Blog Posts

9/6/2018

Pastor Taxed on Salary He Did Not Accept

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Speaking with Pastor Simpson during the break, he informed me no one in his Church received a salary, including him. Therefore, some of the information in the class did not apply to him. I asked him if the Church had ever offered him a salary, to which he replied, “Yes, but I refused it.” Questioning him further on this I realized he could be in serious trouble because of a little known Treasury Regulation.

I informed Pastor Simpson that the IRS may very well tax him on the compensation he turned down. This information shocked the Pastor in such a manner he became very anxious. Then I explained why.

It was only a few months later that Pastor Simpson relayed the news of which I was concerned he would hear. He had to pay taxes on the income he had turned down and was hit with additional penalties and interest.

What Pastor Did Not Know Hurt Him

There are thousands of pages of Internal Revenue Service regulations that pertain to Churches. I do not know of any Church Treasurer that is aware of everything written in the statutes that apply to their tax exempt status. Most Church Clerks do not know one law that compiles Church tax law, much less all 277.

Buried in those thousands of pages is a clause known as Treasury Regulation CFR 1.451-2(a) which is known as Constructive Receipt of Income. This regulation allows the IRS to tax income, even if it was not received by a Pastor.

What the Statute Means

The basic premise of this statute is this:

“Income although not actually reduced to a taxpayer’s possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given.”

This means that any income refused by the Pastor is taxable if it meets any of these three stipulations.

1. If the money has been set aside for the Pastor.

2. If it is credited to the Pastor’s account.

3. If it is otherwise made available to the Pastor, but he or she refuses it.

The Pastor’s “Church Comes First” Mind-Set May Prove Costly

As I travel across the nation teaching Church Management and Tax Conferences I constantly encounter Pastors who will not accept salary from their Church simply because they are in the growth process and they are willing to make the sacrifice to see their Church improve.

As oversight for thousands of Churches in the USA, I understand the Pastor’s heart. However, no Pastor should be so humble as to place themselves and their families in unknown financial peril.

Necessary Precautions

Any Pastor who chooses not to accept a salary must make sure he or she does so with these guidelines in place if he or she wishes to avoid taxation from the IRS.

1. Make certain that any income you refuse is not made available for you to draw upon at any time.

2. Make sure that any income you refuse does not go toward something that would benefit you or your family in the future.

3. Be certain that any income you refuse is not credited to your account now, or in the future.

4. Make certain that your decision is properly recorded in Board Meeting Minutes prior to you refusing the income.

Why You Need Us

These and other vital tax issues are taught in our weekly Church Management Tax Conferences all across the USA. Our 80 years of experience and knowledge make us the premier Church Management firm in the Nation.

Every Pastor and Church Leader should make it their number one priority to attend the nearest conference immediately. Your procrastination may prove to be your demise. Visit us at www.cmtc.org or call 800-344-0076 to register. You and the safety of your Church are not guaranteed tomorrow.

Remember, for others it is a job, but for us “It is A Ministry!”

By Dr. Michael Chitwood

What You Will Learn at our Conferences

9/4/2018

Ready or Not—Here They Come

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Pastor Samuel told me that he did not need our services simply because he never worried about IRS (Internal Revenue Service) intrusion into his Church affairs. He was sure the IRS could not investigate him unless the head of the Internal Revenue Service or some higher official approved such action. All of his thinking abruptly changed.

When I received his panic, anxiety-laced call I knew he was in deep trouble and that it may be too late for us to help him avoid that which was about to happen. Needless to say, things did not end well for this Pastor.

Three Words Which Strike Fear in the Hearts of the Hearers

I don’t know of any letters or words that strike fear in the heart of individuals like the three dreaded letters, IRS. It is probably only second to the word “cancer.”

Many Churches feel as if they never have to worry about a visit from the IRS. That used to be almost true. In years past, before the IRS could perform an audit on a Church, the Internal Revenue Service had to follow guidelines outlined in Section 7611. That section of the IRS code required “an appropriate high-level Treasury official” to approve a tax inquiry on a Church. Those days are gone forever.

If a Church is audited after the 7611 wall is successfully maneuvered, there is no hope of appeal for that house of worship.

Church audits are up over 50% from the past year and the statistics are changing daily. The reason for the increase is because the IRS is gradually eroding the 7611 audit threshold. This is due to the addition of the Affordable Care Act to IRS oversight and the ability to perform Employment Tax (941) audits.

Many Pastors’ Heads Are in the Sand

While conducting a recent Church Management Tax Conference, an African-American Pastor politely informed me that his and other African-American Churches did not have to worry about the IRS because the President had assured them that he was their friend and would protect them from infringement into their records. The only problem is, that for the past 7 years there has been a steady increase in the number of Churches audited, and a majority of those have been in African-American places of worship.

Just a few weeks prior to this blog, I sat with a Pastor that arrogantly told me his Church books and records were in order because he had a former H & R Block tax expert managing the financial records of the Church. Upon asking a few simple questions of the Church bookkeeper it was evident that they were far from IRS compliance, and yet the Pastor continues to feel as if he is exempt from IRS Scrutiny.

Internal Revenue Service Actions

Due to the Affordable Care Act (ACA), the IRS is now performing random, on-site audits of Churches. In performance of those audits, 941 Employment Tax audits become “fair game” for the auditor. 7611 requirements are non-existent for ACA and 941 audits.

In performance of those audits, the auditor may seek to view the facility and may ask questions. Anything that ignites suspicion during the audit or walk through will flag a more in-depth review, which usually creates some problems for that Church.

The last thing any Church needs is to be bogged down in an IRS audit. Not only is it stressful, it may provide serious criminal and civil ramifications for the Church.

What You Need to do Immediately

Every Pastor and Church Leader should contact our office, Chitwood & Chitwood, to schedule an on-site compliance audit immediately. If the Church cannot afford an on-site audit, its Leaders (including the Sr. Pastor) should register and attend the soonest and nearest Church Management Tax Conference to learn how to get compliant and retain our services via a discounted system.

There is absolutely no time to loose or waste. Every Pastor and Church Leader should immediately call 800-344-0076 or visit us at www.cmtc.org to register. We have a conference near you. It will be the best day you have ever invested in for your Church and Ministry.

Remember, for others this is an occupation, for us “It is A Ministry—Not A Job!”

By Dr. Michael Chitwood

What You Will Learn at our Conferences

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8/29/2018

Deacons’ Wives Shocked to Learn they Owe the IRS

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Deacon Franklin called me and by the tone of his voice I knew he was at his wits’ end. When I calmed him down enough to where I could understand his concerns, I knew he and his Church had fallen victim to Treasury Regulation 53.4958. It seemed that the Pastor and Board had mistakenly misused Church funds and someone reported them to the IRS.

Although that is a horrible regulation to violate, it would not have been so bad if the IRS had only penalized the Church to a fine. Unfortunately the latest amendment to that regulation allows further penalties. Each Board Member and their spouses (including the Pastor and his spouse) were being fined $10,000.00. Imagine the shock of the Board Members’ spouses when they discovered they too were targets of the IRS.

Should the money have been misused? No, but it seems the Government has vastly extended its reach into the areas of Christianity and Churches. There used to be a time in recent Church history when people attended Church without worries of intrusion from the Federal Government and especially the Internal Revenue Service (IRS). Church members were eager to serve on Church Boards and during Church activities. Those days are gone!

The IRS Extends Their Reach

We understand accountability and the necessity of obeying the laws of our great nation. No one wants to be part of an anarchist society. Should laws be violated there should and will be consequences—even to a Church. In years past that burden fell upon the Pastor or the Board Members. Things have changed.

What if the IRS thought that holding the Pastor or Board Members (Church Leaders) accountable for wrong-doing, was not enough? What if the IRS determined others in the Church should also be punished?

Brace yourself. That is exactly what has happened.

Family Members of the Church Board May Now be Penalized

According to recent changes in Treasury Regulations, the IRS is now allowed to not only fine officers of the Church, but the reach now extends to their family members. You read it correctly. According to Treasury Regulation 53.4958, the IRS now has legal authority to fine Church officials and their family members severally. This means that the IRS can consider the family members just as guilty as the Board Members.

This regulation allows the IRS to fine the Church Officials and their individual family members up to $10,000.00 for misuse of Church funds. Although a stretch, that might be acceptable if the misuse was intentional. However, according to the regulation, it also applies even if the misuse was unintentional. That’s right—for a simple mistake every Church Official and their individual family members could be penalized.

This means that a Church Official with a spouse and 4 children could be assessed as much as $60,000.00 for that unintentional violation.

Why You Need Us!

No Church Official should have to worry if their actions (as noble as they may be) are subject to this type of IRS intrusion. This is why Chitwood & Chitwood should be providing appropriate oversight for your Church. We know how to protect all Church Officials.

With more than 80 years of experience in Church Management, we know what others do not. The expertise of our staff will ensure that your Church, staff, and volunteers are protected. We will keep your Church annually compliant and your officials up-to-date on all changes that could be a detriment to your ministry.

It is imperative that every Pastor and Church Official attend the nearest Church Management Conference. At these conferences we show you how to make compliance easy for everyone.

To register for an upcoming conference please call 800-344-0076. This will probably be the most informative day of your ministry.

By Dr. Michael Chitwood

What You Will Learn at our Conferences

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8/27/2018

Don’t Burn Out—Get Fired Up

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Pastor Jackson approached me at a Church Management Conference. His demeanor said it all. I could see by his countenance that he was on the verge of throwing in the towel and closing his Church doors.

As I talked with him he relayed to me the problem most Pastors face—not enough money to do that which he believed God had called him. Pastor Jackson’s dilemma is nothing new. Pastors suffer the most burnout of any profession and only 10% of Pastors retire from the pulpit—90% burn out and retire from a secular job. Understanding burnout probably better than most in the USA, I thought it would be helpful to address two major causes of lack of money which results in burnout and Church closure.

Two Causes

The two main causes for insufficient budgets are simple to diagnose. They are:

1. The Church may be taking on more ministry than that to which God has called them.
2. Unfaithful tithers.

Either of these two will sink a Church. No one wants to buy a ticket on the “Titanic.” The Titanic was considered unsinkable, but it sank. Some consider the local Church unsinkable, but hundreds close their doors every day. Don’t be one of them.

When Churches are always begging for money or overburdening the members to volunteer for countless fund-raisers, people get discouraged and look for an out. At this point, some will quit attending Church, while others will find another place to worship.

Let’s look at each cause closely.

Too Much Ministry

This seems like an oxymoron. How can a Church do too much ministry? Even though we all are to evangelize and win people to Christ, we need to understand that God calls certain Pastors for certain areas. For example, if your Church only seats 100 people, God probably has not called it to sponsor large drama productions. Another example, if you have 30 people in attendance on a given Sunday, your Church probably has not been called to buy 5 buses and start a bus ministry, and how can a Church feed the hungry, when its members can barely feed themselves?

As noble as the above-mentioned ministries are, and many more that we don’t have space to name, we each have a ministry niche that is unique to the Pastor, members, and location.

Competition among Churches pressures Pastors to attempt ministry that others are successfully engaging. We must learn to stay in our lane! Find that to which God has called you and refine it until it is the best in your city.

If you are engaging in that which you are not called, there will be a shortage of funds. When this happens, Pastors begin to manipulate the members to give more, or resort to a myriad of fund-raisers in attempts to “keep up with the Joneses.”

Insufficient Revenue

There should be ample funds within any Church to function according to God’s plan for that House of Worship. God does not demand that which He will not fund. If the Pastor is sure that God has called his or her Church to an area of ministry, then the money is in the House; which leads to the second problem – unfaithful tithers.

Less than 10 percent of Christians tithe, even though the tithing principle is adamantly displayed throughout Scripture – Old and New Testament.

Before we are too harsh on non-tithing Christians we should look at the pulpit. According to one survey, less than four percent of Pastors and Ministers tithe. If insufficient tithes and offerings are coming into your Church each month, maybe the Board Members need to check the Pastor’s tithing record. If the Pastor curses himself or herself by not tithing, as the spiritual head of that Church, the Church will be cursed. If the Pastor is a faithful tither, then he or she should properly teach this subject to his Church – at least four or five weeks per year. We get what we preach. If we constantly preach soul-winning, we have soul-winners. Preach tithing and you will get tithers.

One thing the Pastor can do to get members to tithe is to properly teach the subject and then offer some type of commitment card with a “God-Guarantee” based on Malachi 3. Get the members to put God to the test – to tithe for 90 days, and if at the end of that time, tithing has caused a proven, undue hardship for the member, give him or her, a refund. God’s Word is either true or it isn’t.

I need to throw a caution in here about the refund. Offer it at the beginning of each year as a teaching on Stewardship. Do not give a refund, if you have given the member a Giving Statement and they have claimed the donation on their tax return. This could create IRS issues!

I know of several Churches that have utilized the God-Guarantee approach, and only know of one that has actually had members ask for a refund – and in that Church it was less than half of one percent. The good news is that each time it is taught, the Church gains new tithers.

How We Can Help

As one of the largest Church resource firms in the nation, Chitwood & Chitwood knows how to increase your tithes and offerings. Our system, How to Make Your Tithes Start, Stay, and Grow, provides Biblical resources and strategies to teach your members the importance of the tithe.

Call us at 800-344-0076 or to register for a Church Management Conference in a city nearest you. You will be glad you did.

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

By. Dr Michael Chitwood

What You Will Learn at our Conferences

8/22/2018

Pastor Gets Rude Awakening

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I had some free time on my calendar and decided to attend a Church with which I had early ministry connections. The Pastor had received several invitations to attend a Church Management Conference in his area, but felt IRS compliance issues were really not a factor for small Churches.

After a few moments of reminiscing of days gone by, he turned the topic to our business of Church Management. He stated that he had received our brochures and invitations, but since he was a small Church he assumed (wrongly of course) that the IRS didn’t waste their time or resources auditing small Churches. When I informed Pastor Renault that his thoughts were far from the truth and in reality, the IRS really had closed more small churches and sent more Pastors of small congregations to prison than those of larger or mega churches.

Pastor then brought the conversation to a close with these words, “Well, we still don’t have to worry—I know we are doing nothing illegal.”

People (Pastors) Are Destroyed for Lack of Knowledge

As Service began, it didn’t take long for my trained eye to recognize areas which will cause major trouble for my friend and his Church. During the offering I immediately spotted three illegalities. By the time service was dismissed, I counted two more. If these things are done in an open forum for all to see, what else is done that is illegal that is not seen by the public?

As I shook my Pastor friend’s hand to bid farewell, I told him (away from earshot of others) that his Church had some serious legal issues and if the IRS walked in he and his board would probably get some prison time in addition to hefty fines which would probably result in the Church property being confiscated and sold.

Had He Attended

Had Pastor Renault attended the Conferences to which he had been invited he would have received valuable knowledge concerning that which may or may not be done during and with offerings.

In addition, he would have learned many of the IRS regulations which govern churches and non-profits.

Wasted Time May Prove to be Costly Time

He didn’t want to speak of retaining us while people were exiting the Church, but asked when the next Conference would be in his area. When I told him it may be a year or two before we have a chance to return his countenance sank.

Looking behind me as I walked out, I could see the anxiety on his face and even heard someone ask him: “What’s wrong?” I never heard his answer to their question. Pastor Renault and countless others think they and their Church are okay until it is too late. Once it is too late Pastors and Churches incur huge financial penalties and in many instances face criminal indictment.

Even if your Church was legally perfect, it is still worth attending our nearest Conference for peace of mind. The old adage, “An ounce of prevention is worth a pound of cure,” is still true today.

I pray for Pastor Renault and hope he can get this fixed soon. He didn’t know he was doing anything illegal. Unfortunately, when standing before a Federal Judge, he will be reminded that ignorance is no excuse.

This Is Why You Need Us!

Chitwood & Chitwood is the premier Church Growth, Management, and Compliance firm in the nation. For more than 79 years we have provided Management and Compliance oversight to thousands of Churches nationwide. At our Church Management Conferences across this nation, we teach that which every Pastor and Church Leader should be aware.

For those we represent, we ensure their Churches are maintained in full IRS compliance and litigate on their behalf involving any IRS questions or concerns.

It is imperative that every Pastor and Church Leader attend the next available seminar—even if it requires hours of travel to the venue location. Every day you procrastinate your attendance to one of these seminars possibly places you under the IRS microscope.

To attend the next conference, please call our office at 800-344-0076! Get compliant or you may very well be a statistic.

Our firm will fix whatever is wrong and fight on your behalf. Act Now!

By Dr. Michael Chitwood

What You Will Learn at our Conferences

8/20/2018

Out of Compliance, but Didn’t Know It

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Deacon Smith boastfully told me as he checked in for the CMTC Conference in Mississippi, that he knew their Church was obeying all IRS regulations and that he couldn’t understand why the Pastor insisted he attend. Early into the first session that morning, I could see a look of despair upon his face. During the morning break he came to me asking if he could retain our services, because within 30 minutes of that first session he came to the realization that his Church was in deep trouble.

Most Churches think they are obeying all IRS regulations or mistakenly think that IRS regulations do not apply to a Church because of “Separation of Church and State.” Most Churches do obey some of those requirements, but below I have focused on one simple regulation which 88% of all Churches knowingly or unknowingly violate.

It’s Not What You Know that Will Hurt You

When people join a church or a member accepts an appointment to a position within that Church, most have no clue as to what they have agreed. Most of those joining a local Church do so out of a sense of “need to belong,” and this is a good thing—every Christian should be a member of a local Church. Most of those who accept a position in the Church, i.e. Deacon, Elder, Treasurer, Board Member, etc. do so out of their desire to serve Christ by serving the local Church body. However, there are things that both—those joining a Church and those accepting a position in a Church—should research prior to doing either.

Becoming a member of a Church or accepting a position in a Church may place that individual in a precarious situation because of Internal Revenue Service (IRS) Regulations.

Responsible Party Provision Act

The IRS considers anyone who has control over Church property, finances, and with decision-making ability in such areas, a responsible party. This includes everyone from the Pastor to the members (in certain Church Government structures). In the event of IRS violations by the Church, responsible parties could be subject to fines, penalties, and in some scenarios, criminal charges.

Within a Congregational (Democratic) Ruled Church environment, everyone who is a member with voting rights would be considered a responsible party.

Before someone joins a Church, he or she should familiarize themselves with that Church Government structure and then proceed with prayer and caution.

Members who accept a position within their Church should ensure that the Church is legally compliant with all IRS regulations. The candidates to those positions should insist they see a Compliance audit prior to placement.

Join the local Church; accept a position of service within the Church, but do extensive due diligence prior to either action. Failure in either of the above mentioned scenarios could place the new member or the new Church official in a legal quagmire. This quagmire may not only affect the individual, but in some cases could have a negative outcome for any family members.

For instance, in the scenario of a member accepting a position in the Church, that member should be aware that according to Treasury Regulation 53.4958, the IRS can fine church officers and their family members severally up to $10,000.00 for misuse of church funds even if it was unintentional. In its broadest interpretation this means that even a Board Member’s baby in a crib could be liable for a $10,000 fine.

IRS Requires A Church to Report any Changes to their Responsible Parties

According to T.D. 9617, the Internal Revenue Service requires Churches to report any changes to those considered a part of their responsible parties. If there has been a Pastoral change; if new Board Members, Deacons, Elders, and/or Trustees have been installed (and in its broadest sense could apply to new Church members in a Congregational Ruled setting); the Church is responsible to notify the IRS of those changes. These changes must be reported on IRS Form 8822-B.

Has your Church complied with this IRS requirement? If not, your Church is out of compliance and out of order.

This Is Why You Need Us!

Chitwood & Chitwood is the premier Church Growth, Management, and Compliance firm in the nation. For more than 79 years we have provided Management and Compliance oversight to thousands of Churches nationwide. At our Church Management Conferences across this nation, we teach that which every Pastor and Church Leader should be aware.

For those we represent, we ensure their Churches are maintained in full IRS compliance and litigate on their behalf involving any IRS questions or concerns.

It is imperative that every Pastor and Church Leader attend the next available seminar—even if it requires hours of travel to the venue location. Every day you procrastinate your attendance to one of these seminars possibly places you under the IRS microscope.
To attend the next conference please call our office at 800-344-0076! Get compliant or you may very well be a statistic.

Our firm will fix whatever is wrong and fight on your behalf. Act Now!

Dr. Michael Chitwood

What You Will Learn at our Conferences

8/15/2018

New Pastor Becomes Abruptly Aware of Real Church Life

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Pastor Jeff in South Carolina called my office a few days ago and seemed troubled – almost depressed. He knew his spiritual relationship with God was good and he knew that the members seemed to like him and his family. However, there was lethargy in the air at his Church, and even he seemed to struggle to maintain the excitement and energy that had always been present in his ministry.

What Pastor Jeff is experiencing is nothing new. Most Pastors encounter it at some time in their ministry. The Pastors of large Churches seem to not experience it – they do, but they have other staff that absorbs the brunt of it, while the Pastor takes extended Sabbaticals.

Church Is More than Spiritual

Because of the “product” (Christianity/Spirituality) offered by the Church, Pastors and members alike subconsciously fall into the notion that Christianity and Church are somehow a utopia without any of the challenges of life. Church is spiritual about 2 or 3 hours per week. The remainder of the time it is a business that deals with day-to-day troubles, life issues, disgruntled members, and stress just like any other business. Bills have to be paid; budgets must be met; and discord among members must be resolved.

Not long ago a National Church Survey was conducted among thousands of Churches, Pastors, and members, across the United States. The findings reported in this Survey are alarming. Everything listed in the Survey is a leach that saps the energy, excitement, and desire out of Pastors and members.

Enlightening Survey

The following twelve items were discovered during the Survey and should be annotated as an area of concern that requires attention and adjustment by the Pastor, Church Members, and Leaders:

1. The National Church Survey indicates that approximately one hour after your members hear your sermon or message, they will forget it.

2. The National Church Survey indicates that most people will have to hear your message at least seven times to be able to retain only 25% of what they heard.

3. The National Church Survey reports that those who attend Church generally contribute to an average of 13 different ministries (most of which are television

4. 68% of Christians surveyed said they do not have a high level of trust in those who use the title Bishop, Prophet, or Apostle.

5. 94% of Christians say they prefer the title Pastor. When asked why, Christians said it reminds them of a shepherd and Jesus.

6. 84% of Christians are asking the question, “Why is the person behind the pulpit doing so well. . .and the people in the pew are hurting so badly?”

7. The National Church survey states that 94% of all Church members do not like the automated telephone systems that their Church uses to answer calls. A common opinion is that Churches feel the people are suppose to serve them and give them their money.

8. The National Church Survey reports that for every hour you teach or preach it equates to 7.2 hours of wear and tear on your body as a Minister.

9. The National Church Survey reports that Pastors and Ministers who do not demonstrate the importance of looking your best when coming to the House of God have 42% less consistency in their attendance, tithing, and commitment.

10. The National Church Survey states that those who do not carry their Bibles to Church are less likely to read their Bibles during the week. Churches that display Scriptures through various forms of media during services discourage attendees from bringing their Bibles with them to Church.

11. The National Church Survey indicates that 97% of all Pastors who retire at age 65 will be broke or sick.

12. The National Church Survey states that 87% of all Church members do not enjoy Power Point teaching and are uncomfortable with their Pastor not referencing his Bible during his sermon. They comment that they do not feel like they have been to Church if an actual Bible is not used by their Pastor.

Don’t Stress when You Can Have the Best

With these items adding stress to ministry, why would any Pastor or Church Board want to add to it bookkeeping practices that are not compliant with State and Federal Regulations. Churches should be obeying the Laws of the land more than anyone (Rom. 13:1-7).

This is where Chitwood and Chitwood can help. We have been helping Churches and Ministers stay in compliance with State and Federal Guidelines for more than 77 years. No one can do what we do. We are the best in the field.

Remember, God cannot bless a mess! When you are under the umbrella of the Number One, Church and Clergy Tax professionals in the world Chitwood and Chitwood, you can rest assured that you are not only in compliance with State and Federal Regulations, but most importantly, you are in Compliance with God’s Word!

Call 800-344-0076 to register for a Church Management Tax Conference near you.

By Dr. Michael Chitwood

What You Will Learn at our Conferences