When Ministry Becomes Business
When Ministry Becomes Business
How to know when a new bookstore or childcare center will attract IRS attention.

"Show me a denarius. Whose portrait and inscription are on it?" "Caesar's," they replied. He said to them, "Then give to Caesar what is Caesar's, and to God what is God's." (Luke 20:24-25).

Churches and religious organizations start revenue-generating operations for two reasons. For some, the activity starts as a ministry and is intended to remain that, but the ministry generates some nonvital cash flow. For others, cash flow is critical to the success of the ministry.

The difference between the two types of cash flow is critical to the Internal Revenue Service. The IRS has been paying closer attention to the business operations of tax-exempt organizations to determine whether each activity is an extension of the mission of the organization or a freestanding business with income that should be taxed.

The IRS allows nonrelated business income. But income—as distinct from donations—is taxable if it stems from an activity not "substantially related" to the organization's activities and income. What does that mean? According to IRS regulations, "substantially related" means the trade or business must "contribute importantly to the accomplishment of the exempt purpose of an organization."

The IRS applies three standards when considering whether the activities of tax-exempt organizations are taxable. Income is presumed to be exempt from taxes unless the activity

  1. Is not substantially related to the organization's exempt purpose or function,

Log In For Full Access

Interested in becoming a member? Learn more.

View All
from our store
Church Finance

Church Finance

Learn about budgeting, financial reporting, tax compliance, insurance coverage, and more.
Politics and the Church

Politics and the Church

Tax and legal guidelines faith-based organizations need to know before jumping into the political fray.
20 Finance Questions Churches Ask

20 Finance Questions Churches Ask

Richard Hammar answers relevant tax and finance questions for church leaders.
Unrelated Business Income — The General Rules

Unrelated Business Income — The General Rules

How unrelated business income, and the possible taxes owed from it, works for churches.

ChurchSalary

ChurchSalary

Experience a whole new way to set compensation. Eliminate the guesswork – get access to detailed compensation reports in just minutes.