Recent IRS Requirements Affecting US Assemblies
The Internal Revenue Service is beginning to enforce regulations that could have an impact on individual giving to the Lord as well as on assembly offerings and financial operations. A major reason for recent IRS actions has been a growing amount of tax fraud perpetrated by persons setting up artificial churches and claiming fraudulent tax deductions.
The IRS considers that fellowship given through assembly offerings and individual giving for the support of the Lord’s work are charitable donations and should not be taxed for two reasons: (1) the money has ceased to be part of an individual’s income, (2) the Lord’s servant to whom it is sent will be paying income tax on it. The following provisions and rules therefore have been made to permit an individual’s gifts to the Lord to be legally deducted from his or her taxable income as charitable donations:
- As of January 1,1994, itemized deductions for religious or charitable donations of $250 or more must be substantiated by a receipt from a non-profit organization as defined in Section 501(c)(3) of the Internal Revenue Code, such as, the Truth and Tidings Gospel Trust, USA, or an assembly with approved status as a non-profit corporation.
- Recognition by the IRS of an assembly as a legal entity can only be guaranteed by obtaining a 501 (c) (3) Ecclesiastical Corporation or Association status.*
- For an assembly to obtain tax exempt status under Section 501 (c)(3) of the Internal Revenue Code, it must show that it operates under an organizational instrument (e.g. Articles of Incorporation Charter or Articles of Association Constitution) in the state in which it is located. This organizational instrument plus financial data and certain other information required on the IRS 1023 form must be furnished when making application to obtain tax exempt status. When it is approved, the assembly then can issue the required receipts with the confidence that they would be acknowledged as legally valid in an IRS audit.
It is important to point out that when an assembly obtains recognition as an Ecclesiastical Corporation”, it is not turning itself into a business, but is simply com plying with provisions in the tax code. A corporation is defined as a group or body of associated persons, recognized by the state as an artificial person or entity, having the power of continuous succession and with certain rights, such as, to own, buy or sell property.
Ecclesiastical Corporation is the term used by the government for a legitimate local church. When an assembly is recognized by the state as an Ecclesiastical Corporation, the government is certifying that the documents submitted prove that you are a legitimate local church. In other words, it signifies that the assembly has a legal status in the eyes of the authorities.
Without this recognition, an assembly does not exist in the eyes of the law.
*Association status provides some of the advantages of Corporation status, but it does not provide the legal protection of items #2 and #3 in the list that follows.
Advantages of Obtaining Ecclesiastical Corporation Status:
- It can own the hall and the property upon which it stands.
- Individuals in the assembly, such as, “Property Trustees,” are not subject to personal liability lawsuits by persons who claim to have been injured on hall property, such as, by slipping on ice.
- It can obtain liability insurance to protect it from a law suit. Liability insurance is required now for the use of most public and private parks for Sunday School picnics.
- It can obtain exemption from the state from paying sales tax on all purchases.
- It can take advantage of special low rates for bulk mailing.
- The assembly will have authority from the IRS to issue tax receipts to its members for financial contributions.
Legal Obligations of an Assembly with Tax Exempt Status:
- Some states require that a form be filled out and submitted each year to assure them that an assembly’s status has not changed.
- An assembly is required to keep an accurate accounting of all moneys received and disbursed. Supporting documents, such as, envelopes from an anonymous contribution system and receipts for expenditures must be kept on file in case of an IRS audit.
- An assembly is required to invite all its members to an annual meeting to review its financial affairs, such as, total offerings received, how they were disbursed, and activities such as, building and property maintenance or improvements. Minutes of such meetings must be maintained.
- All assemblies in the USA, whether tax-exempt or not, are required to provide 1099 forms by the end of January of each year to any individual who was directly paid $600 or more for services rendered. If the services (e.g. plumbing, electrical, heating etc.) were provided by a corporation or business with a Federal ID number, the assembly is not required to provide a 1099.
If an individual is paid on an hourly basis for a service, such as cleaning the hall, then he or she is considered an employee, and Federal Income Tax Withholding and FICA deductions are required and a W-2 form must be provided to the employee at the year’s end. A simpler way is to require a bill and follow the 1099 requirement.
A preacher who resides in the USA and visits the assembly for ministry or gospel meetings, and receives fellowship, is considered by the IRS as rendering service. If the sum total received in a calendar year is $600 or more, the assembly must provide a 1099. The assembly is required also to have a W-9 form on file for each preacher (and service person without a Federal ID. number), which he has filled out providing his name, address and Social Security number. These requirements are not optional but are required by law. An assembly that sends fellowship to the Lord’s servants through Truth and Tidings Gospel Trust, USA is relieved of these reporting requirements.
Please address any further inquiries to Mr. Alex Joyce c/o Truth and Tidings Gospel Trust, USA, 3228 Blake Road, Wadsworth, OH U.S.A. 44281.