. Defamation cases are being filed. But in these cases, who’s to blame? The AI? Or those who programmed the AI? The decisions to come will reshape how we know and understand the use of this technology even in church contexts.

Stewarding AI for good

I’m excited about AI’s potential for affecting the Kingdom. 

But, whether with AI, social media, digital projectors, microphones, cameras, or anything else, all new technology requires responsible use. 

Microphones are great, but if you don’t know what you are doing, they will cause piercing feedback. artificial intelligence is also great, but if you don’t know what you are doing, and you aren’t willing to learn, the scale of the feedback could be destructive. 
Jonathan Smith is director of technology for Faith Ministries in Lafayette, Indiana. He is also president of MBS, Inc., a provider of technology services that exclusively serves churches and ministries. He is a published author and a frequent speaker at conferences.
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