Blog Archives

11/15/2016

Illegal Love Offerings May Send Your Pastor to Prison

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Pastors and ministers of religious institutions have come under increased scrutiny that relates to cash practices, and the proper accounting and reporting required for each.

He was the Pastor of a good Church in the mid-Atlantic region. The Church paid its obligations promptly each month. To look at it from the outside looking in everything seemed fine. The un-manifested problem however was the Pastor. He felt as if the Church was not properly supporting him (though it was, based on the size and income of the ministry).

Pastor H. decided the best way to supplement his income was to receive “Love Offerings” each week that would be earmarked as such. This Pastor began to remove the cash from the offerings. If any individual wrote a check for that “Love Offering” the Pastor would simply remove that amount of cash from the collection thereby leaving the check to be deposited to the Church’s account.

One of the Elders approached the Pastor in love and expressed his concern for the actions of the man of God. The Pastor defensively replied, “I bring it in, I should be able to take it out.” Whether or not someone blew the whistle, or it was the result of other issues, the IRS began their audit.

When the IRS showed up and indicted him on 5 counts, one of which was illegal love offerings, the Judge and jury would not accept the Pastor’s arguments. The Pastor discovered himself in a “prison ministry” of which he had no desire or anointing to fulfill. He went to prison!

Legal versus Illegal

Every Pastor I know is elated when they receive the proverbial “Pentecostal Handshake,” i.e. money placed into their hands. Often these warriors of the Gospel received different types of cash as part of their operations and activities. These cash payments could consist of contributions, “love gifts,” honorariums, cash donations or donations of items or property. It is vital for ministers to understand the terms and what such payment may represent under IRS regulations.

For something to be a true “gift” and considered a nontaxable event, it must meet several criteria that was outlined under the original Duberstein case. That with which God desires to bless you, may curse you if not transacted properly. What you do not know can hurt you!

Not all “Love Offerings” are taxable, but many of them are. It is when the Pastor, minister, or Church does not know the difference that it creates conflict that may lead to penalties or possible imprisonment. Just because a “Love Offering” is made as a charitable contribution to a church or tax-exempt religious ministries does not constitute it as a tax free gift to ministers or Pastors.

When “Love Offerings” are formulated properly they can be tax exempt. Herein lies the problem – most Churches, Pastors, and ministers do not know the difference between demarcation lines of legal or non-legal.

What Does God Say?

God wants to bless His people, especially those serving in front-line ministry. 1 Timothy 5:17-18 declares, “Let the elders that rule well be counted worthy of double honor, especially they who labor in the word and doctrine. For the Scripture says, ‘Thou shall not muzzle the ox that treads out the corn. And, the laborer is worthy of his reward.’”

Since God desires for ministers and Pastors to be financially blessed, to whom does the responsibility lie to see that they are blessed? Galatians 6:6 answers this question. “Let him that is taught in the word communicate [become a partner] unto him that teaches in all good things.” It is the responsibility of anyone, taught by the man and woman of God, to bless those in ministry.

However, there is command that is from the mouth of our Lord that we must heed. Jesus declared in Matthew 22:21b that we are to “. . . Render [give] unto Caesar [the government] those things which are Caesar’s [the government].”

God desires that ministers and Pastors be financially blessed by others, but we must do it the right way (Rom. 13:1-2; Heb. 13:7).

The Last Word

As the ultimate organization in our field, Chitwood and Chitwood’s 77 years of experience of has placed us at the highest echelon in protecting Churches, Pastors, and ministers. We are number ONE in our field. Contact us today at drshaw@cmtc.org to discover the proper manner to design “Love Offerings” so you may enjoy the financial blessings others desire to bestow upon you.

Anyone who has begun a new Church or considering forming a new Church, solve your compliance issues at the outset by starting Church right. It is easier to end right if you start right.

LEGAL COMPLIANCE IS NOT AN OPTION – IT IS A NECESSITY!

We will show you the proper methods for establishing “Love Offerings” inside and outside of the Church setting. Legal blessings are always better than those that are not! As the best in America we have only your best interest at heart.

Every moment you delay places you in jeopardy of penalties and maybe criminality. Go to www.cmtc.org and register for a Clergy Tax and Law Conference near you.

YOU CAN BE AT REST WHEN YOU LEARN FROM THE BEST!

By Dr. Michael Chitwood

11/10/2016

You Must Become a Legal 501(c)(3) Now

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As I travel across the nation teaching Church and Clergy Tax Seminars, I am continually amazed at Pastors, Church Leaders, and Bookkeepers who feel as if they are exempt from obtaining formal 501(c)(3) approval from the Internal Revenue Service. Some of these Pastors and Leaders feel as if it is unnecessary because they are under a denominational umbrella. Others feel it is unnecessary simply because they are a Church and they mistakenly think Churches are exempt from the requirements. Both of those objections are flawed and today I will answer both.

The Denominational Umbrella

While it is true that the Internal Revenue Service may never question an individual Church that is under the Denominational Umbrella, there are other concerns that should be addressed.

- Holes in the Umbrella

There are 13 denominations under IRS investigation. Some of these are considered to be major organizations. Once the IRS completes its investigation of Headquarters, what happens next?

If the Internal Revenue Service auditors uncover major concerns in the organizational Headquarters’ books the next step will be the audit of the individual Churches connected to that denomination. Unless the local Church has its own 501(c)(3) it will have no umbrella that can protect the donations made to it. If this be the case, there would be no protection for any donations made by members to assure those donations were tax deductible. The members then may be subject to audit and assessment of more taxes and penalties.

- IRS Agent Determination

According to the Federal Court Case of Massey vs. The Commissioner, the presiding Judge ruled that it does not matter what an IRS agent tells a taxpayer. The only thing that matters is what is written in the IRS Code.

According to the Federal Court Case of Jack Taylor vs. The Commissioner, the Judge ruled that any determination of the tax deduction allowance for a contribution was solely at the discretion of the IRS and its agents.

These two cases have become case law and should raise red flags for any Church and religious institution.

Churches that choose to come under the Denominational Umbrella and not receive their own (501)(c)(3), may be at risk of having donations denied as tax deductible. My reasoning for this conclusion is simple. The donations are made to the local Church and not to the Denominational Headquarters, nor are all the offerings collected sent to the Headquarters. The wrong IRS Agent could possibly deny deductions simply because he or she finds nothing in the IRS code to support those donations.

The Church Believes It Is Automatically Exempt

This misconception is dangerous for the local Church and its members.

Most Churches that do not file for their own 501(c)(3) do not because of one statement in section 508(c)(1)(a). This section does state that Churches do not have to APPLY for 501(c)(3) status. However, according to the Taylor vs. The Commissioner case, the Court ruled that section 508(c)(1)(a) only relieves Churches from applying for a favorable determination letter regarding their exempt status, but it does not relieve a Church from having to meet the requirements of section 501(c)(3).

Although it relieves the Church from applying for the favorable determination letter, that Letter of Determination is the “Proof Document” that allows all donations to the Church to be tax deductible. Remember, as stated in the previous section, the allowance of a tax deduction for any gift is solely at the discretion of the IRS. Jack Taylor’s Church did not have a Determination Letter and the Judge ruled that neither Mr. Taylor, nor the Church proved his organization was a Church (even though they were conducting regular worship services). None of Mr. Taylor’s donations (several thousands of dollars) were allowed and resulted in him paying more taxes, and penalties and interest.

How We Can Help

It is difficult and time consuming for a Church to attempt to process its own 501(c)(3) application. The reason for the difficulty is because of the immense amount of information that is required, including financial statements. If the Church hires an attorney, and accountant to process the paperwork, the Church will incur thousands of dollars in costs (one Church that came to us had already spent $4500.00 and as yet had any paperwork filed with the IRS).

Because of our 77 years of experience we are the Premier firm in America to handle this matter. Our staff of Attorneys and CPAs is dedicated only to our clients. We have streamlined the process making it more cost effective and faster for the Church or ministry. Our fee and turn-around time is only a small fraction of what others are assessing.

Do not allow donations to your Church or ministry to be open for possible IRS denial for tax-deductions. Become good stewards of God’s tithes and offerings.

Contact us now at (800) 344-0076 or drshaw@cmtc.org to begin the official 501(c)(3) application to protect your Church members’ donations.

By Dr. Michael Chitwood

11/3/2016

Pastor, Be Careful What You Say and Where You Say It

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Pastors are unique people who have a tremendous responsibility to “watch” for the souls of those who attend their Churches. Not only must they preach an uncompromised truth from Scripture, but often, members will want the Pastor’s personal opinions. Unfortunately, some of these opinions may not be legal.

When Is It Illegal

Due to the nonprofit status afforded to Churches, there are some things that must be avoided if the Church is to maintain its exempt status. Most of those deal with politics. Although Pastors are allowed personal opinions on political matters, they are not allowed to voice those opinions from the pulpit, nor are they allowed to make an endorsement for a particular political candidate or assist in swaying an election.

Another problem is with the Pastor’s blog. If that personal blog is linked to the Church website, the Pastor cannot speak personally about any candidate or an upcoming election.

As 501(c)(3) organizations, Churches/Pastors are prohibited from endorsing a political candidate or from intervening in a political campaign.

Most of us have strong, personal convictions of candidates running for political office. Since this is an election year, many pastors will feel the need to voice their political opinions. Most of their political opinions are based upon their Judeo-Christian beliefs. However, current law prohibits tax-exempt funds, such as those of a church (including from the pulpit or blog), to be used to intervene in or influence a political campaign.

Does this mean a Pastor should remain silent? Absolutely not! It does mean that the Pastor should take great strides to make sure his or her remarks, or methods used to make such remarks, are legal.

Keeping It Legal

A Pastor can say anything he or she wants (1st Amendment Freedom of Speech) as long as he or she does not use Church funds, methods, or equipment to propagate that opinion.

Therefore, if a Pastor is expressing his or her opinion on political matters or candidates through a blog – keep the blog personal and do not allow it to be linked to the Church website. If the opinions are spoken, make sure they are not spoken during a Church service or event.

This also applies to podcasts and social media posts. Make sure the podcasts and social media posts are not connected to or sanctioned by the Church. A good rule of thumb is, “Keep the spiritual, spiritual, and the personal, personal.” Do not mix the two.

Don’t Get Left Behind

Ministry is rapidly changing. We cannot “do” Church like we used to do it. To keep it proper and legal is often overwhelming for any Pastor or Church Board. As a rule this was not a class in Bible College, and if it was, what they taught is now outdated.

Often when Pastors and Church Leaders hear the latest legal changes, many want to resign. Do not be discouraged.

Pastors, do what you do, and seek help with that which you are not called or qualified. The best thing to do is connect with Chitwood & Chitwood who has been taking care of Church compliance issues for more than 78 years. We are the best.

Since the ministry world is changing so rapidly, I would encourage every Pastor and Church Leader to attend the nearest Church Management and Tax Conference. During these conferences we will show you how to protect the ministry vision God has given you for your city. To register, contact us at www.cmtc.org or call 800-344-0076. Do not delay. Time is not on your side.

With our assistance, every Pastor and Church Leader will again discover the joy of ministry.

Remember, for us, “It is A Ministry – Not A Job!”

By Dr. Michael Chitwood

11/1/2016

Exercising Your Free Speech Rights May Cost You During an Election Year

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As an election approaches, especially those that are Presidential, people get passionate in support or lack thereof for a particular candidate. This is especially true for Churches when one candidate seems to mirror their doctrinal beliefs while the other candidate is the antithesis.

Almost every election cycle, Churches find themselves in trouble with the Internal Revenue Service and the possible revocation of their 501(c)(3) status. According to IRS section 501(c)(3), a tax-exempt organization, including Churches and Religious Organizations, may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates. The Government does apply limitations on legislative and political campaign activities of Churches and Religious Organizations.

The above mentioned section also declares that any Church or Religious Organization that participates in the above mentioned activities could possibly experience revocation of its tax-exempt status.

But, What About Free Speech Rights?

As of now, any Church may exercise its right to Free Speech as provided by the U.S. Constitution. However, just because the Church engages in Free Speech, does not mean that Congress will subsidize it with tax exemptions for donations.

In other words, the Church may engage in all the political activity it chooses, but not with the benefit of tax deductible donations made to it.

Two No-No’s

As stated above, there are two functions in which any Church or Religious Organization should not engage:

- Substantial Efforts to Influence Legislation
- Political Campaign Activities

Let’s look at both.

Measuring Legislative Activity

There is nothing in the code that says a Church CANNOT attempt to influence legislation. The code demands that there be no SUBSTANTIAL efforts to influence the legislation. The whole issue is the size and scope of the Church’s or Religious Organization’s participation in such legislative influence when compared to all of the activities of the Church or Organization.

There are two tests that the Government may use to establish how substantial an organization’s attempt has been to influence legislation.

- The Substantial Part Test
- The Expenditure Test

Churches are not allowed the luxury of The Expenditure Test although this method may be used by other non-Church Religious Organizations. That leaves the Church with The Substantial Part Test as the only remaining option.

For this test “substantial” is determined on the basis of all other pertinent facts and circumstances in each case. Factors the IRS will consider are how much time is devoted toward the activity by compensated and volunteer workers, and the amount of funds devoted by the Church to the activity.

If the Church decides to participate in legislative activities, the Pastor and Church Leaders should determine the time and resources that will be required of the Church. Do everything necessary to avoid “substantial.”

Campaign Activities

The Internal Revenue Service strictly forbids Churches and Religious Organizations for participating, directly or indirectly in any political campaign on behalf of or against any candidate seeking elective office. The Church and Religious Organization are also not allowed to donate funds to or make public statements (oral or written) on behalf of or against any candidate.

The Church or Religious Organization cannot do anything that would favor any candidate over another.

Churches should play a role in the political process, but they should not cross the line and should always be cognizant that any role played is within Federal guidelines.

It is okay for a Church to invite a candidate to speak, but only if the same invitation and time allotted is granted to all candidates seeking that office.

If the Church has chosen to use voter guides, the Church must insure that: “any guides include a broad range of issues; do not compare the candidates’ positions on the political topics to the Church’s doctrinal beliefs; and the description of the political issues are neutral.”

Should the Church decide to conduct a political forum, it must exercise special care to ensure that all candidates for that office are invited; all questions should be prepared and presented by an independent, non-partisan panel; and the moderator should not comment or imply approval or disapproval of the candidates.

Although the IRS somewhat refrains from enforcing these limitation, the Church is not at liberty to violate the law. Remember, just because the IRS is hesitant does not mean they won’t. Don’t borrow trouble.

In Conclusion

The Church enjoys Freedom of Speech, but any tax benefits that are afforded are at the mercy of the rules and regulations of the IRS. Do not allow your zeal to cloud your wisdom. This is where we can help.

No one knows Church and Clergy Tax Laws better than Chitwood and Chitwood. Our 77 years of experience and dedicated professionals may us the number one firm in the nation. Contact us today at 800-344-0076.

Remember, with Chitwood and Chitwood it is “A Ministry – Not A Job!”

Illegal Love Offerings May Send Your Pastor to Prison

Legal versus Illegal

What Does God Say?

The Last Word

By Dr. Michael Chitwood

You Must Become a Legal 501(c)(3) Now

The Denominational Umbrella

The Church Believes It Is Automatically Exempt

​How We Can Help

By Dr. Michael Chitwood

Pastor, Be Careful What You Say and Where You Say It

When Is It Illegal

Keeping It Legal

Don’t Get Left Behind

By Dr. Michael Chitwood​

Exercising Your Free Speech Rights May Cost You During an Election Year

But, What About Free Speech Rights?

Two No-No’s

Measuring Legislative Activity

Campaign Activities​

In Conclusion

By Dr. Michael Chitwood

Archives

Categories

How We Can Help

By Dr. Michael Chitwood

Campaign Activities