If you are like most church treasurers, you probably have asked yourself a number of times how long you should keep church records. After all, church offices can become overwhelmed by records and forms. Unfortunately, there is no easy answer to this question. This article is the first in a series of articles in Church Treasurer Alert! that will summarize recordkeeping rules for several kinds of church records. In this article, we will be addressing corporate and tax recordkeeping rules. In future articles we will addressing recordkeeping recommendations for several other categories of records including 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 some 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 applicable 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 corporate and 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.
- Generally, the period for keeping tax records corresponds to the period of time that the IRS can conduct an audit and assess back taxes. Note however that there is no limit on how far back the IRS can assess taxes in cases of fraud, filing a false return, willfully attempting to evade tax, or failing to file a return. Each church must review this list carefully. If there is any possibility that you are guilty of any of the conditions that trigger the “unlimited” assessment period, then you should keep relevant records permanently.
CHURCH RECORDS—HOW LONG TO KEEP THEM
CORPORATE AND TAX RECORDS
|category||document||description||how long to keep (minimum)|
|corporate||charter (articles of incorporation), including amendments||a legal document (usually issued by the secretary of state) confirming corporate status||permanently|
|corporate||constitution or bylaws||rules of internal church administration||permanently|
|corporate||certificate of incorporation||document issued by secretary of state confirming incorporation||permanently|
|corporate||certificate of good standing||document issued by secretary of state confirming current corporate status||permanently|
|corporate||minutes||summaries of membership and board meetings||permanently|
|corporate||annual corporate reports||required annually by some state nonprofit corporation laws (in some states, a corporation can “lapse” for failure to submit this form)||permanently|
|tax||Form W-2 (the employer’s copy of forms issued to employees)||reports wages paid and taxes withheld||4 years after the due date of the tax for the return period to which the records relate, or the date such tax is paid, whichever is later|
|tax||Form W-4||employees report withholding allowances on this form, to assist their employer in determining the amount of taxes to be withheld (wages of minister-employees are exempt from withholding, but clergy can elect voluntary withholding by submitting a completed W-4 form to their employing church); all nonminister employees should complete this form||4 years after the due date of the tax for the return period to which the records relate, or the date such tax is paid, whichever is later|
|tax||Form 941||used by employers to report to the IRS wages paid to employees each quarter, and both income taxes and FICA taxes withheld; churches must file this form quarterly with the IRS if they have at least one employee (the amounts reported on a church’s W-2 forms at year-end must reconcile with the 941 forms filed during the year)||4 years after the due date of the tax for the return period to which the records relate, or the date such tax is paid, whichever is later|
|tax||Form 941E||churches that have filed a timely election to exempt themselves from employer FICA taxes (Form 8274) use this form to report to the IRS wages paid to employees each quarter, and income taxes withheld|
|tax||Form 990-T||tax return for exempt organizations, including churches, engaged in an unrelated trade or business||3 years after the due date of the return|
|tax||Form 1023||(1) application for IRS recognition of exemption from federal income taxes; (2) your church may not have this form since churches are not required to file it (although doing so is helpful in confirming the deductibility of members’ donations), and it is unnecessary if you are covered by a denomination’s “group exemption”||permanently|
|tax||Form 1099-MISC||used to report payment of nonemployee compensation of $600 or more during any one year to the same individual; 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 (some exceptions apply)|
|tax||Form 5578||used by private schools (including preschools, elementary and secondary schools, and colleges), 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)|
|tax||Form 8274||(1) used by churches, and some other religious organizations, to elect exemption from the employer’s share of FICA taxes; (2) electing organization must be opposed, on the basis of religious convictions, to payment of the employer’s share of FICA taxes; (3) the form was due by October 30, 1984 for any employer having at least one nonminister employee as of July of 1984; for other employers, the due date is one day before the due date of the first 941 reporting nonminister wages; (4) effect of the form is to convert all nonminister employees into self-employed persons for social security purposes (they pay the self-employment tax); (5) the form is revocable||permanently|
|tax||Form 8282||used by churches to report to the IRS the sale, consumption, or other disposal of donated property originally valued by the donor in excess of $5,000; must be filed if the donated property was sold, consumed, or otherwise disposed of within 2 years of the contribution||6 years after the donor filed a tax return for the year in question, or the date the tax was due, whichever is later|
|tax||offering envelopes||used by many church members to substantiate their contributions of cash and checks (for individual contributions of less than $250)||6 years after the donor filed a tax return for the year in question, or the date the tax was due, whichever is later|
|tax||church’s contribution receipts||church’s contribution receipts||6 years after the donor filed a tax return for the year in question, or the date the tax was due, whichever is later|
|tax||receipts and other evidence substantiating employee business expense reimbursements||accountable business expense reimbursement arrangements require a church to reimburse only those worker business expenses that are properly substantiated with adequate records; such records include receipts, logs, and diary entries|
|tax||housing allowance designations||ministers are able to exclude from taxable income (for federal income tax reporting purposes) the portion of their church compensation that is designated in advance by the church as a housing allowance, to the extent the allowance is used to pay for housing expenses||6 years after the minister filed a tax return for the year in question, or the date the tax was due, whichever is later|
This article originally appeared in Church Treasurer Alert, February 1994.