How Long Should We Keep Church Records?

If you are like most church treasurers, you probably have asked yourself a hundred times, “How long should we keep church records?” It is a legitimate question. After all, church offices can quickly be overrun with records and forms that are allowed to accumulate unchecked. Unfortunately, there are no easy answers. This article is the third in a series of articles in Church Treasurer Alert! that address recordkeeping rules for several kinds of church records. This is the second article to address tax records. An article in the April 2004 edition of this newsletter addressed the following tax forms:

W-2
W-4
941
990-T
1023
1099-MISC
5578

In this article we will be addressing retention rules for many other kinds of tax records. Future articles will address retention rules for several other kinds of records including tax, employment, insurance, correspondence, contracts, property, financial, vehicles, members, investments, and legal.

Churches approach recordkeeping in a number of ways. Some retain records “forever” just in case they may be needed even though most records have not been looked at in years. Others react to growing piles of clutter by going on occasional “search and destroy” missions. Some churches have adopted the rule that “if it hasn’t been touched in one year, then throw it out.”

None of these rules is either appropriate or desirable. It is possible to keep some records too long—well beyond what is required by law. In some cases this can result in the retention of records that might be harmful in future litigation. On the other hand, disposing of records too soon can lead to unanticipated problems—both with various state and federal government agencies and in future lawsuits.

What is needed is a records retention policy based on legal considerations and your church’s needs that will make records retention and disposal decisions systematic and rational. The “guesswork” and arbitrary nature of record retention decisions must be replaced with a sound and consistent policy. The table reproduced in this newsletter will assist you in developing such a policy with regard to several kinds of tax records.

Tip. You can use the chart as a quick glossary of commonly used terms.

Tip. In establishing a records retention policy you should consider a number of factors in addition to how long to keep records. These include: (1) when to make copies of records; (2) maintaining the security of records (especially records you plan to keep permanently), including backups of computer records; and (3) developing a record retention schedule (a document that summarizes records, lists how long you plan to keep them, and indicates where they are kept).

Here are some additional factors to consider in developing a records retention policy for your church:

Make an inventory of existing records.
The church board should develop and approve your records retention policy.
Your records retention policy should be reviewed by a local attorney (who can check local and state requirements), a CPA, and your insurance agent.
There are many reasons to keep church records. These include legal requirements, potential relevance in future litigation, the needs of the church, and historical importance. The table reproduced in this article suggests minimum periods of time for retaining various tax records. Some of the suggested retention periods are based on legal requirements, while others are based on practical considerations. You may want to keep some records longer than the table suggests.
Some organizations maintain a “destruction of records journal”. When the period of time for keeping a record has expired, the record is described in the journal before being destroyed.
Do not destroy records, even when the period for keeping them has expired, if they may be relevant in pending or threatened litigation or in pending or threatened government (including IRS) investigations.

Record Retention Guidelines for Tax Records -Part 2

DocumentDescriptionHow long to keep (minimum)Comments

Form 945 (annual return of withheld federal income tax)	employers use this form to report “backup withholding”	at least 4 years after filing the return	employers are required by law to withhold 28% of the compensation paid to independent contractors who fail to provide a Social Security number the withheld taxes are reported to the IRS on Form 945 churches can use Form W-9 to obtain the Social Security number of an independent contractor
Form W-9 (request for taxpayer identification number)	employers use this form to obtain the Social Security number of an independent contractor	at least 4 years from the filing deadline of the contractor’s tax return	churches should have any nonemployee complete this form who will be paid $600 or more during the year corporations are exempt from backup withholding
Form 8283 (noncash charitable contribution)	used by donors to substantiate certain noncash contributions valued at more than $500	at least 4 years from the filing deadline of the donor’s tax return	only retain a copy if required to sign the “appraisal summary,” Section B, Part IV (donations of property valued at more than $5,000)
Form 8282 (donee information return)	churches that sell donated property (valued by the donor at more than $5,000) within 2 years of the donation file this form with the IRS	at least 4 years after filing the return	this form is only required if a church signed Section B of the donor’s Form 8283 (appraisal summary)
offering envelopes	church-issued envelopes used by donors for cash contributions	at least 4 years from the filing deadline of the donor’s tax return (but see “comments” for an exception)	Some churches issue donors a periodic summary of contributions that includes a statement advising donors to question any discrepancies quickly since all documentation (including offering envelopes) the church relied on in preparing the summary will be disposed of within a specified period of time (e.g., six months). Such a statement relieves the church of the responsibility of warehousing offering envelopes and other supporting documentation for long periods of time.
contribution statements	periodic summaries of contributions provided to donors by a church	at least 4 years from the filing deadline of the donor’s tax return	Contribution statements must contain language prescribed by the tax code to substantiate individual gifts of $250 or more.
“written acknowledgements” of charitable contributions	the tax code requires any individual contribution (cash or property) of $250 or more to be substantiated with a “written acknowledgement” from the charity	at least 4 years from the filing deadline of the donor’s tax return	the tax code specifies language that must be included (e.g., “Thank you for your contribution of $500. No goods or services were provided in exchange for your contribution other than intangible religious benefits.”) churches often insert the required language in periodic “contribution statements” instead of issuing separate acknowledgments for each gift of $250 or more
“written acknowledgements” for short-term missions trips participants	participants in short-term missions trips can claim a charitable contribution deduction for travel expenses they incur if they receive a written acknowledgment from the church	at least 4 years from the filing deadline of the donor’s tax return	the tax code specifies language that must be included
accountable reimbursement policy	church policy that reimburses employees’ substantiated business expenses	permanently	the policy usually is reflected in a board resolution or employee handbook be sure all amendments are dated
accountable reimbursement policy receipts	employees must substantiate reimbursements with adequate documentation	at least 4 years from the filing deadline of the employee’s tax return (but see “comments” for an exception)	the regulations require employers to maintain receipts and other records used by employees to substantiate their reimbursed business expenses the IRS has indicated that it may relax this requirement, but it has not done so if an employer does not maintain these records, its employees will have to substantiate expenses if audited
all records associated with nonaccountable expense reimbursements	reimbursement of personal expenses, or unsubstantiated business expenses	at least 4 years from the filing deadline of the employee’s tax return	churches must report nonaccountable reimbursements as taxable income to the employee failure to do so can expose the employee to substantial penalties (intermediate sanctions)
housing allowance	board or church resolution or budget item designating a portion of a pastor’s compensation as a housing allowance	at least 4 years from the filing deadline of the pastor’s tax return	housing allowances are nontaxable (for income taxes) only to the extent they are used for housing expenses, and, for ministers who own their home, do not exceed the home’s fair rental value
estimated housing expense form	churches often base housing allowances on a list of estimated housing expenses provided by a pastor	at least 4 years from the filing deadline of the pastor’s tax return	if estimated expenses are significantly above the fair rental value of a pastor’s home, the allowance should be reduced (otherwise the pastor’s W-2 wages will be too low, which can create tax liabilities for a pastor who assumes that the W-2 reflects true compensation)
safety net housing allowance	continuing resolution designating a specified percent of the salary of any staff pastor as a housing allowance if no allowance has otherwise been declared	permanently	such resolutions avoid loss of the housing allowance if a church neglects to designate an allowance for the year, or is late in doing so also useful when a church hires a pastor in mid-year (when designation of a housing allowance is often neglected)
job descriptions of staff pastors	describe the duties for which the pastor is employed	at least 4 years from the filing deadline of the pastor’s tax return	a housing allowance must represent compensation paid to a pastor for the exercise of ministry job descriptions will indicate whether a pastor’s duties constitute the exercise of ministry
Form 8274 (certification by churches requesting exemption from FICA taxes)	used to exempt a church from the employer’s share of FICA taxes	permanently	Churches with nonminister employees in July 1984 could exempt themselves from the employer’s share of FICA taxes by filing this form with the IRS by October 30, 1984. An exemption makes nonminister church employees self employed for Social Security (they pay the full 15.3% self employment tax like ministers). They are not exempt. Churches hiring their first nonminister employee after 1984 have until the day before the due date for their first quarterly 941 form to file the exemption application.
property tax exemption applications and certificates	application form used to apply for exemption of church property from taxation, and the certificate issued by the taxing authority recognizing the exemption	consult local law	churches generally must apply for property tax exemption under local law in some states the exemption must be renewed periodically an exemption application must be filed by the “tax day” specified by local law
sales tax exemption applications and certificates	application form used to apply for exemption of state sales taxes, and the certificate issued by the taxing authority recognizing the exemption	consult local law	churches are exempt from sales tax in 41 states exemption generally requires an application exemption generally must be renewed periodically the exemption varies from state to state
tax-sheltered annuity salary reduction agreements	designations by employees of the amount of their salary to be reduced and placed in their retirement account	at least 4 years from the filing deadline of the employee’s tax return	tax-sheltered “403(b)” annuities are the most common retirement program for church staff
cafeteria plan	popular fringe benefit plan allowing employees to use pre-tax salary reductions to pay for a menu of fringe benefits	permanently	be sure all plan amendments (with dates) are recorded
Form 990-T (exempt organization’s business income tax return)	churches use this form to report “unrelated business income tax”	at least 4 years from the filing deadline of the tax return	examples of an unrelated trade or business include restaurants, and rent or fees from parking lots, communications towers, and some debt-financed buildings
retirement gifts	generally a resolution of the board or membership authorizing a gift to a retiring staff member	at least 4 years from the filing deadline of the employee’s tax return	retirement “gifts” paid by a church to a retiring employee are taxable (even if labeled “love gifts”) exception for some gifts of insignificant value exception for some “employee achievement awards” (property valued at less than $400)
special occasion gifts	generally a resolution of the board or membership authorizing a holiday, birthday or anniversary gift to a staff member	at least 4 years from the filing deadline of the employee’s tax return	special occasion “gifts” paid by a church to an employee are taxable (even if labeled “love gifts”) exception for some gifts made directly to an employee by a church member
health plans	plans adopted by an employer for the payment of some medical expenses of employees	permanently	amounts received by employees from an employer as reimbursement for medical expenses may be nontaxable if made pursuant to a “plan” be sure all plan amendments (with dates) are recorded
documents defining compensation	generally in minutes of church board or membership meetings	at least 4 years from the filing deadline of the employee’s tax return	compensation includes salary, expense reimbursements, fringe benefits, housing allowance, retirement plan contributions, insurance coverage, etc. documentation may be needed in the event an employee’s tax return is audited
correspondence received from the IRS or state and local tax agencies	may pertain to questions about a tax return (W-2, 941, etc.), a donor’s contributions, eligibility for property tax exemption, etc.	permanently	correspondence from taxing authorities may be relevant in future years

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

Record Retention Guidelines for Tax Records -Part 2

Record Keeping