by Darrell Mims

1. The ministry must be organized and operated exclusively for religious, educational, scientific or other charitable purposes.
2. The earnings of the ministry must not benefit any private individual or shareholder.
3. The activity of the ministry may not attempt to influence legislation.
4. The ministry cannot get involve in political campaigns.
5. The ministry purposes and activities are not illegal or violate public policy.

Some ministries receive their exemption through a Parent Organization.   In this circumstance, the parent organization holds a group ruling that identifies other affiliated churches as being part of their umbrella.   If the ministry is listed under the parent’s group exemption, then it holds the same tax-exempt status.  The parent organization is required to submit an annual group exemption update with the IRS to recognized any changes within the group.

It is critical that ministries do not jeopardized their tax-exempt status.  So what are some of the events that ministries must pay attention to ensure their continuing operation?  Ministries must not engage in activities that result in the benefit of the ministry's income or assets to insiders.  Insiders include any person having a personal or private interest in the activities of the organization.  Insiders could include ministers, board members, officers, and possibly employees.  Some possible activities that benefit people include unreasonable compensation to insiders, transferring assets to insiders at less than fair market value and the payment of dividends.  If unreasonable benefit to others is found in your ministry, there could be grounds for losing the tax-exempt status of the church.  With proper documentation, regular ministry activities include reasonable compensation payments for services rendered, payments that further the purpose of the tax-exempt organization and payments for the fair market value for real or personal property.

Another event that could jeopardized the tax-exempt status is an “Excess Benefit Transaction.”  This can occur if a ministry makes a loan, grant or payment of compensation to a substantial contributor of the organization.  The entire amount of the payment could become taxable as an excess benefit.

The IRC prohibits ministries from lobbying or attempt to influence legislation through church related activities.  This includes churches lobbying any state legislation, local city councils or similar government bodies. The ministry could lose its tax exempt status if it contacts or urges the public to contact members or employees of a legislative body for the purpose of proposing, supporting or opposing legislation.

One of the important responsibilities of your ministry business director or administrator is to ensure the ministry does not participate knowing or unknowing in any activities that could jeopardized the ministry.  I want to encourage every ministry to hire a staff person who has access to resources to protect the church.  This article just touches the surface what ministries need to know to operate at the highest level of integrity.  Do you want to operate with a spirit of excellence and feel protected from careless mistakes? 

If you are unable at the current time to hire the expertise needed to help your ministry grow or you want to wait and use your resources in other ministry areas, consult eChurchAdmin.  We will find a solution to your ministry concerns.