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 become overwhelmed with old records and forms. Unfortunately, there are no easy answers.
This article is the second in a series of articles in Church Treasurer Alert! that will summarize recordkeeping rules for several kinds of church records. Last month we addressed the retention of corporate records. This month, and next month, we address the retention of tax records. Future articles also will address retention rules for several other kinds of records including employment, insurance, correspondence, contracts, property, financial, vehicles, members, investments, and legal.
Each church should have a records retention policy based on legal and practical considerations 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 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 organization, and historical importance. The table reproduced in this article suggests minimum periods of time for retaining various church 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 1
|Form W-2 (wage and tax statement)||reports wages paid and taxes withheld||at least 4 years after filing the return||retain the employer’s copy of W-2 forms issued to employees|
|Form W-4 (withholding allowance certificate)||employees report withholding allowances on this form to enable their employer to withhold the correct amount of income taxes||at least 4 years after filing the return||• all lay employees should complete and submit this form to the church treasurer
• ministers’ wages are not subject to tax withholding, but ministers who report their income taxes as employees can elect voluntary withholding of taxes by completing and submitting this form to the church treasurer
|Form 941 (employer’s quarterly tax return)||used by employers to report wages paid and taxes withheld for each calendar quarter||at least 4 years after filing the return||• churches must file this form if they have at least one lay employee (or one minister who has elected voluntary withholding)
• amounts reported on W-2 forms issued by the church should reconcile with the 941 forms for the year
|Form 990-T (unrelated business income tax return)||tax return that tax-exempt organizations (including churches) file to report taxable income from an unrelated trade or business||at least 3 years after filing the return||• some exceptions apply (such as activities conducted by volunteers, sale of donated goods, and activities not regularly carried on)
• rent from debt-financed property may be taxable unless there is a plan to use the property for exempt purposes within 15 years of acquisition
|Form 1023 (application for recognition of exemption)||used to apply for IRS recognition of exemption from federal income taxes||permanently||• churches are not required to file this form, since they are automatically assumed to be exempt
• it often is desirable to have IRS recognition of exemption (though not required)
• many churches are recognized by the IRS to be exempt because they are included in denominational group exemptions
• churches not covered by group exemptions can file this form to obtain IRS recognition of exemption
|Form 1099-MISC (miscellaneous income)||used to report compensation paid to nonemployees of $600 or more during the year||at least 4 years after filing the return||• churches use this form to report compensation of $600 or more paid to self-employed clergy or any other self-employed worker, including itinerant evangelists and guest speakers
• not issued to corporations
• $600 amount is net of accountable expense reimbursements and housing allowance
|Form 5578 (annual certification of racial nondiscrimination)||filed annually by private schools (preschool through graduate school)||at least 4 years after filing the return||used by private schools even if church-affiliated to certify compliance with federal nondiscrimination requirements (due by the 15th day of the 5th month following the close of each fiscal year)|
IRS Publication 1828 contains the following information on the retention of church records: “The law does not specify a length of time that records must be retained; however, the following guidelines should be applied in the event that the records may be material to the administration of any federal tax law.” Publication 1828 lists the following guidelines:
|type of record||length of time to retain|
|records of revenue and expenses, including payroll records||retain for at least four years after filing the return to which they relate|
|records relating to acquisition and disposition of property (real and personal, including investments)||retain for at least four years after the filing of the return for the year in which disposition occurs|
This article first appeared in Church Treasurer Alert, April 2004.