Understanding the Consequences of Losing Tax Exemption for Churches

Learn what happens if your church loses its tax-exempt status and how it could affect finances, donations, and legal protections.

Last Reviewed: January 1, 2025

Q: I am aware that churches risk the loss of their tax-exempt status if they participate in political campaigns. Several people in our congregation would like for our church to be more politically active. As a practical matter, what difference would it make if we lost our tax-exempt status?


Implications of Losing Tax-Exempt Status

Losing tax-exempt status would significantly impact your church in several ways. Here are the key consequences:

  • The church’s net income would be subject to federal and state income taxation (except in states without an income tax).
  • Donors would no longer be able to deduct their contributions to the church.
  • The church would be ineligible to establish or maintain 403(b) tax-sheltered annuities.
  • The church could lose its property tax exemption under state law.
  • The church could lose its sales tax exemption under state law.
  • The church could lose its exemption from unemployment taxes under state and federal law.
  • There may be a negative impact on the church’s zoning classification.
  • Preferential mailing rates may no longer apply.
  • State laws may require the church to register its securities.

Impact on Ministers and Congregants

  • Nondiscrimination rules for certain fringe benefits, such as medical insurance premiums, would apply.
  • The housing allowance for ministers may be affected in some cases.
  • The exempt status of ministers who opted out of Social Security could be impacted.
  • Protections under the Church Audit Procedures Act would no longer apply.
  • State charitable solicitation exemptions may no longer apply.
  • The church may lose exemptions under federal and state civil rights laws regarding religious discrimination.
  • The church may no longer qualify for exemptions under the public accommodation provisions of the Americans with Disabilities Act (ADA).

Why Churches Must Be Cautious

Clearly, any activity that jeopardizes a church’s tax-exempt status must be addressed with utmost seriousness. The potential consequences span financial, legal, and operational domains, directly impacting your congregation and mission.

FAQs About Losing Tax-Exempt Status

1. Can a church regain its tax-exempt status after losing it?

Yes, but the process involves reapplying with the IRS, demonstrating compliance, and meeting all requirements.

2. What activities could cause a church to lose its tax exemption?

Engaging in political campaigns, excessive lobbying, or operating in a commercial manner unrelated to its mission can jeopardize exemption.

3. How does losing tax exemption affect church donations?

Donors would no longer receive tax deductions for their contributions, potentially decreasing giving.

4. Are there alternatives to mitigate risks of losing exemption?

Consult legal counsel to ensure compliance with tax laws, and implement governance practices that align with IRS requirements.

Additional Resources

The editorial team of Church Law & Tax is made up of Matthew Branaugh, attorney-at-law, and Rick Spruill, digital content manager.

Ownership of Church Accounting Records

Allowing a church treasurer to work on these records at home is problematic.

Q: Our treasurer frequently brings some of the church’s financial records home to work on them. He claims that the records are his property, and not the church’s, when they are in his home. Is that correct? Who does own a church’s accounting records?


Let me make six observations in response to your question.

1. An incorporated church must maintain its financial books

The nonprofit corporation laws under which most churches are incorporated require that corporations maintain various kinds of records, including financial books of account.

To illustrate, the Model Nonprofit Corporation Act, which has been adopted by most states, provides that “a corporation shall maintain appropriate accounting records.” While this language does not directly address ownership, the fact is that how can a church maintain appropriate accounting records if they are possessed and “owned” by the treasurer? As a result, it should be assumed that the church is the owner of its financial records, and not a volunteer treasurer who takes them home.

The takeaway point is that location, and even possession, does not determine ownership.

2. This practice violates principles of internal controls and other practical concerns

Allowing a volunteer treasurer to take the church’s accounting records home is not recommended, for several reasons, including the following:

Such a procedure violates two of the core principles of internal control: segregation of duties and oversight over operations. Imagine the financial improprieties that could go undetected under such an arrangement.

Irreplaceable financial records may be lost, stolen, or destroyed while in the home of the church treasurer, and confidential information may be accessed by family members.

Church staff will be frustrated in the performance of their duties because of the inaccessibility of the church’s financial records.

Such an arrangement can provide a treasurer with “leverage” that can be exerted to achieve ulterior objectives.

Such an arrangement may result in the permanent inaccessibility of church records in the event of a dispute with the treasurer, or at such time as the treasurer leaves office voluntarily or involuntarily.

3. What do church bylaws say about this practice?

Church leaders should check the church’s bylaws or other governing document to determine what, if any, authority the treasurer may have over the church’s financial records.

Some church bylaws state that the treasurer shall have “custody” of the church’s financial records, or “be responsible” for them. But custody and responsibility are not the same as ownership, although such terminology suggests that the treasurer is authorized to remove the church’s financial records to his or her home. For the reasons stated, this generally is not advisable, and so church leaders should review their governing document in order to identify and amend such a provision should one exist.

4. Paid employees and FLSA considerations

The same reasoning above applies to paid treasurers, bookkeepers, business administrators, or other employees. A paid church worker should not keep financial records at home.

An additional consideration applies to all nonexempt employees: the federal Fair Labor Standards Act (FLSA). The FLSA guarantees overtime pay for hours worked in excess of 40 during the same week. States have their own requirements.

Nonexempt employees would need be paid for work down at home. Some churches allow employees to take church records home to work on them as unpaid “volunteers.” But this is not permissible, according to Department of Labor interpretations of the FLSA.

The bottom line is that allowing church employees to take church records home in order to work with them may expose a church to significant liability under the FLSA or a state counterpart.

5. Risk management concerns

Some church leaders allow financial records to be kept in the private residence of a treasurer or other church officer or employee to preserve them from theft or a natural disaster affecting the church office. This risk can be managed by storing the records in a locked and immovable fireproof cabinet. After data on financial records is integrated into the church’s computer software, backup copies can be stored off-site.

6. The AICPA Statment on Auditing Standards and document ownership

The American Institute of Certified Public Accountants (AICPA) Statement on Auditing Standards requires CPAs to maintain specified kinds of documentation when performing an audit (no. 96, “Audit Documentation”). Most states have enacted laws specifying that CPAs own the working papers and other documentation they prepare in performing their duties. As a result, a church ordinarily cannot assert ownership in the working papers of CPAs who are retained to perform an audit of the church.

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

Tips for For Fostering An Emotionally Safe Children’s Ministry

An emotionally safe environment allows children to make friends and trust their teachers.

None of us intend to cause or allow a child to get hurt emotionally. Ideally, when a child comes to our classroom, we want them to feel safe to make friends with other children and trust the leaders. Above all, we want to create a safe haven where children can come to explore the mysteries of God, and discover his goodness.

Use these simple tips to help you create an emotionally safe environment in your children’s and youth ministry.

What to Avoid

  • Ignoring. Whether physically or psychologically, the parent or caregiver is not present to respond to the child. A child feels ignored when his teacher fails to make eye contact or call him by name.
  • Rejecting. This is an active refusal to respond to a child’s needs (e.g., refusing to touch a child, denying the needs of a child, ridiculing a child).
  • Verbally assaulting. Children feel verbally assaulted if they are belittled, shamed, ridiculed or verbally threatened.
  • Neglecting the child. This abuse may include educational neglect, where a parent or caregiver fails or refuses to provide the child with necessary educational services; mental health neglect, which denies or ignores a child’s need for treatment for psychological problems; or medical neglect, in which a parent or caregiver denies or ignores a child’s need for treatment for medical problems.

What You Can Do

  • Promote emotional literacy. Emotional literacy is the ability to identify, understand, and respond to emotions in oneself and others in a healthy manner. Children who have a strong foundation in emotional literacy tolerate frustration better, get into fewer fights, and engage in less self-destructive behavior than children who do not have a strong foundation.
  • Never be afraid to apologize. If you lose your temper and say something in anger that you shouldn’t have said, apologize. Children need to know that adults can admit when they are wrong. These situations are also a great time to explain how Jesus asks us to forgive—and that even adults need his help.
  • Bolster self-worth and confidence. Kids need adults who can identify and encourage their strengths. The message “I believe in you” can serve as needed affirmation today and an investment in a more confident tomorrow.

“Privileged” v. “Confidential” Communications in Church

Confidentiality and privileged communication are not the same thing. It is important to understand this for pastors.

Last Reviewed: September 10, 2025

Q: What is the difference between “privileged” communications and “confidential” communications?


The concepts of privilege and confidentiality are often confused.

The “clergy-penitent privilege” is a rule of evidence that protects clergy from having to testify in judicial proceedings about communications made to them in confidence while acting in their professional capacity as spiritual advisors.

CAUTION. Privileges like the clergy-penitent privilege pertain to testimony in judicial proceedings, including court-room testimony and depositions. The person who makes the communication to a clergy member holds the privilege, meaning the person decides whether to waive the privilege or keep it—not the clergy member.

“Confidentiality” is a much broader concept, and refers to a duty not to disclose to anyone the substance of communications shared in confidence. For clergy, this often arises when they become aware of highly sensitive or private information outside of a communication falling under the clergy-penitent privilege.

No law prevents clergy from sharing confidences. But caution must be exercised, as noted below.

NOTE. Clergy face a profound dilemma upon learning about a possible or reasonably suspected case of child abuse, whether through a privileged communication or a confidential one. In these instances, clergy are still strongly encouraged to follow their state’s child-abuse reporting law, due to the potential harm a child is experiencing.

Confidentiality

Confidentiality is distinguished from privilege in two ways:

First, the duty of confidentiality is not limited to judicial proceedings.

Second, it is generally considered to be an ethical matter, rather than a legal duty. While the impropriety of disclosing confidential information is universally acknowledged, few clergy have been found legally accountable for unauthorized disclosures. This is because the duty of clergy to preserve confidences has traditionally been considered to be a moral issue, rather than a legal obligation.

However, clergy members must remain mindful of the potential civil liability that can arise if they reveal private or sensitive information shared confidentially with them.

In the early 2000s, a few clergy members were sued for divulging confidences on the basis of an alleged “duty of confidentiality.” Only a handful of courts found clergy liable under such a duty.

But other types of “torts”—personal injury lawsuits—can be filed by a party who believes a confidential matter disclosed in some manner has caused them harm. Those types of claims can include defamation and invasion of privacy (also known as the public disclosure of private facts).

State laws govern these types of civil claims. Consultation with legal counsel is highly recommended before sharing confidential information in any manner.

An additional point

Churches and clergy also should exercise caution with counseling ministries they offer, whether professional or “lay person” in nature.

Depending on how the counseling is set up and administered, federal and state laws pertaining to counseling and health information likely apply. These laws often address patient-therapist relationships and the confidentiality that must be maintained through those relationships.

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

Can Church Members Vote to Suspend Bylaws at a Business Meeting?

Most of the time, a church cannot suspend bylaws willy-nilly due to important legal and procedural considerations.

Q: Our church bylaws state that board members serve a maximum of six years in office. Our church is in the midst of a construction project, and one of our board members is a contractor who has provided invaluable assistance to the church during this project. Many of the members wanted this person to remain on the board following the expiration of his term of office. A member made a motion to “suspend the bylaws” to allow this to happen. This motion did not pass, but it raised a question in our minds concerning the legality of suspending bylaws. Can church members, at a duly called business meeting, take action to suspend the bylaws?


In most cases, the answer is no. Consider these 10 points:

One

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

Two

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

Three

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

Four

Many churches have adopted the current version of Robert’s Rules of Order as their official body of parliamentary procedure governing church business meetings. Section 25 of Robert’s Rules of Order states: “Rules contained in the bylaws (or constitution) cannot be suspended no matter how large the vote in favor of doing so or how inconvenient the rule in question may be unless the particular rule specifically provides for its own suspension, or unless the rule properly is in the nature of a [procedural] rule of order.” For churches that have not formally adopted any body of parliamentary procedure, Robert’s Rules of Order is persuasive authority. Section 2 of Robert’s Rules of Order states: “Although it is unwise for an assembly or a society to attempt to function without formally adopted rules of order, a recognized parliamentary manual may be cited under such conditions as persuasive.”

Five

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

Six

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

Seven

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

Eight

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

Nine

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

Ten

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

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

Church Employee Privacy: Legal Boundaries for Phones, Emails, and Computers

Churches must navigate complex legal and ethical issues when accessing employee phone calls, emails, and computer files. Learn how federal laws like the Wiretap Act, state privacy laws, and best practices affect workplace monitoring in ministry settings.

Last Reviewed: June 13, 2025

A difficult situation can arise when church staff members misuse electronic devices provided by the church.

These situations raise critical questions for churches:

  • Do churches have the right to access employee computers and telephone calls?
  • What are the risks if they do?

The Reality of the “Electronic Workplace”

Most pastors and employees work in an electronic environment using church-provided:

  • Computers (often with internet access)
  • Cell phones

This raises important privacy issues.
Can a church access a pastor or employee’s church-provided computer or telephone without notice or consent?

Let’s look at two real-world examples:


Example 1: Unauthorized Computer Access

  • Pastor Dave, an associate pastor, leaves for vacation.
  • The senior pastor, looking for a letter, accesses Pastor Dave’s computer and finds pornographic images on it.
  • The board terminates Pastor Dave’s employment.
  • Pastor Dave claims his privacy rights were violated by the unauthorized search.

Example 2: Overhearing a Phone Call

  • Pastor Scott, a youth pastor, is overheard on a church telephone by a secretary.
  • The secretary hears him engaged in a “romantic” conversation with someone other than his wife.
  • Pastor Scott admits the conversation occurred but claims his privacy was violated.

What Privacy Rights Exist?

Can a church dismiss an employee for what it discovers on a church-provided device or phone?
The answer lies in several important federal laws—and how carefully the church operates within them.


The Electronic Communications Privacy Act (Wiretap Act)

The Wiretap Act prohibits the intentional interception of:

  • Wire communications (like telephone calls)
  • Oral or electronic communications

However, there’s an important “business extension” exemption.
Churches may legally intercept calls if:

  1. The telephone equipment was provided by a communications provider or properly connected.
  2. The device was used in the ordinary course of business.

Why “Ordinary Course of Business” Matters

  • If the call is business-related, monitoring may be legal.
  • If the call is personal, monitoring is probably not legal.

Key Problem for Churches:
Most churches allow occasional personal calls, even when policies discourage them.
If personal calls are allowed, claiming calls are always “business” becomes much harder.

Bottom line:
If a church staff member picks up a phone and hears a personal call, they must immediately hang up.
Continuing to listen could expose both the individual—and the church—to criminal and civil liability.


How Courts Have Interpreted the Wiretap Act

Court Example 1: Listening to a Personal Call

  • A supervisor overheard an employee discussing a job interview.
  • The court ruled the monitoring violated the Wiretap Act.
  • Employers must stop listening as soon as they realize a call is personal.

Court Example 2: Recording Employee Phone Calls

  • A business owner recorded 22 hours of an employee’s calls to catch theft.
  • The court ruled this exceeded the “ordinary course of business.”
  • Even if suspicions are legitimate, over-monitoring violates employee privacy rights.

Consent: A Key Defense for Churches

The Wiretap Act allows interception of communications with employee consent.
Churches can protect themselves by:

  1. Adopting a written policy informing employees that calls may be monitored.
  2. Explaining the policy to new hires.
  3. Obtaining signed consent from employees.
  4. Posting reminders on phone directories and telephones.

Important:
For current employees, a consent policy may not bind unless they receive something of value (like a raise) in exchange for agreeing.
Consult a local attorney for proper implementation.


The Stored Communications Act

The Stored Communications Act prohibits unauthorized access to:

  • Electronic communications while in storage (such as personal email stored on external servers).

Key Point for Churches:
Accessing emails stored locally (on a church computer or server) typically does not violate the Act.
However, accessing an employee’s personal email account without consent could violate the Act—and may also trigger invasion of privacy claims.

Best practice:
Consult an attorney before accessing employee emails.


Don’t Forget About State Privacy Laws

Many states have their own electronic privacy laws that:

  • Prohibit or limit monitoring calls or accessing electronic communications.
  • May impose stricter rules than federal law.

Church leaders must check both state and federal laws before monitoring employees.


Invasion of Privacy: Another Legal Risk

Invasion of privacy is a separate legal concept from the Wiretap or Stored Communications Acts.

It occurs when:

  • Someone intrudes on private matters.
  • The intrusion is highly offensive to a reasonable person.

Examples of intrusion:

  • Eavesdropping on private calls
  • Searching private emails
  • Accessing private files (such as bank statements or personal mail)

Even if no federal or state law is technically broken, churches could still be sued by an employee for invasion of privacy.


Final Takeaways for Church Leaders

Before accessing an employee’s phone calls, computer files, or emails:

  • Ensure you have legal justification.
  • Obtain employee consent in writing whenever possible.
  • Hang up immediately if you overhear a personal conversation.
  • Consult legal counsel before taking any action that could expose the church to liability.

Navigating employee privacy issues carefully will protect your church—and ensure that any discipline taken is both fair and legally sound.

We’ve used a combination of AI and human review to make this content easier to read and understand.

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

Church Liability and ‘Negligent Selection’

Is a church leader liable for not screening someone they know?

Last Reviewed: February 13, 2025

Q: If a pastor does no screening for persons he knows personally, has he exposed the church to a risk of liability?


Negligent selection

When hiring anyone, you should be familiar with the legal principle of negligent selection. The term negligence means carelessness or a failure to exercise reasonable care. Negligent selection, then, means carelessness or a failure to exercise reasonable care in the selection of a worker. Consider the following examples:

Example. A church allows Bob to serve as a Sunday School teacher in a 3rd grade class despite its knowledge that Bob engaged in inappropriate sexual relations with a child in another church. The senior pastor wants to give Bob a “second chance.” Six months after being hired, a parent alleges that Bob molested her adolescent daughter. The church is later sued by the victim and her mother, who allege that the church is responsible for Bob’s misconduct on the basis of negligent selection.

Example. A youth pastor asks a church member if she would drive several members of the church youth group to an activity. The member agrees to do so. While driving to the activity, the member is involved in an accident while driving at an excessive rate of speed. Some of the children are injured. Parents later learn that the driver had a suspended driver’s license as a result of numerous traffic violations. No one at the church was aware of the member’s driving history, and no one ever attempted to find out. The church is later sued by two of the families, who allege that the church is responsible for the driver’s actions on the basis of negligent selection.

These examples illustrate how a church’s negligence in the selection of a worker can lead to liability. It is important to recognize that churches are not automatically liable for every injury that occurs on their premises or in the course of their activities. Generally, they are responsible only for those injuries that result from their negligence. It is therefore essential for churches to exercise reasonable care in the selection of workers to reduce the risk of liability based on negligent selection. Here are some practical ways that this risk can be managed:

Reasonable care

Churches must exercise reasonable care in the selection of youth and children’s workers in order to avoid potential liability based on negligent selection. Churches can significantly reduce the risk of such incidents by taking a few simple precautions, including the following:

Every applicant for youth or children’s work completes a written application form.

At a minimum, the application should ask for the applicant’s name and address, the names of other youth-serving organizations in which the applicant has worked as an employee or volunteer, a full explanation of any prior criminal convictions, and the names of two or more references.

If an applicant is unknown to you, confirm his or her identity by requiring photographic identification (such as a state driver’s license). Child molesters often use pseudonyms.

Obtain a reference from each organization in which the applicant previously worked with minors (other churches, Boy Scouts, coaching, private schools, etc.).

If you do not receive back the written reference forms, then contact the references by telephone and prepare a written memorandum noting the questions asked and the reference’s responses.

Conduct a criminal records check.

There are many kinds available (county, state, and national). For persons who have lived and worked in your state for many years, a state check may be appropriate. For those who have lived in more than one state over the past few years, a national check (or multiple state checks) may be indicated. Many states have online “sex offender registries” that can be checked by anyone at little or no cost. These should always be checked. You may need an attorney to assist you in evaluating the relevance of certain crimes that are disclosed during a records check.

Applicants should be interviewed.

This will provide the church with an opportunity to inquire into each applicant’s background and make a determination as to each person’s suitability for the position under consideration.

Church leaders often “err on the side of mercy” when making employment decisions. This attitude can contribute to a negligent selection claim—if a church gives an applicant a “second chance” despite knowledge of prior sexual misconduct, and the conduct is repeated. What the church views as mercy may be viewed as negligence by a jury.

Drivers

Negligent selection claims are not limited to cases involving sexual misconduct. They can arise anytime that a church’s failure to exercise reasonable care in the selection of an employee or volunteer leads to a foreseeable injury.

A common example is the selection of persons as drivers to transport children or youth.

For example, if a church uses a driver with a suspended drivers license, or with a history of traffic offenses, then it may be responsible on the basis of negligent selection for injuries caused by the driver’s negligence.

To reduce the risk of liability in this context, churches should refrain from using any driver without taking the following steps:

Obtain driver information

Have each prospective driver complete an application form that asks for the person’s driver’s license number, type of driver’s license and expiration date, a description of any driving restrictions, and a history of traffic accidents and moving violations.

Check driving records

Ask the church’s liability insurance carrier to check on the individual’s driving record. Often, insurance companies will perform this task if requested, at no charge. The insurance company should be asked to update its research on all drivers of church vehicles periodically, to screen out persons with a recent history of unsafe driving.

Cull unsafe, negligent drivers

Discontinue using any driver if reports are received that he or she is operating a church vehicle in a negligent manner. Fully investigate such reports, and do not use the individual again unless the investigation clearly demonstrates that the complaints were without merit.

If the prospective driver is a new member, then ask for the names and addresses of other churches in which he or she has worked as a driver. Contact those churches and ask if they are aware of facts that would indicate the individual should not be used as a driver. Make a written record of such contacts.

Periodically invite a local law enforcement officer to speak to all drivers concerning safety issues.

Require all drivers to immediately inform the church of any traffic convictions.

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

Polygraph Testing and Church Employees: Understanding Legal Restrictions

Church leaders may consider polygraph testing when dealing with staff misconduct, but federal law imposes strict limits. Learn how the Employee Polygraph Protection Act applies to churches, key exemptions, and legal best practices.

Last Reviewed: January 29, 2025

Church leaders should be familiar with the main provisions of the federal Employee Polygraph Protection Act, since this law may impact churches in some situations. Consider the following:

Application.

The Act applies to every employer engaged in interstate commerce (regardless of the number of employees). The Act contains no special rules or exceptions for religious organizations.

Definitions.

A lie detector includes a polygraph, deceptograph, voice stress analyzer, psychological stress evaluator, or similar device (whether mechanical or electrical) used to render a diagnostic opinion as to the honesty or dishonesty of an individual.A polygraph means an instrument that records continuously, visually, permanently, and simultaneously changes in cardiovascular, respiratory and electrodermal patterns as minimum instrumentation standards and is used to render a diagnostic opinion as to the honesty or dishonesty of as individual.

Prohibitions.

An employer shall not:

  • Require, request, suggest or cause an employee or prospective employee to take or submit to any lie detector test.
  • Use, accept, refer to, or inquire about the results of any lie detector test of an employee or prospective employee.
  • Discharge, discipline, discriminate against, deny employment or promotion, or threaten to take any such action against an employee or prospective employee for refusal to take a test, on the basis of the results of a test, for filing a complaint, for testifying in any proceeding or for exercising any rights afforded by the Act.

Exemptions.

Most government agencies are exempted from the Act. The Act also contains limited exemptions where polygraph tests (but no other lie detector tests) may be administered in the private sector, subject to certain restrictions. These include polygraph tests given to employees who are reasonably suspected of involvement in a workplace incident that results in economic loss to the employer and who had access to the property that is the subject of an investigation.

Key point. Under the exemption for ongoing investigations of work place incidents involving economic loss, a written or verbal statement must be provided to the employee prior to the polygraph test which explains the specific incident or activity being investigated and the basis for the employer’s reasonable suspicion that the employee was involved in such incident or activity.

Posters.

Federal regulations specify that “every employer subject to the [Act] shall post and keep posted on its premises a notice explaining the Act …. Such notice must be posted in a prominent and conspicuous place in every establishment of the employer where it can readily be observed by employees and applicants for employment.” A free copy of the required notice can be obtained from the nearest office of the U.S. Department of Labor, Wage and Hour Division, or by visiting the DOL website (www.dol.gov/esa).

The official poster states, in part:

The Employee Polygraph Protection Act prohibits most private employers from using lie detector tests either for pre-employment screening or during the course of employment.

PROHIBITIONS

Employers are generally prohibited from requiring or requesting any employee or job applicant to take a lie detector test, and from discharging, disciplining, or discriminating against an employee or prospective employee for refusing to take a test or for exercising other rights under the Act.

EXEMPTIONS

The Act permits polygraph testing, subject to restrictions, of certain employees of private firms who are reasonably suspected of involvement in a workplace incident (theft, embezzlement, etc.) that resulted in economic loss to the employer.

EXAMINEE RIGHTS

Where polygraph tests are permitted, they are subject to numerous strict standards concerning the conduct and length of the test. Examinees have a number of specific rights, including the right to a written notice before testing, the right to refuse or discontinue a test, and the right not to have test results disclosed to unauthorized persons.

Key point. The Employee Polygraph Protection Act contains no special rules or exceptions for religious organizations, and so the official poster can be used without modification. However, the courts have not addressed the question of whether the Act applies to ministers. For this reason, churches may want to add the following wording to the official poster: “This poster does not take into account the special rules that may apply to ministers.”

Qualifications of examiners.

A polygraph examiner is required to have a valid, current license if the state requires it. The examiner must maintain a minimum of $50,000 bond or professional liability coverage.

Key point. Where polygraph examinations are permitted under the Act, they are subject to strict standards concerning the conduct of the test, including the pre-test, testing and post-test phases of the examination.

Employee rights.

Civil actions may be brought by an employee or prospective employee in federal or state court against employers who violate the Act for legal or equitable relief, such as employment reinstatement, promotion, and payment of lost wages and benefits. The action must be brought within three years of the date of the alleged violation.

Conclusion.

Many church leaders have been confronted with accusations of serious wrongdoing by a staff member. When the staff member denies any wrongdoing, church leaders may be tempted to suggest a polygraph. Such a suggestion should never be made without first obtaining legal counsel. This is because the suggestion that a staff member prove his or her innocence via polygraph examination violates the Act. And violating the act exposes the church to potential liability, unless an exemption clearly applies.

This article first appeared in Church Finance Today, April 2008.

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

A Part-Time Pastor Wants His Entire Salary Designated as a Housing Allowance

Understand the IRS rules for housing allowances and W-2 forms for part-time pastors with fully designated salaries.

Last Reviewed: January 20, 2025

Q: We have a part-time associate pastor who has asked the church to designate his entire salary as a housing allowance. Do we need to issue him a W-2 form at the end of the year reporting no income?


Understanding Housing Allowances for Part-Time Pastors

This is a surprisingly complex question. The issue stems from amendments to section 6051 of the federal tax code and how it applies to churches. Historically, churches were not required to issue W-2 forms to pastors because their wages are exempt from tax withholding. However, in 1974, Congress enacted the Employee Retirement Income Security Act (ERISA), which introduced new reporting requirements that apply to churches and their employees.

IRS Requirements for Housing Allowance Designations

The 1974 amendment to section 6051 of the tax code states: “Every employer engaged in a trade or business who pays remuneration for services performed by an employee, including noncash payments, must file a Form W-2 for each employee.” This language implies that churches must issue W-2 forms to ministers, even if all of their income is designated as a housing allowance and no taxes are withheld.

However, this requirement raises a practical question: What purpose does it serve to issue a blank W-2 form with no wages or withholdings reported? The W-2 form’s primary purpose is to report wages and withholdings to ensure accurate tax reporting. Submitting a blank form may not align with this purpose, but it does not necessarily relieve churches of the obligation to issue one.

IRS Guidance: Revenue Ruling 2000-6

In 2000, the IRS addressed a similar issue involving election workers. Election workers typically receive small fees for their services, and the IRS concluded that section 6051 does not require reporting compensation that is not subject to withholding for income tax or FICA taxes. The ruling stated:

“Section 6051 requires reporting of compensation subject to either FICA tax or income tax withholding. No reporting is required for items of income that are not subject to withholding of FICA tax or income tax.”

This ruling suggests that a church may not be required to issue a W-2 form to a part-time pastor whose entire income is designated as a housing allowance.

Best Practices for Churches

To ensure compliance and avoid confusion, churches should consider the following steps:

  • Consult a tax professional or attorney familiar with clergy tax laws to confirm whether a W-2 form is necessary for a pastor with no taxable income.
  • If issuing a W-2 form, include the pastor’s name and Social Security number but leave boxes for income and withholdings blank if the entire salary is designated as a housing allowance.
  • Maintain clear documentation of the housing allowance designation in board minutes or a formal resolution.
  • Contact the IRS for clarification on reporting requirements using their centralized call site at 1-866-455-7438, available Monday through Friday, 8:30 a.m. to 4:30 p.m. Eastern Time.

FAQ: Housing Allowances for Part-Time Pastors

1. Can a pastor’s entire salary be designated as a housing allowance?

Yes, as long as the designated amount does not exceed the pastor’s actual housing expenses or the fair rental value of the home, including utilities and furnishings.

2. Do churches need to issue a W-2 form if a pastor’s entire salary is a housing allowance?

The IRS may not require a W-2 form in this scenario, based on Revenue Ruling 2000-6. However, it’s advisable to consult with a tax professional to confirm.

3. What documentation should the church maintain for housing allowances?

Churches should record housing allowance designations in board meeting minutes or a formal resolution before the allowance is paid.

4. What happens if the pastor’s housing allowance exceeds actual expenses?

Any portion of the housing allowance that exceeds the pastor’s actual housing expenses must be reported as taxable income on their personal tax return.

For more information, visit IRS.gov or consult a tax advisor experienced in clergy tax matters.

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

Inspecting Church Contribution Records: Key Considerations for Pastors and Boards

Key considerations for pastors and church boards when inspecting member contribution records.

Last Reviewed: January 18, 2025

Q: Can a senior pastor and members of the church board inspect the contribution records of each member?


Understanding the Controversy

This is a controversial question. Here are five critical factors to consider:

1. Purpose of Inspecting Contribution Records

Why would a pastor and church board want to inspect contribution records? One common reason might be to enforce a bylaw requirement that members in good standing “tithe” or make a specified financial commitment to the church. However, many church bylaws ambiguously require members to “support the church financially,” which may not justify accessing individual contribution records.

2. Privacy and Relationship Concerns

Many pastors prefer not to see donor records to avoid influencing their relationships with individual members. While nonprofit corporation statutes in most states allow members of incorporated churches to inspect corporate records, individual donor records are typically excluded.

In a notable case, the Texas Supreme Court ruled that nonprofit corporation laws do not grant the right to inspect donor contribution records. The court clarified that the intent of such laws is to ensure transparency in expenditure accountability rather than disclose donor identities. Additionally, forcing disclosure of donor lists could violate the First Amendment’s freedom of association.

4. Liability Risks

If a state’s nonprofit corporation law does not explicitly authorize pastors or boards to inspect individual contribution records, doing so could expose the church to liability for invasion of privacy. Although this risk is remote, it should not be dismissed outright.

5. Governing Documents and Membership Requirements

The final consideration lies in the church’s governing documents. If bylaws mandate a specific financial commitment, there is a stronger justification for inspecting contribution records to enforce membership requirements. However, enforcing such requirements may necessitate reviewing members’ tax returns—an invasive and controversial action that most churches would avoid.

Best Practices for Churches

Churches should carefully weigh the implications of inspecting contribution records. Unless a clear financial requirement is outlined in the bylaws, pastors and boards should refrain from accessing individual records. Protecting donor privacy and maintaining trust are paramount for fostering a positive church community.

FAQs About Inspecting Church Contribution Records

  • Can pastors access contribution records? Most states do not grant pastors the right to inspect donor records unless explicitly allowed by church bylaws.
  • What are the risks of inspecting records? Potential risks include liability for invasion of privacy and damage to trust within the congregation.
  • How should churches handle financial bylaws? If financial commitments are required, ensure clear documentation in the bylaws and prepare for potential controversies.
  • Can donor privacy be legally protected? Yes, courts have upheld donor privacy protections under nonprofit corporation laws and the First Amendment.

For further guidance, consult legal counsel to align your church’s practices with state laws and best practices for financial stewardship.

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

Are Churches Automatically Tax-Exempt?

Are churches automatically tax-exempt? Discover the requirements and benefits of formal IRS recognition for churches.

Last Reviewed: January 21, 2025

Q: I am confused about our church’s tax-exempt status. Are we required to apply to the IRS for recognition of exemption, or are we automatically exempt because we are a church?


Are Churches Automatically Exempt?

Churches that meet the requirements of section 501(c)(3) of the federal tax code are automatically considered tax-exempt. They are not required to apply for recognition of tax-exempt status from the Internal Revenue Service (IRS). To qualify, churches must satisfy the following five requirements:

  • A church must be organized exclusively for exempt purposes.
  • A church must be operated exclusively for exempt purposes.
  • None of a church’s resources can “inure” to the benefit of a private individual, except for reasonable compensation for services performed.
  • The church may not engage in substantial efforts to influence legislation.
  • The church may not intervene or participate in any political campaign on behalf of or in opposition to a candidate for public office.

Why Seek IRS Recognition of Tax-Exempt Status?

Although applying for formal recognition is not required, many churches choose to do so. Official IRS recognition offers several advantages, including:

  • Reassurance for church leaders, members, and contributors that the church qualifies for tax-exempt status.
  • Confirmation for contributors that their donations are generally tax-deductible.

To apply for recognition, most organizations submit IRS Form 1023. However, churches that meet the five requirements above are exempt from this requirement.

Group Rulings for Affiliated Churches

If a church is affiliated with a parent organization that holds a group ruling, it may already be recognized as tax-exempt. Under the group exemption process, the parent organization submits updates to the IRS that list affiliated churches or organizations.

In such cases, the church does not need to apply for individual recognition. Instead, the parent organization provides updates on additions, deletions, and changes to the group.

Additional IRS Resources

For further details, visit the IRS page on churches, integrated auxiliaries, and conventions or associations of churches.

FAQs About Church Tax-Exempt Status

  • Do churches automatically qualify for tax exemption? Yes, churches that meet the 501(c)(3) requirements are automatically exempt from federal income taxes.
  • What are the benefits of applying for IRS recognition? It provides assurance to contributors and simplifies access to other tax benefits.
  • What is a group ruling? It allows a parent organization to include affiliated churches in its tax-exempt status.
  • Do churches need to file Form 1023? No, churches meeting the five requirements are exempt from this filing.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

Top 10 Documents for Church Leaders

They’re more important than you think.

From articles of incorporation to your church’s deed, these documents should be present and accounted for.

1. Articles of incorporation

Also called the church’s charter, the articles of incorporation is a short document that contains the church’s:

  • name
  • address
  • period of duration
  • initial board of directors
  • statement of purposes

Why it’s so important.

The charter is the most authoritative legal document that a church has. In the event of a conflict between the charter and any other legal document, the charter will control. Be sure you are well-versed on your church’s charter.

2. Corporate annual reports

In many states, incorporated churches are required to file an annual report with the Secretary of State. This is a simple form that takes only a few minutes to complete.

What if we don’t file one?

Failure to file can jeopardize a church’s corporate status; and this can expose church members and board members to personal liability. Churches should maintain a full set of all corporate annual reports filed with the Secretary of State’s office.

3. Constitution or bylaws

This is an essential document that contains most of a church’s rules of internal administration.

At a minimum, church bylaws should cover:

  • The qualifications, selection, and expulsion of members
  • The time and place of annual business meetings
  • The calling of special business meetings
  • Notice for annual and special meetings
  • Quorums
  • Voting rights
  • Selection, tenure, and removal of officers and directors
  • Filling of vacancies
  • Responsibilities of directors and officers
  • The method of amending the bylaws
  • The purchase and conveyance of property

4. Financial records

It is your responsibility to ensure that appropriate safeguards are implemented with regard to the handling of contributions, that cash and expenses are properly recorded and presented in the church’s financial statements, and that the church is properly receipting donors for their contributions.

You should be reviewing the finances of the church at each board meeting, and asking questions about anything that you don’t understand or that seems irregular.

5. List of members

Many churches have bylaw provisions that call for the periodic review of the membership list, to be sure that it is up to date.

  • Do your church bylaws contain such a provision?
  • How recently did you review and update your membership list?
  • Are you familiar with the procecdure and grounds for removing members from this list?
  • Church administrators and board members—especially treasurers—should be able to answer these questions.

6. Minutes of membership meetings and board and committee meetings

Your church should keep records of all annual business meetings and any special meetings. The church should maintain a complete set of minutes of board and committee meetings.

7. Insurance policies

Do you know where your church’s insurance policies are maintained? Are you familiar with the terms of your policies? It is essential to know how much coverage your church has.

8. Tax records

These will include payroll tax forms, housing allowance designations for your pastors, contribution records, and any other forms you have filed with the federal government or with your state or local government.

9. Employment records

These include applications for employment, reference checks, information concerning disciplinary actions, the I-9 immigration form that all employers, including churches, must maintain for each new employee, and any other document relating to your employees.

10. Deeds

You should not only know where to find the deed to your church property, you should review it—especially if if it’s going up for sale or could be going up for sale.

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

Severance Agreements for Church Employees: Key Considerations

Churches have flexibility in determining severance pay, but legal and financial factors must be considered. Learn how to structure severance agreements, mitigate legal risks, and ensure compliance with tax laws.

Last Reviewed: January 29, 2025

Q: We are considering the dismissal of an employee, and would like to enter into a severance agreement with her. Do you have any guidelines on how much severance pay should be considered?


That’s entirely up to you. There are no definitive standards. The amount of severance pay is often expressed in terms of a specified number of weeks of salary and benefits. It should be discussed openly with the employee, and a mutually acceptable number of weeks should be chosen.

Higher paid employees will receive greater severance benefits because of their higher rate of pay. Other important factors to consider are:

1. Whether the employee is a member of a protected class under an applicable state or federal discrimination law. If so, be prepared to agree to a higher amount in order to avoid a possible discrimination claim under state or federal law that could result in a protracted legal dispute.

2. The likelihood the employee would pursue a legal claim against the church.

3. Whether the church has employment practices insurance coverage that would provide a legal defense, and indemnification, in the event of a lawsuit. Many churches do not have insurance for employment practices, meaning that the church would be responsible for retaining and compensating its own attorney in the event of a claim of discrimination. In some cases, this can result in a substantial, and unbudgeted, expense to the church.

4. The results of the employee’s last several job performance evaluations. If they are all average or above average, this is a strong incentive to resolve any potential claims by entering into a severance agreement. If a severance agreement is not signed, and the employee sues the church, those average or above average job evaluations will be compelling evidence that the church did not have any job-related reason for dismissing the employee. The implication is that the church’s decision to terminate the employee was a product of unlawful discrimination.

5. Congress added section 409A to the tax code in 2004 in response to public outrage over the Enron scandal. Section 409A imposes strict new requirements on most nonqualified deferred compensation plans (NQDPs). In 2007, the IRS published final regulations interpreting section 409A. The final regulations define a NQDP broadly to include any plan that provides for the deferral of compensation. This definition is broad enough to include severance agreements and many other kinds of church compensation arrangements. Any church that is considering a severance agreement with a current employee (or any other arrangement that defers compensation to a future year) should contact an attorney to have the arrangement reviewed to ensure compliance with both section 409A and the final regulations. Such a review will protect against the substantial penalties that the IRS can assess for noncompliance. It also will help clarify if a deferred compensation arrangement is a viable option in light of the limitations imposed by section 409A and the final regulations.

6. Of course, it is important for an attorney to draft any severance agreement to be sure that it will be legally enforceable, and complies with all applicable laws.

The editorial team of Church Law & Tax is made up of Matthew Branaugh, attorney-at-law, and Rick Spruill, digital content manager.
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Managing Risk When Choosing Young People To Help With Church Childcare

The younger the worker, the more supervision required.

Last Reviewed: February 13, 2025

Q: We have a child protection policy in place but I am running into a major problem with the fact that we have stated an age for our workers as 18 years. I am having a very difficult time filling all the areas needed with this age requirement. We are looking at rewording our policy to fit the needs of the church. My question is what is the legal age or is there one for child care workers?


Using children’s workers who are under 18 years of age is a common church practice. However, note the following considerations:

The younger the worker, the greater the risk

A church must exercise reasonable care, some courts have said a “high” degree of care, in the selection and supervision of children’s workers. Obviously, using workers who are 10 years of age in a church nursery will expose the church to greater risk than using someone who is 17.

Adult supervision is essential

It is imperative that at least one adult be present at all times if minors are used as volunteer workers in any program or activity involving minors. Ideally, two adults should be present, so that if one of them must be absent temporarily, the other will be there.

Have a clear and reasonable standard of care

If a minor is injured, the church may be legally responsible on the basis of negligence if the injury resulted from the church’s failure to exercise a reasonable degree of care in the selection or supervision of its workers. Courts often look to the practices of local charities, and sometimes national charities, in establishing a reasonable standard of care. As a result, it is often helpful for church leaders to contact other youth-serving charities in the area to ascertain their practices and policies on specific issues. Using local affiliates of national charities is the best practice. I

Carefully screen all workers

How is this done? You obviously cannot perform criminal records checks on persons under 18 years of age, and even for persons who are 18 or 19 a criminal records check will have limited significance. You really need to approach the screening of adolescents in a different manner. Let me suggest two options.

  1. Get two or three reference letters from persons who have seen the applicant interact with other minors (this would include church workers, coaches, school teachers, scout leaders, etc.). The bottom line is that you cannot conduct criminal records checks on such persons, but you must take other steps to demonstrate reasonable care.
  2. Contact local youth-serving charities such as the public school district, Boy/Girl Scouts, YMCA, Boys/Girls Clubs, etc. and ask them what screening they use for adolescent workers. Be sure to make a record of each contact. Taking these steps will reduce your legal liability.

Understand applicable wage and labor laws

If you compensate minors who work with children in your church, then you need to be aware that you may need to pay them the minimum wage (under state or federal law, whichever is greater), and that state or federal child labor laws may apply. Both of these issues need to be carefully addressed to ensure compliance with the law.

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

Are Oral Pledges Legally Enforceable?

Discover how oral pledges to churches can be legally enforceable under certain conditions and what church leaders should consider.

Last Reviewed: January 24, 2025

Can oral pledges to churches be legally enforced? The answer varies by state, but understanding the legal principles can help church leaders navigate these situations effectively. Here’s what you need to know:

Defining Charitable Subscriptions

An oral or written promise to give funds or property to a charitable organization, such as a church, is often referred to as a “charitable subscription.” These are generally evaluated under contract law principles, requiring a clear promise and acceptance.

When Are Oral Pledges Enforceable?

In states like Iowa, oral pledges can be enforceable without requiring consideration (something of value in return) or detrimental reliance (actions taken based on the promise). Courts may enforce pledges if:

  • The pledge is a definite promise, not just a statement of intent.
  • The organization accepts the pledge, often demonstrated by beginning the related project.

Case Study: Iowa Appeals Court Ruling

An Iowa court upheld an oral pledge to a church based on these principles. The pledgor expressed a commitment to fund church improvements, and the church began work in reliance on this promise. The court ruled the pledge enforceable, citing “clear and convincing evidence” of intent and acceptance.

Other States’ Requirements

In some states, additional requirements may apply:

  • Consideration: The donor must receive something of value in return for the pledge.
  • Detrimental Reliance: The organization must demonstrate reliance on the pledge to its detriment, such as beginning a construction project.

Examples of Enforceable Pledges

Case Study: New York Synagogue

A New York court enforced synagogue dues pledges, citing detrimental reliance. The synagogue entered contracts based on the pledges, making them legally binding.

Case Study: Georgia Church

A Georgia court upheld a $25,000 pledge tied to a property sale, as the promise was part of the contractual consideration for the transaction.

Practical Tips for Church Treasurers

While churches rarely pursue legal action to enforce pledges, understanding these principles can help in discussions with donors. Consider these best practices:

  • Document all pledges clearly in writing when possible.
  • Ensure that any verbal commitments are confirmed and accepted before significant action is taken.
  • Consult with legal counsel when dealing with complex or high-value pledges.

Conclusion

Oral pledges can be enforceable under specific circumstances, but the laws vary by state. Church leaders and treasurers should carefully document and manage pledges to avoid disputes and ensure clarity.

FAQs: Legally Enforceable Oral Pledges

  • Q: Are oral pledges enforceable everywhere?
    A: No, enforceability depends on state laws and whether the pledge meets legal criteria such as definiteness or reliance.
  • Q: What is detrimental reliance?
    A: It occurs when a church takes action, like starting a project, based on a donor’s pledge.
  • Q: Should pledges always be in writing?
    A: While oral pledges can be enforceable, written pledges provide clarity and reduce disputes.
  • Q: Can a church sue a member for a pledge?
    A: While legally possible in some cases, this is rarely done due to ethical and relational considerations.

This article first appeared in Church Treasurer Alert, July 2007.

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

Is Childcare a Safe Option For Church Home Groups?

Potential risks for in-home small group gatherings.

Q: Our church has several small groups that meet in members’ homes. Child care is provided in some of the homes for the children of parents who attend. Does this arrangement expose our church to liability?


The fact that the church is promoting these small group meetings exposes it to potential liability for injuries that occur to children who are being supervised. Those injuries may arise in a number of ways, and could include child molestation by a volunteer worker, parent, or an older child; personal injuries occurring during games, “horseplay,” or fighting; choking; or poisoning. All of these risks can be greatly reduced if a church adopts certain safeguards, including the following:

Use at least two volunteer workers to oversee the children.

One worker is unacceptable. If only one worker shows up for a particular meeting, then a member of the small group will have to assist in the supervision of children, or the meeting must be canceled.

Segregate the children into different groups.

Does this based on age, if possible, with two volunteer workers in each group (risks increase dramatically if “power inequity” exists, such as older children being grouped together with preschoolers).

Volunteer workers should be adults.

The risk of injury and molestation increases moderately if one adult and one adolescent worker are used together; and the risk increases dramatically if only minors are used to supervise children. One obvious solution is to have parents themselves take turns serving as supervisors for the children.

Volunteer workers must be screened (application, reference checks, criminal records check).

Keep areas safe

If young children (preschoolers) are present, the area where they will be supervised should be thoroughly inspected prior to each meeting to remove any toxic or dangerous substances or devices.

Individual members of the small group should make unannounced and periodic visits to the area where children are being supervised.

Foster a ‘see something, say something’ approach

Older children should be encouraged to report any inappropriate behavior that occurs during these meetings.

No solo restroom breaks

Restroom breaks present a significant risk. Appropriate safeguards will depend on the layout of the home and the age of the children. Children must not be allowed to wander off to a restroom alone, or with one or more older children. The best practice would be to contact parents and have them escort their child to the restroom. Most other responses will create unacceptable risks. Some cases of child molestation occurring in private homes during small group meetings have involved children wandering off to unsupervised areas of the home.

    There have been cases of children being sexually molested, or injured, during small group meetings in members’ homes, so this is a risk that churches must take seriously. Safeguards must not be viewed as “nuisances” to be ignored, but rather as essential measures to ensure the safety and well-being of vulnerable children. If meaningful and effective precautions cannot be implemented, then the church has no alternative but to discontinue child care at these meetings.

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

    Does ADHD Bring a Higher Duty of Care For Churches?

    Churches may need to increase supervision.

    Q: The 12-year-old Boy Scout who was lost for four days in the mountains of North Carolina may have Attention-Deficit/Hyperactivity Disorder (ADHD). Does such a condition impose a higher duty of care upon scout leaders? What about church leaders who know of children in the church who have this condition?


    Recognizing ADHD

    ADHD has several symptoms, including inattention and impulsive behavior.

    Clearly, a child with such a condition is more prone to wander away from a group and so a higher degree of supervision is warranted. There is little doubt that a church will be held to a higher duty of care in the supervision of a child with ADHD, whether on church premises or during any off-site activity.

    This is not to say that a church will be legally responsible for any injury that may occur to such a child. To the contrary, a church will be responsible only if its conduct in supervising the child fall below what a jury would deem reasonable given the child’s condition.

    Case in point

    A minor was injured while attending a charity’s summer camp program, when, as she was swinging on the rings on a playground, she lost her grasp and fell into a pile of sand beneath the rings. The parents insisted that a “heightened level of supervision” was required since their child suffered from an neurological condition.

    The court ruled that the charity was not liable for the child’s injuries because it was able to demonstrate that there was adequate playground supervision and that a lack of supervision was not the cause of the accident. Further, the court noted that the child’s mother testified that no doctor had ever restricted the scope of the activities in which the child could participate.

    Some church leaders, in deciding what level of supervision is appropriate for a child with ADHD, contact their local public schools or other youth-serving charities to see what guidelines they have implemented. Aligning your practice with that of other reputable youth-serving charities in the community can be helpful, since this is the very “community standard” by which a church’s practices will be judged. 

    Benson v. Union Free School District, 2007 WL 613829 (N.Y.A.D. 2007).

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

    Ensuring Fiduciary Duty in Church Investments

    Understand fiduciary duties for church investments and strategies to safeguard funds and ensure compliance.

    Last Reviewed: January 10, 2025

    Many churches, at times, find themselves with excess funds due to contributions, designated funds, or unspent income. Church leaders face the important responsibility of deciding how to handle these funds wisely. With fiduciary duties playing a critical role, it’s essential for church leaders to approach investment decisions prudently and in alignment with their legal obligations.

    What is the Fiduciary Duty of Due Care?

    The fiduciary duty of due care requires church board members, treasurers, and leaders to act “in good faith, in a manner they reasonably believe to be in the best interests of the corporation, and with such care as an ordinarily prudent person in a like position would use under similar circumstances.” This principle, also called the “prudent person rule,” ensures decisions regarding church funds are made responsibly.

    State laws often outline these duties within nonprofit corporation statutes. For instance, the Revised Model Nonprofit Corporation Act specifies:

    “A director shall discharge his or her duties as a director in good faith; with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and in a manner the director reasonably believes to be in the best interests of the corporation.”

    How Does This Apply to Church Funds?

    When it comes to investing excess church funds, fiduciary duty ensures investments are made with care, avoiding undue risks. Importantly, leaders are not liable for every bad investment but must demonstrate reasonable diligence and informed decision-making.

    Steps for Church Leaders to Uphold Fiduciary Duty

    1. Establish an Investment Committee

    Form a committee comprising individuals with proven financial expertise, such as CPAs, financial planners, and business leaders. Their recommendations, combined with the board’s approval, provide protection against poor investment decisions.

    2. Create an Investment Policy

    A formal policy helps govern investment decisions and prevents speculative ventures. It may outline restrictions, such as avoiding high-risk schemes or investments in organizations linked to board members.

    3. Avoid Risky or Speculative Investments

    Churches should steer clear of investments promising unrealistic returns. Any opportunity that sounds “too good to be true” likely is. Engage independent financial experts to vet opportunities thoroughly.

    4. Maintain Transparency

    All investments should be regularly reviewed during board meetings. Keeping open communication and detailed records ensures accountability and allows for necessary adjustments.

    Key Considerations for Churches

    1. Diversification

    Spreading investments across various financial instruments reduces risk. Mutual funds and diversified portfolios are often safer options.

    2. Ethical Standards

    Investments should align with the church’s values and mission, ensuring that they do not contradict its core principles.

    3. Trustee Obligations

    In cases where church leaders serve as trustees of a specific fund, they are held to higher standards of care. Trustees must prioritize the fund’s purpose and manage assets diligently.

    Protecting Against Fraud

    The U.S. Securities and Exchange Commission (SEC) warns against common fraud schemes targeting nonprofits, such as pyramid and Ponzi schemes. Be wary of excessive guarantees, secrecy, and complex claims. Conduct due diligence and consult independent advisors.

    FAQs on Fiduciary Duty and Church Investments

    What is the fiduciary duty of due care?

    This duty requires church leaders to act responsibly and make informed decisions that prioritize the church’s interests.

    How can churches minimize investment risks?

    Establishing an investment committee, diversifying portfolios, and avoiding speculative schemes are key strategies.

    Are church leaders liable for bad investments?

    Leaders are only liable if decisions are made without reasonable care or due diligence.

    What are common signs of fraudulent investment schemes?

    Be cautious of promises of guaranteed high returns, excessive secrecy, and vague investment terms.

    Conclusion

    Church leaders have both legal and moral duties to manage funds responsibly. By following best practices, such as consulting financial experts, maintaining transparency, and adhering to state laws, churches can safeguard their resources and fulfill their fiduciary responsibilities effectively.

    For further guidance on fiduciary responsibilities, visit IRS.gov or consult with experienced legal counsel familiar with nonprofit regulations.

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

    Can Church Members Inspect Church Board Meeting Minutes?

    In some cases they do. Consider three possible sources for such a right of inspection.

    Q: Does a church member have a legal right to inspect minutes of church board meetings?


    State nonprofit law may have something to say

    First, if a church is incorporated, it is possible that state nonprofit corporation law gives members a right to inspect board minutes.

    Illustration

    The Revised Model Nonprofit Corporation Act, which has been enacted by several states, gives members a right to inspect the minutes of board meetings if the member’s demand is made in good faith and for a proper purpose; the member describes with “reasonable particularity” the purpose and the records the member desires to inspect; and the records are directly connected with this purpose.

    The Act specifies that a church’s articles of incorporation or bylaws “may limit or abolish the right of a member under this section to inspect and copy any corporate record.” This right of inspection only applies to members of churches that are incorporated under the Revised Model Nonprofit Corporation Act. Note that some states that have enacted this Act have modified some of its provisions. So, it’s best to check with a local attorney to see if members of your church have a right to inspect board minutes under state nonprofit corporation law.

    Second, a church’s governing documents (e.g., articles of incorporation, bylaws) may give members a right to inspect board minutes.

    Third, members and nonmembers alike may compel the disclosure or inspection of board minutes as part of a lawsuit against a church if the minutes are relevant and not privileged.

    In summary, board minutes may be subject to inspection by both members and nonmembers. It is important for board minutes to be written with this in mind.

    Illustration

    When sensitive personnel issues are discussed in a board meeting, the minutes ordinarily should not contain a lengthy narrative. Brevity usually is more appropriate. Check with a local attorney for guidance in drafting board minutes. This is especially important when regarding the discussion and handling of sensitive or confidential issues.

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

    Sound Advice: Is Your Worship Too Loud?

    Is your worship music too loud? We evaluate the risks to churches, worshippers, and guests when the decibel levels rise to high.

    Last Reviewed: August 20, 2024

    Skip ahead to read about:

    1. The connection between loud music and hearing loss

    2. What courts have said about loud music and hearing loss

    3. OSHA, loud music, and the Church

    4. Does the ministerial exception apply to OSHA claims made by church employees?

    5. Can church workers file workers compensation claims for hearing damage?

    6. Reducing the effects of excessive noise

    ‘Making a joyful noise’

    The music performed in some churches during worship services and special events can become loud and intense. And while scripture says something about making a joyful noise, the courts have had something to say about it, too.

    There is no question that sacred music is an integral and energetic part of religious worship. And, more importantly, this connection has been recognized by several courts. 

    Defining ‘sacred music’

    In Employment Opportunity Commission v. The Roman Catholic Diocese of Raleigh, 213 F. 3d 795 (4th Cir. 2000), a federal appeals court described the pivotal role of music in ministry:

    The music ministry and teaching positions at issue are ministerial because the positions are important to the spiritual and pastoral mission of the church. The functions of the positions are bound up in the selection, presentation, and teaching of music, which is an integral part of [the church’s] worship and belief.

    The [First Amendment’s free exercise of religion clause] therefore bars consideration of [this case]. To hold otherwise would require us to say that music is substantially devoid of spiritual significance in the life of the church. Such a view cannot stand in light of the role of religious music in worship and the record in this case. At the heart of this case is the undeniable fact that music is a vital means of expressing and celebrating those beliefs which a religious community holds most sacred. Music is an integral part of many different religious traditions … “

    However, two problems arise when sacred music is too loud: 

    (1) The music may cause permanent hearing loss in members of the congregation; and (2) the church may be exposed to liability. 

    Hearing loss

    Yes, worship music can cause permanent hearing loss. The question is what level of intensity, and duration, is required for that to happen. 

     The National Institute on Deafness and Other Communication Disorders of the National Institutes of Health, and OSHA (the Occupational Safety and Health Administration) have done extensive research into occupational noise, and have provided the following information:

    When noise is too loud, or music is played too loudly, it begins to kill the nerve endings in the inner ear. This can cause permanent and irreversible damage to our hearing. As the exposure time to loud noise or music increases, more nerve endings are destroyed. As the number of nerve endings decreases, so does a person’s hearing. 

    Key point. Sound is measured in units called decibels. Sounds at or below 70 dB, even after long exposure, are unlikely to cause hearing loss. However, long or repeated exposure to sounds at or above 85 dB can cause hearing loss.

    To quantify this, continued exposure to noise above 85 decibels [dB] (about the level of city traffic), over time, will cause damage to hearing. Personal stereos with headphones have been measured up to 112 dB, with concerts between 94-110 dB and rock concers approaching 120 dB. Music levels of certain orchestral instruments can exceed 126 dB. A new car stereo can blast at levels above 140 dB. Studies show that 37 percent of rock musicians and 52 percent of classical musicians have a measurable hearing loss. There is no way to restore life to dead nerve endings, so the damage is permanent.

    • Noise induced hearing loss (NIHL) can be immediate, or it can take a while to notice. It can be temporary or permanent, and it can affect one ear or both ears. Symptoms include not being able to understand other people when they talk, especially on the phone or in a noisy room. The good news: noise-induced hearing loss is preventable.
    • People of all ages, including children, teens, young adults, and older people, can develop NIHL.  

    Key point. The louder the sound, the shorter the amount of time it takes for NIHL to occur.

    Key point. Recent studies indicate that a significant percentage of children and teenagers have suffered permanent hearing loss. One of the most likely contributing factors is loud music (both live and recorded).

    What the courts have said

    A few courts have directly addressed the question of liability for hearing impairment suffered by persons who are exposed to loud music. 

    Bootz v. Crown Leisure Corporation

    A 34-year-old woman suffered hearing loss in one ear consistent with noise exposure, and tinnitus. A physician attributed both conditions to repeated incidents of loud music over a two-year. The woman sued the bar she went to three to four times a week, where noise levels usually reached between 95 and 105 dB. The trial court dismissed the case because the woman knowingly entered the bar, and thus assumed the risk, but an appeals court ordered that it proceed to trial while concluding that the woman’s voluntary exposure to the loud noise was only one factor in determining the bar’s liability for her hearing loss and tinnitus.

    CASE STUDY

    A 51-year-old attorney (Jeff) attended a rock concert featuring John Fogerty, a member of the former Creedence Clearwater Revival band. Fogerty was accompanied by a back-up band consisting of guitar, bass, and drums. The seating was “open,” and Jeff sat in the front row of the mezzanine. 

    When the concert began, Jeff found the noise level intolerable and retreated after one or two songs to an area of the building outside the auditorium but still within hearing range of the music. He made an unavailing attempt or two to inform auditorium personnel that he thought the music was too loud.

    Some of Jeff’s friends attended the concert with him and found the music so loud that they stuffed tissue or fingers into their ears during the concert. Jeff claimed that he suffered permanent hearing loss because of the concert, and he sued the concert hall and promoters for damages. The noise level for the concert was uncertain.

    One auditorium employee estimated the first song reached 106 decibels. An audiologist testified at the trial that exposure to this level of sound for a half-hour could be unsafe. Another witness testified that “4 minutes would be the maximum permissible exposure to noise at a level of 105 decibels.” 

    Court: Standard of Care unclear

    A New York court dismissed the case.

    The court said a jury would not be able to determine the standard of care owed by the concert hall or promoters to concertgoers. The court also said persons cannot sue for damages because of injuries sustained when they voluntarily expose themselves to a known risk of harm. This is a legal doctrine known as assumption of risk

    The first of these cases suggests that churches face some risk of liability for music that is so loud that it causes permanent hearing loss. The second case suggests that the legal doctrine of assumption of risk may be raised as a defense to liability for hearing loss caused by excessive noise.

    Powell v. Metro Entertainment Co., 195 Misc. 2d 847 ( N.Y. App. 2003).

    Key point. Minors are a special case. Some courts have ruled that the assumption of risk defense is narrower when applied to minors. And, recent surveys reveal that most adolescents do not see loud music as a problem.

    OSHA violations

    OSHA regulations require employers to address excessive noise in the workplace. Employers must implement a hearing-conservation program when noise exposure is at or above 85 dB averaged over 8 working hours, or an 8-hour time-weighted average. A program must include monitoring, warnings about noise levels, and hearing protectors, among other things. 

    OSHA regulations clearly specify that nonprofit organizations are subject to OSHA regulations, but churches are not. 

    “The basic purpose of the . . . Act is to improve working environments in the sense that they impair, or could impair, the lives and health of employees,” the law states. Excluding employees of nonprofits and charitable organizations  “would result in thousands of employees being left outside the protections of the Act in disregard of the clear mandate of Congress to assure ‘every working man and woman in the Nation safe and healthful working conditions.’” 

    However, OSHA regulations treat churches as special cases with respect to religious worship services:

    Churches or religious organizations, like charitable and nonprofit organizations, are considered employers under the Act where they employ one or more persons in secular activities. As a matter of enforcement policy, the performance of, or participation in, religious services (as distinguished from secular or proprietary activities whether for charitable or religion-related purposes) will be regarded as not constituting employment under the Act. Any person, while performing religious services or participating in them in any degree is not regarded as an employer or employee under the Act, notwithstanding the fact that such person may be regarded as an employer or employee for other purposes—for example, giving or receiving remuneration in connection with the performance of religious services.

    This language is important.

    OSHA violations during religious services

    While OSHA generally applies to churches as employers, it will not take  “enforcement” action against a church that violates OSHA regulations in the course of “the performance of, or participation in religious services” since “any person, while performing religious services or participating in them in any degree is not regarded as an employer or employee under the Act, notwithstanding the fact that such person may be regarded as an employer or employee for other purposes.”

    The regulations list numerous religious organizations that would be covered employers under the law:

    • a private hospital owned or operated by a religious organization
    • a private school or orphanage owned or operated by a religious organization
    • commercial establishments of religious organizations engaged in producing or selling products, such as alcoholic beverages, bakery goods, religious goods, and so on
    • administrative, executive, and other office personnel employed by religious organizations [29 CFR 1975.4(c)]

    On the other hand, the regulations list the following examples of religious organizations that would not be covered employers under the law when religious services are specifically involved:

    • churches with respect to clergymen while performing or participating in religious services
    • churches with respect to other participants in religious services, such as choir masters, organists, other musicians, choir members, ushers, and the like [29 CFR 1975.4(c)]

    OSHA has yet to assert jurisdiction over churches in most circumstances

    The special treatment of churches and church employees under the OSHA regulations helps to explain why no court has addressed the application of the Act to churches. The fact is that most churches would be considered “employers” under the Act because they are engaged in interstate commerce, but OSHA has chosen not to assert jurisdiction over churches except in special circumstances.

    The partial exemption of churches from OSHA coverage is illustrated by the following examples:

    EXAMPLE A

    A church member brings an audiometer to a worship service and measures peaks of 105 decibels on the front row with a sustained reading of 95 decibels. The church’s music minister (a full-time employee) is exposed for several minutes during each worship service. Must the church implement “administrative or engineering controls” under OHSA? No, because the regulations specify that “as a matter of enforcement policy, the performance of, or participation in, religious services will be regarded as not constituting employment under the Act. Any person, while performing religious services or participating in them in any degree is not regarded as an employer or employee under the Act.”

    EXAMPLE B

    Helen is a church organist. She plays the organ several times each week at worship services, choir rehearsals, funerals, weddings, and other special functions. She is frequently exposed to decibel levels exceeding 85. Is the church liable for exceeding these limits? Under OSHA, the answer is no, based on the same reasons stated in the examples above.

    EXAMPLE C

    Jon is a sound technician employed by a church. His job is to make sure that sound levels are adequate during all church services and functions. He must attend all rehearsals as well as services and special functions. He is often exposed to music that exceeds the permissible levels specified by OSHA.

    Is the church liable for exceeding this limit?

    The OSHA regulations specify that “as a matter of enforcement policy, the performance of, or participation in, religious services will be regarded as not constituting employment under the Act. Any person, while performing religious services or participating in them in any degree is not regarded as an employer or employee under the Act.” In addition, OSHA regulations list “participants in religious services such as choir masters, organists, other musicians, choir members, ushers, and the like” as an example of persons who are outside of the scope of OSHA coverage. Does this exception apply to a sound technician? Does his work constitute participation in a religious service “in any degree”? Neither OSHA, nor any court, has addressed this issue. It remains a possibility.

    EXAMPLE D

    Pastor Ted has heard that churches are exempt from OSHA. Is this correct? The answer is no. OSHA defines covered employers to include any organization “engaged in a business affecting commerce that has employees.” There is no doubt that most churches are subject to OSHA.

    However, as a matter of discretion, OSHA regulations specify that “as a matter of enforcement policy” the “performance of, or participation in, religious services will be regarded as not constituting employment under the Act.” As a result, “any person, while performing religious services or participating in them in any degree is not regarded as an employer or employee under the Act” even though that person is regarded as an employee for other purposes (such as tax reporting). OSHA violations can result in substantial penalties.

    These penalties depend on several factors. To illustrate, willful or repeated violations of OSHA requirements may result in a civil penalty of not more than $70,000 for each violation, but not less than $5,000 for each willful violation. Employers who fail to correct a citation issued by OSHA may be assessed a penalty of up to $7,000 for each day that that the violation continues. 

    The “ministerial exception”

    The US Supreme Court has recognized the “ministerial exception” prevents  state and federal employment laws from applying to ministers employed by churches due to First Amendment concerns. 

    Does the ministerial exception apply to an OSHA case? Since the law pertains to compliance with federal safety regulations that likely would involve no interpretation of church doctrine, it is difficult to say. Even if the ministerial exception did apply to OSHA claims, it would not bar claims by lay employees.

    Workers compensation

    All states have enacted workers compensation laws to provide benefits to employees who are injured or become ill in the course of their employment. Benefits generally are financed through insurance premiums paid by employers. 

    Churches are subject to workers compensation laws in most states.

    Some courts have addressed the issue of an employee’s eligibility for workers compensation benefits based on hearing loss caused by excessive noise at work. Consider the following example.

    EXAMPLE: Tom was employed by the City of Seattle as a sound technician at the Seattle Center for 15 years. As a sound technician he set up and operated sound equipment for different programs at the Opera House, the Coliseum, the Arena, and the Exhibition Hall. He worked at about 500 events, including opera, ballet, and symphony rehearsals and concerts, and rock concerts. Tom monitored and adjusted the sound during performances and frequently increased output volumes so the music could be heard over screaming fans. He did not use hearing protection and he and his wife noticed a gradual hearing loss. Tom filed a workers compensation claim for benefits based on hearing loss caused by occupational noise exposure. A state agency ordered the city to pay permanent partial disability benefits. Spyridis v. Department of Labor, 2004 WL 188304 (Wash. App. 2004).

    Reducing the effects of excessive noise

    Many churches continue to expose members and employees to excessive noise that exceeds the permissible decibel level (85 dB) prescribed by OSHA. And whilethe risk of liability in such cases may be low, due to the exemption of church worship services from OSHA coverage and the doctrine of assumption of risk, the risk cannot entirely be dismissed, since:

    • Some courts have construed the assumption of risk defense narrowly, especially in cases involving minors.
    • OSHA does not exempt all church employees or activities.
    • Churches may be subject to workers compensation claims for employees’ hearing loss.
    • Church members, employees, and volunteers may be able to sue for hearing loss based on the principle of negligence, using OSHA regulations as a “standard of care” that was violated by their church.

    As a result, church leaders should recognize that excessive noise may expose a church to potential liability. But avoidance of liability is just one reason to address excessive noise. Another reason is the ethical responsibility to protect members of the congregation from damaging noises during worship services. There are simple and very effective ways for churches to address loud noise during worship services.

    Here are some of them, adapted from recommendations from the National Institute for Occupational Safety and Health (NIOSH) and OSHA:

    1. Noise measurement. Use an audiometer to continually measure noise levels during worship services at various places in the sanctuary. This can be done during rehearsals, services, or performances. 

    2. Engineering and administrative controls. What are these controls? OSHA regulations specify that any noise control should “minimize sources of noise. It should also prevent the propagation, amplification, and reverberation of noise. And, it should protect workers from excessive noise.” Engineering controls may include “anti-vibration machine mountings, acoustical enclosures, and component replacement.” Administrative practices may include “shift rotation or exposure limitation.”

    Example A: A church worship team uses electric instruments and a drum set. The drum set is placed in an acoustical enclosure to protect other musicians from dangerous noise levels. This is an example of an engineering control to reduce noise exposure.

    Example B: A church’s sound technician continually monitors noise levels using an audiometer. The technician has a master control that allows him to reduce noise levels when they approach a high decibel level. This is an example of an engineering control.

    3. Personal protective equipment. If administrative or engineering controls do not lower noise exposure to acceptable levels, or until such time as they are implemented, hearing protection devices are the only way to prevent hazardous levels of noise from damaging the ear. It is important to understand that hearing protectors reduce only the amount of noise that gets through to the ears. Some types of hearing protection include:

    • Single-use earplugs are made of waxed cotton, foam, silicone rubber or fiberglass wool. They are self-forming and, when properly inserted, they work as well as most molded earplugs.
    • Pre-formed or molded earplugs must be individually fitted by a professional and can be disposable or reusable. Reusable plugs should be cleaned after each use.
    • Earmuffs require a perfect seal around the ear.

    Churches that cannot reduce sound levels to non-injurious levels should consider nforming the congregation in the weekly bulletin or newsletter that sound levels may reach injurious levels during worship services that could cause permanent hearing loss. 

    Additionally, churches should periodically inform members (and musicians) that earplugs will be available at specified distribution points.

    These procedures will protect against hearing loss and reduce the church’s potential liability.

    4. Hearing tests. Consider offering annual hearing tests to those who are exposed to excessive noise during church services or other functions.

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

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