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If Your By-Laws Are not Legally Written, You May Be in Trouble

3/28/2017

He called the office, hardly able to speak. He was heart-broken, by the bombshell his Church had just dropped upon him. After years of faithful service to the Church he founded, he had been “stabbed in the back” by the Board of Trustees whom he thought were unanimously in favor of him. Pastor J. had recently decided to retire after more than 30 years.

He was turning the ministry over to a younger Pastor who attained 100 percent of congregational support. After the “passing the torch” ceremony, the senior Pastor received well-wishes from the head of the Trustee Board and an envelope. At dinner following the service the retiring Pastor opened the envelope to receive the shocking news that he was now barred from the property and that the Board of Trustees were demanding a complete audit of the books. We have been doing the Church’s books for years and they are spotless. His Church books are legally and ethically compliant.

What caused trouble for the Pastor was the Church By-Laws – the Pastor never thought he needed to adjust the By-Laws he had personally written many years prior to obtaining our services (even though we had encouraged him to do so). The By-Laws he had written were not structured with proper legal language that would support him in the event of situations of which he now faced. Now, after faithfully serving the Church he founded and Pastored for more than 30 years, he was “kicked to the curb,” without his promised retirement in the form of a monthly stipend that had been agreed upon by the Board and himself.

Operating with an Unsafe Style of Church Government

One problem this Pastor had against him was the Church Government system he had chosen to use. I advise Churches all across America to get rid of Board Ruled, Congregational Ruled Church Government.

There are four styles that are legal. They are:

- Democratic

This form of government is self-explanatory. It is Congregational Ruled, and every member gets to vote on everything. This is a dangerous form of Government that could result in innocent members being targeted by the IRS under the Responsible Party Provisions’ Act.

- Technocratic

Although acceptable, I only know of a handful of Churches that operate under a technocracy. It basically means that the Church is governed from a technology standpoint rather than one that is God-directed.

- Theocratic

Theocratic means that the Pastor should run the Church as he or she hears from God. The Pastor should operate with a trusted advisory board that will provide Godly wisdom for any decisions. This does not mean the Board overrides the Pastor, nor does the Board have a vote.

Some Theocratic Church Governments suffer when the Board is placed in control, rather than the Pastor. The Pastor is the “head” of the local Church under the direct leadership of Christ, who is the ultimate Head.

The only part of the body that has the ability to hear is the head. God does not talk to Board Members about Church vision.

- Autocratic

This form of government is most often employed by some denominations. The denominational authorities are in control of the local Church – not the Pastor, Board, or Congregation.

The good Pastor I am referring to in this blog had a form of Theocratic Government, but it was Board-ruled. As we sift through all of the Church correspondence between the Board and this Pastor, it is our hopes that he has documentation to support his claims of monthly stipends and free use of an office within the compound. If not, he is out in the proverbial cold because he did not COVER HIS ASSETS.

Legally Recognized By-Laws

Our Pastor’s problems would have never materialized if he would have had proper By-Laws in place. This Pastor personally wrote the By-Laws for his Church. Let me provide a word of caution to all Pastors, do not write your Church By-Laws or have a local attorney write them. A local attorney knows the basics to get state incorporation, but does not know the intricacies required for Church business.

No Church should use any By-Laws that have not been written by someone who knows Church Law and Church business, nor should they use By-Laws that have not withstood court scrutiny.

We Can Help

Chitwood and Chitwood has been the best friend of Churches for more than 77 years. Our Accounting and Legal Staff specialize in Church and non-profit law. Our Staff has designed the best legally recognized By-Laws for any of the four types of Church Government, though we recommend a Theocratic Government.

Do not be caught without Covering Your Assets! If your By-Laws are not able to withstand legal scrutiny, you may serve your Congregation for years only to discover you are out in the cold with no legal recourse.

We cover this in our Church Management and Tax Conference. I encourage every Pastor and Church Leader to visit us at www.cmtc.org or call us toll free at 800-344-0076 to register for a Church Management and Tax Conference near you. Do not serve in your Church another day without ensuring that you have legally COVERED YOUR ASSETS!

By Dr. Michael Chitwood

IS YOUR CHURCH PAYING THESE COSTS NEEDLESSLY?

3/23/2017

Most Churches do not have a huge “war chest” to pay for everything they feel God has called them to do. By the same token, the average Church in the USA consists of 70 members. These average Churches usually have very small staff and often feel pressured into unneeded monetary expenses that further strain the already limited Church budget. Whatever you do, do not misclassify your employees.

Worker’s Compensation

In many secular work environments, the hallways and bulletin boards are filled with posters and ads promoting a safe work place. However, the Church is hardly a hazardous work environment. It is hard to imagine a Pastor or Treasurer injuring their backs by picking up a stack of offering envelopes. Yet, many Churches, especially smaller congregations are billed needlessly for some Worker’s Compensation Insurance Premiums.

Chitwood and Chitwood discovered an often over-charged and unnecessary premium expense by Worker’s Compensation Insurance Companies that push Churches into obtaining coverage for all of their workers, including Church Officers and Board Members. With the exception of California, States do not require Church Officers and Board Members to be included in the Worker’s Compensation premium.

Also, many states do not require Worker’s Compensation if there are less than three employees. Whether a Church should obtain Worker’s Compensation if the staff is less than three is a decision that each Church and Board should prayerfully consider.

The Pastor of the Church is considered as President of the organization. How many Pastors are likely to hurt themselves on the job to such a degree they could not fulfill their Pastoral functions? Another question to consider is how many Pastors, if they were on Worker’s Compensation, could survive financially on a Compensation payment of $385.00 per week?

Local CPAs who have no clue as to what really is required in Church finances have cost Churches millions of dollars because of incorrect or partially correct advice. This is why all Churches should outsource to the Number One Church and Clergy Accounting Firm in the world – Chitwood and Chitwood.

SUTA

The State Unemployment Tax Act (SUTA) was created to assist out of work employees. This tax must be paid by employers and has been used excessively, especially in the past several years.

As with the Churches and Worker’s Compensation, Chitwood and Chitwood discovered thousands of Churches, over the past several years, which had been incorrectly advised by local, uninformed CPAs, to pay a tax of which they were exempt.

Local CPAs that are not proficient in Church Tax Law have frequently improperly processed Church payrolls that has resulted in Churches paying State Unemployment Taxes from which they were exempt.

FUTA

The same is true with the Federal Unemployment Tax Act (FUTA). When a Church payroll has been misclassified, the FUTA and the SUTA are often needlessly assessed to unsuspecting Churches who have placed their trust in a local CPA that does not know Church Tax and Law.

Local CPAs are great people and most do a great job for for-profit corporations and small businesses. However, they have cost Churches a lot of money over the years. Many Churches and Pastors who have had battles with the IRS, had a local CPA who told them the Church books were okay.

Is a local CPA worth the risk?

In Closing

It is time Churches outsource to an organization that specializes in this unique area of tax law. Chitwood and Chitwood have specialized in Churches and Ministers for more than 77 years. No one does it better than we do.

Our expertise assures every Pastor and Church that we represent, the peace of mind and freedom to do what Pastors and Churches should do – win the lost to Christ.

For more information on how to get your Church compliant, contact www.cmtc.org or call 800-344-0076 to register for a Church Management Tax Conference near you. Time is of the essence. Every moment you procrastinate in outsourcing your Church Accounting to Chitwood and Chitwood is another moment you are probably spending unnecessary dollars for unnecessary services.

We are the only service in the USA that can guarantee our services and back it up with our vast specialized experience.

CALL OR GO ONLINE NOW!

By Dr. Michael Chitwood

Is It Tax Deductible or Taxable

3/14/2017

I continually speak to Pastors and Church Leaders throughout the USA and I am amazed at those whom feel as if they are somehow immune to the Internal Revenue Service and its codes, simply because they are a Church. Some are so naїve they almost flaunt their IRS lack of obedience. In addition to this being criminally dangerous, it is spiritually dangerous. In the context of paying taxes Jesus declared that we are to give Caesar that which belongs to Caesar (Mat. 22:21).

I wonder how many Churches struggle financially because they intentionally violate Mat. 22:21 and Romans 13:1-7? God will not bless a mess and when Church books are not in legal compliance with IRS guidelines it says to God that His Word only has clout when it is favorable to our desires.

According to the IRS tax gap report, underreporting of income is the biggest contributor to the tax gap. According to the report, there is $500,000.00 owed to the IRS and 90% of it is due to underreporting.

Churches are infamous for underreporting. This underreporting most often occurs when Churches fail to report payments made to their Pastors and staff. Pastors, Church Check-writers and Board Members think they are being creative when they give money and call it “love offering,” etc to justify not reporting it as income. Remember, anyone working on the inside of your church (Pastor, Treasurers, musicians, etc.) are employees and any funds provided to them must be reported. Anyone on the outside (independent contractors, vendors, etc.) receiving Church funds must receive a 1099 of some type.

Do not feel as if you are smart enough or saved enough to avoid the wrath of the IRS if you are out of compliance.

How Churches Contribute to the Tax Gap

- Improper Housing Allowance Payments

There are many facets that must be covered when dealing with Pastoral Housing Allowance. The Pastor cannot receive all Housing Allowance and not salary. As a matter of fact, the Housing Allowance should not exceed 50% of the Pastor’s ministerial income. Although Housing Allowance is not taxable, it is subject to Self-Employment Tax unless the Pastor has filed for and obtained self-employment tax exemption

- Improper Salary Documentation

Misreporting salary is subject to huge penalties from the IRS. The Church and Pastor better not have a salary agreement with any open-ended items. Also, the Church Leaders need to be aware of the fact that Pastor’s Salary must be set by an independent firm and not by those who have a vote. Remember all monies given to the Pastor, regardless of what the money is called (i.e. salary, love offering, etc.), with the exception of bona fide Housing Allowance, must be reported in his W-2.

- Be Careful with “Love Offerings”

If “Love Offerings” are not setup the right way, they are taxable and must be reported as income. Those who are receiving them the “old” way are going to get caught and the punishment (civil and criminal) may be severe.

Chitwood and Chitwood has been helping Pastors and Churches get the most tax free benefits available, but with our 77 years of experience, we know how to do it the right way. If you would like resources on how to properly set up a “Love Offering” program properly, contact drshaw@cmtc.org for more information.

Why You Need Us

Our 79 years in Church and Clergy tax management makes us the number one organization in the nation for IRS issues. We constantly search the regulations to ensure our Churches and ministers are abreast of those changes and comply accordingly.

For this reason, every Pastor, Church Leader and Church Bookkeeper should attend the closest Church Management and Tax Conference quickly. The IRS is coming and we know that for which they are looking. Get your books in compliance NOW! Call 800-344-0076 or visit us online at www.cmtc.org to register.

Why take a chance? Retain the Premier Church and Clergy professionals in the world, Chitwood and Chitwood, and let us make sure you are in compliance with God’s Laws and those of the IRS. NO ONE DOES IT BETTER!

If Your By-Laws Are not Legally Written, You May Be in Trouble

Operating with an Unsafe Style of Church Government

Legally Recognized By-Laws

We Can Help

​By Dr. Michael Chitwood

IS YOUR CHURCH PAYING THESE COSTS NEEDLESSLY?

Worker’s Compensation

SUTA

FUTA

In Closing

By Dr. Michael Chitwood​

Is It Tax Deductible or Taxable

How Churches Contribute to the Tax Gap

Why You Need Us

By Dr. Michael Chitwood

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