Q&A: If an Outside Group Uses Our Building, Will that Jeopardize Our Property Tax Exemption?

Our church allows a homeschooling organization to meet in our facility one day per week during the school year. In return, the group makes a donation to the church to help us cover the costs of electricity and water. I recently heard that such an arrangement puts our church’s property tax exemption in jeopardy. Is this true?

First, classifying such payments as a “donation” does not necessarily resolve the question, since the Internal Revenue Service (IRS) may conclude that the “donation” is actually rent paid to the church for the use of its facilities. The IRS often says that it is the “economic reality” that controls, not terminology.

Second, whenever a church is considering the rental of some or all of its facilities, there are a number of factors to be considered. Your question is actually one of seven questions that merit attention by your church ...