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Religious congregations usually enjoy greater protection from federal government oversight than other not-for-profit organizations. For example, the IRS can\u2019t conduct a \u201cchurch tax inquiry\u201d unless a high-level Treasury Department official has written evidence that a religious organization has violated tax-exempt\u00a0rules.<\/p>\n
However, you\u2019d do your faith group a great disservice it you failed to observe IRS rules and financial best practices. Even if your congregation escapes government scrutiny, it could fall victim to fraud \u2014 or general mismanagement \u2014 that harms your members and reputation.<\/p>\n
UBIT concerns<\/strong><\/p>\n To effectively prevent financial and other critical mistakes, make sure your religious congregation complies with IRS rules and federal and state laws. In particular, watch out for unrelated business income tax (UBIT). If your organization regularly engages in any type of business activity that\u2019s unrelated to its religious mission, be aware of certain tax and reporting rules. Income from such activities could be subject to\u00a0UBIT.<\/p>\n For example, if you charge members of your congregation to park in your lot to attend religious services, that income generally isn\u2019t taxable. However, if you collect parking fees from the general public to use your lot, they are likely to be subject to UBIT. Other sources of unrelated business income can be publications, clothing and other merchandise, advertising, and gaming activities that generate income. If your organization has $1,000 or more in annual income from unrelated business income, it must file Form\u00a0990-T with the\u00a0IRS.<\/p>\n Other issues to watch for<\/strong><\/p>\n Religious congregations aren\u2019t always clear about employment status and wages for clergy and other\u00a0workers. Most clergy should be treated as employees and receive W-2 forms. Typically, they\u2019re exempt from Social Security taxes, Medicare taxes and federal withholding but are subject to self-employment tax on wages. A parsonage (or housing) allowance can reduce income tax, but not self-employment\u00a0tax.<\/p>\n If you have employees, you must withhold federal, Social Security and Medicare taxes from their paychecks. You also must follow federal labor laws, such as those related to minimum and overtime\u00a0wages.<\/p>\n In this election year, it\u2019s important to understand that your organization shouldn\u2019t devote a substantial part of its activities to attempting to influence legislation. Religious organizations are generally barred from endorsing or campaigning on behalf of political candidates or parties. Otherwise, you might risk your tax-exempt status and face potential penalties.<\/p>\n Foiling fraud<\/strong><\/p>\n Faith groups can be particularly vulnerable to fraud because they generally foster an environment of trust. Also, they may be reluctant to punish offenders. Just keep in mind that even the most long-standing members may be capable of embezzlement when faced with extreme circumstances.<\/p>\n Require that at least two people handle all contributions. They should count cash in a secure area and verify the contents of offering envelopes. Next, they should document their collection activity in a signed report. For greater security, encourage your members to make electronic payments on your website or sign up for automatic bank account deductions.<\/p>\n Best practices<\/strong><\/p>\n Even though religious congregations aren\u2019t required to file tax returns or conduct financial audits, they must comply with applicable IRS rules and other regulations. Contact us with questions.<\/p>\n \u00a9 2022<\/em><\/p>\n <\/body> Religious congregations usually enjoy greater protection from federal government oversight than other not-for-profit organizations. For example, the IRS can\u2019t conduct a \u201cchurch tax inquiry\u201d unless a high-level Treasury Department official has written evidence that a religious organization has violated tax-exempt\u00a0rules. However, you\u2019d do your faith group a great disservice it you failed to observe IRS […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,10,4],"tags":[8,11,12],"class_list":["post-16377","post","type-post","status-publish","format-standard","hentry","category-articles","category-news","category-nonprofit","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16377","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=16377"}],"version-history":[{"count":1,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16377\/revisions"}],"predecessor-version":[{"id":16378,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16377\/revisions\/16378"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=16377"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=16377"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=16377"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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