The IRS wants to know if your organization is practicing “good governance,” so it recently released its new Governance Check Sheet that its agents will use to gather information about the governance practices of nonprofit organizations, including churches and ministries.   The release of the Governance Check Sheet is helpful to public charities because it gives nonprofit organizations a better idea of what the IRS is thinking and what the IRS considers “good governance.”  This, in turn, will help your organization make important governance decisions and implement important policies and procedures.  Specifically, in the Governance Check Sheet the IRS examines the following issues:

1)  Governing Body and Management: 

• Does the organization have a written mission statement that articulates its exempt purpose?
• Do the bylaws of the organization include information about who has the right to vote, qualifications, etc?

2)  Compensation:

• Does an authorized independent body establish compensation procedures, in advance, for all high level employees?
• Is comparability data used to determine compensation?

3)  Organizational Control:

• Are related family members serving on the Board of Directors?
• Do any directors have business relationships with other directors, officers, or key employees?

4)  Conflicts of Interest:

• Does the organization have a written conflict-of-interest policy?
• Is the policy followed?

5)  Financial Oversight:

• What type of policies and procedures are in place to ensure assets are properly used for exempt purposes?
• How often are financial reports provided to the organization’s Board of Directors?
• Is the Form 990 (if applicable) reviewed by the entire Board of Directors prior to submission?

6)  Document Retention:

• Does the organization have (and follow) a policy for document retention and destruction?
• Does the Board of Directors contemporaneously document its meetings (i.e. minutes) and retain such documentation?

Some have wondered why the IRS is becoming involved in corporate governance issues when its role is really to ensure tax compliance.  However, it appears as though the IRS is reviewing the governance practices of charities to determine the connection between a charity’s tax compliance and corporate governance practices.  The thought is that the better governance procedures that an organization has in place, the more likely that the organization is also going to comply with all applicable tax rules and standards for exempt organizations.

Here at the Church Law Group, we strongly recommend making sure that your organization’s governance documents–including articles of incorporation, bylaws, and other basic policies and procedures–are compliant with state and federal laws, as well as with the current standards for tax-exempt organizations.  Determining the effectiveness of your organization’s governance practices will help ensure the long term success and viability of your organization.  Remember, as Benjamin Franklin stated so long ago, “an ounce of prevention is worth a pound of cure.”  Contact us today at 972-444-8777 to learn more about how the Church Law Group can help you evaluate the effectiveness of your organization’s governance procedures.

admin Governance 990, board minutes, board of directors, charities, church, Church Law Group, compensation, document retention, Governance, guidelines, IRS, policies, religious organization, tax law, Tax-exemption

The Super Bowl marks the final football weekend for America and many churches are gearing up for their own watch parties.  You may or may not be aware that for the last few years, the NFL has taken a hard stance against groups wanting to show the big game outside of the traditional family living room environment.  During these years, the NFL has gone as far as sending legal demand letters to churches that intended to hold watch parties, threatening to prosecute them for violation of copyright laws if the churches did not cancel the watch parties.  However, members of Congress were quick to respond and threatened to change copyright laws that would allow churches and other groups to show the Super Bowl without fear of any legal action.  As a result, the NFL has recently adopted new guidelines that will allow church sponsored events to show the Super Bowl.

The good news is that churches are free to show the big game between the New Orleans Saints and the Indianapolis Colts, on February 7, 2009, on large screens in their public facilities without fear of violating copyright laws, so long as the church abides by two simple guidelines: 

1. The game is shown on equipment the church regularly uses in the course of ministry—so if the church already owns a big screen and sound equipment, then the game can be shown using this equipment; and
2. Churches cannot charge admission for the party.  

In addition, the NFL has stated that churches may take up a donation to defray the cost of the event, if they desire to do so.

If you have any questions regarding copyright law, feel free to call our office at 972-444-8777.  You might also want to consider purchasing the Church Law Group Guide to Intellectual Property.

 Are You Ready For Some Football?

admin Intellectual Property

At the beginning of December each year we usually receive a multitude of questions concerning housing allowances.  One of the most frequent questions is whether a traveling evangelist is entitled to such a benefit.  The answer is yes if the following criteria is met:

(1) The traveling evangelists maintains a permanent home;

(2) Have local churches in which they conduct religious meetings; and

(3) Declare in advance a portion of their compensation as a housing allowance.

The requirement that each church designate a portion of an evangelist’s compensation as a housing allowance is certainly an inconvenience, but it is well worth it.

Some evangelists have created nonprofit corporations to avoid such an inconvenience.  One of the justifications sometimes given for this procedure is to enable the evangelist to avoid the inconvenience of having each church designate a portion of his or her compensation has a housing or rental allowance—the idea being that the corporation can designate a portion of the evangelist’s annual income as a housing allowance in a single action.

To ensure accountability, analysts recommend that churches issue evangelists and other guest speakers a Form 1099 if the church pays them compensation of $600 or more.  The church should include a housing allowance designation when computing the compensation, but also provide the evangelist or guest speaker with a written housing allowance designation on the church’s stationary to confirm the housing allowance amount.

admin Uncategorized housing allowance, local church, traveling evangelist

Why is it so important for new church plants to implement proper corporate governance documents from the very beginning? 

Jesus said a wise man builds his house on a foundation of rock.  That way, when the rain falls, and the floods come, and the winds blow and beat on the house, it will not fall because it is founded on solid ground.  From a legal perspective, a church rests upon the quality of its foundation: the governance and operational documents of the organization.

Many churches adopt Articles of Incorporation and Bylaws and then put them away and forget about them.  This is a huge mistake!  These documents should be reviewed periodically, probably annually, to insure that the church is actually acting in accordance with them.  If it is not, the church needs to decide if this is due to oversight or because the documents are not realistic or that experience has shown that there is a better way.  The governing documents should not be ignored simply because they may impose rules or procedures that are viewed to be inconvenient.  The church needs to insure that the current documents are kept in a secure location and that only trusted church leaders have access to them. 

While there are many risks or liabilities a church cannot control, having good governance documents is one thing it does have control of and that can make a big difference in the continuing welfare of the church and its leaders.

admin Governance church, Governance

Entitlement to a clergy housing allowance is not as straightforward as is often imagined.  Right now, religious nonprofit organizations are under heavy assault by the IRS, so a conservative approach is warranted.

The Internal Revenue Code allows a tax-free housing benefit for a “minister of the gospel” in two situations.  First, the employer can allow the minister to live rent-free in a home (parsonage) owned by the church.  The minister can exclude this benefit from gross income up to the home’s fair rental value.  The value of the parsonage must be clearly distinguished from other compensation, and includes items such as furniture, insurance, utilities, and taxes.  Second, if a parsonage is not provided to the minister, a nontaxable housing allowance can be provided so that the minister can rent or buy a home.  This is the option used most frequently.  It provides ministers with the freedom to choose their preferred type of housing.  The allowance covers items such as mortgage payments (principal and interest), insurance, repairs, utilities, and other expenses to keep the home in working order.

Although the term “minister” is not defined in the Internal Revenue Code, the IRS and courts have specified five factors that should be used to identify a minister.  The factors include:

• Performing sacerdotal functions (i.e. weddings and funerals, etc.);
• Conducting worship services;
• Controlling or maintaining the organization;
• Considered a spirtual leader; and
• Ordained, licensed, or commissioned.

Only the last factor is required in all cases: the individual must be ordained, licensed, or commissioned.  Although it is clear from existing caselaw that the remaining four factors need not all be present for a person to be considered a minister for tax reporting, it is unclear how many of the remaining four factors must be met.

It is not uncommon for an employee’s job duties to include both ministerial and nonministerial functions.  However, if more than 50% of an employee’s time is devoted to nonministry (i.e. secular) duties, the church will be put in a tenuous position if it grants a housing allowance to the employee.  Many churches think it seems unfair to exclude employees from the benefits of a housing allowance if part of their job involves performing the typical duties of a minister.  However, the church cannot ignore the fact that if most of the employee’s duties are secular, in the eyes of a court they will fail to meet the definition of a minister. 

The Church Law Group has released a Guide to Executive Compensation (with forms) that is now available for purchase. Email churchlawgroup@amlawteam.com or call 972-444-8777 if you have any questions about clergy housing allowances or are interested in the Church Law Group Guide to Executive Compensation.

You can also visit us on You Tube to hear David Middlebrook speak about some important  information on housing allowances!!!

admin Executive Compensation church, Church Law Group, compensation, David Middlebrook, housing allowance, IRS, minister, nonprofit, parsonage, religious organization, tax law

Churches that meet the requirements of the Internal Revenue Code section 501(c)(3) are automatically considered tax exempt.  This means that churches are not required to apply for and obtain recognition of tax-exempt status from the IRS.

Even so, many churches seek tax-exempt recognition from the IRS simply because it provides assurance that financial contributions to the church would generally be tax-deductible.

The term church is found, but not specifically defined, in the Internal Revenue Code.  The IRS has compiled a list of certain characteristics that are generally attributed to churches.  They include:

• Distinct legal existence
• Recognized creed and form of worship
• Definite and distinct ecclesiastical government
• Formal code of doctrine and discipline
• Distinct religious history
• Membership not associated with any other church or denomination    Organization of ordained ministers
• Ordained ministers selected after completing prescribed courses of study Literature of its own
• Established places of workshop
• Regular congregations
• Regular religious services
• Sunday schools for the religious instruction of the young
• Schools for the preparation of its members

Recently, the IRS denied several organizations church status when the organizations applied for tax-exempt recognition as a church.  The IRS concluded that the organizations failed to meet the legal definition of “church.”

One of the organizations that applied for recognition as a “church” was denied because its worship services were conducted solely by teleconference.  The IRS concluded that worship by teleconference does not bring people together for worship, and that “sitting at home holding a ’service’ over the telephone does not meet the more restrictive definition of a ‘church.’”

admin Tax-exemption 501(c)(3), church, IRS, religious worship, Tax-exemption

Just as a primary care physician is the “gatekeeper” to health care services, in many ways, a minister is the ^“gatekeeper^“ for people in need of mental, emotional or spiritual help. Counseling is a vital part of ministry.  A minister may counsel at the altar of his church, in the church narthex or church parking lot, sitting at a restaurant table, on the golf course, or on the telephone in the middle of the night.  Often, a person in crisis turns first to the pastor, priest, or rabbi for help.  One study indicated that 80 percent of those with family and marital problems turned first to their ministers. In the fast-paced society in which we live today, people have problems of great complexity and magnitude.  The minister is generally viewed as a safe place to turn.

There are several different categories of counselors, each of whom have different educational and licensing requirements.  The Ministerial Counselor is not licensed as a professional counselor but can provide ministerial counseling.  A Ministerial Counselor must not engage in the practice of clinical counseling.  In other words, so long as a minister does not present him/herself as a clinical professional counselor, he/she is free to engage in spiritual and religious counseling. The ministerial counselor must not employ behavioral science or psychological theories, methodologies or techniques. The ministerial counselor is expected to counsel and advise from the perspective of the religion he or she represents.

The world of pastoral counseling is tricky: make sure that you are aware of the red flags and legal pitfalls that you may face through pastoral counseling.  To learn how to safeguard yourself and your church from these pitfalls, please contact The Church Law Group to preorder our Guide to Pastoral Counseling (with forms) that includes an in–depth examination of pastoral counseling that will inform you of vital information that you can implement as you engage in pastoral counseling. Email churchlawgroup@amlawteam.com or call 972-444-8777 if you have any questions about your church’s counseling ministry or would like to preorder the Church Law Group Guide to Pastoral Counseling.

admin Pastoral Counseling counseling, family and marital problems, ministerial counseling, Pastoral Counseling

Sometimes a director is faced with the issue of objecting to a majority decision to have the organization do something that he or she feels is wrong or risky or with which he or she just strongly disagrees.  In such a case an abstention (refusal to vote) is not enough to avoid liability for the board’s action.  The dissenting director must make sure that his or her dissent appears in the written minutes of the board meeting.  If the dissent is not recorded in the written minutes of the church then the director is presumed to have assented to the action (even if he or she later resigns from the board).

The Church Law Group has released a Guide to Board Training (with forms) that includes the above tip among many others and that is now available for purchase.  Email churchlawgroup@amlawteam.com or call 972-444-8777 if you have any questions about your church’s board of directors or are interested in the Church Law Group Guide to Board Training.

admin Governance board meeting, board of directors, church, Church Law Group, minutes, vote

There is considerable disagreement on how boards of directors should function.  For a religious nonprofit organization, the board of directors is (or should be) the critical body that determines the entity’s programs and investments and provides management guidance.  The role of the officers and employees is important, but the board of directors has the responsibility to frame the organization’s overall policy directions and objectives.  The governing board has the ultimate responsibility for the organization’s activities—and can be a prime target when matters of liability arise.

One of the main responsibilities of board members is to maintain financial accountability and effective oversight of the organization they serve.  Board members act as trustees of the organization’s assets and must exercise due diligence to see that the organization is well managed and that its financial situation remains sound.  Fiduciary duty requires board members to stay objective, unselfish, responsible, honest, trustworthy, and efficient.  Board members, as stewards of public trust, must always act for the good of the organization, rather than for their personal benefit.  They need to exercise reasonable care in all decision making, without placing the organization under unnecessary risk.

It is important to remember, however, that individual board members have responsibilities but not personal authority over the organization.  Since members have no individual authority to make organizational decisions, the board collectively is responsible for:

1) Developing and maintaining the organization’s mission;

2) Maintaining the organization’s tax-exempt status and (if applicable) its ability to attract charitable contributions;

3) Protecting the organization’s resources and approving the budget;

4) Hiring and evaluating the chief executive, and generally overseeing the organization’s management; and

5) Supporting any fundraising that the organization undertakes.

admin Governance board of directors, church, due diligence, fiduciary, Governance, liability, nonprofit, oversight, reasonable care

One factor which can contribute to the long-term success of a nonprofit organization is the presence of an able board of directors who can complement the vision and resources of the organization.  However, unlike large for-profit corporations who elect their directors based on the individual’s business and legal savvy, most nonprofit organizations elect their board of directors based upon the individual’s loyalty and dedication to the organization.  As a result, many persons serving on their nonprofit organization’s board may not have a clear understanding of their rights, responsibilities and, most importantly, their potential personal liability.  In an effort to fill this gap, the Church Law Group is focusing this month on training for board members.  Our goal is to to set-out the basic rules which all directors should follow and to discuss a few ways in which nonprofit organizations can limit the potential exposure faced by its board members. 

Let’s start with the traditional duties of individual board members:

The duties of the board of directors of a nonprofit organization can be encapsulated in the three D’s: duty of care, duty of loyalty, and duty of obedience.  Defined by case law, these are legal standards against which all actions taken by directors are held.  They are collective duties adhering to the entire board and require the active participation of all board members.  Accountability can be demonstrated by showing the effective discharge of these duties.

1. Duty of Care.  The duty of care requires that directors of a nonprofit organization be reasonably informed about the organization’s activities, participate in decisions, and do so in good faith and with the care of an ordinarily prudent person in similar circumstances.  The duty of care could be carried out by attendance at meetings of the board and appropriate committees, advance preparation for board meetings, obtaining information before voting to make good decisions, use of independent judgment, periodic examination of the credentials and performance of those who serve the organization, and frequent review of the organization’s finances and financial policies.

2. Duty of Loyalty.  The duty of loyalty requires board members to exercise their power in the interest of the organization and not in their own interest or the interest of another entity, particularly one in which they have a formal relationship.  When acting on behalf of the organization, board members must put the interests of the organization before their personal and professional interests.  In practice, the duty of loyalty is carried out by disclosure of any conflicts of interest, adherence to the organization’s conflict-of-interest policy, avoidance of the use of corporate opportunities for the individual’s personal gain or benefit, and nondisclosure of confidential information about the organization

3. Duty of Obedience.  The duty of obedience requires that directors of a nonprofit organization comply with applicable federal, state, and local laws, adhere to the organization’s bylaws and existing policies, and remain the guardians of the mission.

admin Governance board of directors, church, Church Law Group, duty of care, duty of loyalty, duty of obedience, fiduciary, Governance, liability, nonprofit, religious organization