All churches must follow specific laws and procedures when it comes to taxes, church property, workers’ compensation, and more. Here’s an overview of corporate, legal, and property guidelines you need to know.
Electing church officers
Church trustees should refer to the 2016 Book of Discipline paragraphs 2525, 2526, 2530, 2532 and 2533 for officers that need to be elected, timing of the elections, and more. Additional information for trustees can be found here.
Taking care of corporate matters
While your church’s most important work is reaching new people with the gospel, helping people grow in love of God and neighbor, and healing a broken world, there are certain corporate matters that also need regular attention.
Here is some homework to help you protect church assets and protect the persons elected to lead your church:
This may seem like a lot of work and you may not wish to incur legal expenses. Please don’t wait until you decide to buy or sell property or open a bank account because the costs, hassle, and potential negative impact will be much greater.
Refer to the General Council of Finance and Administration legal manual for additional information.
All churches need to have a corporation.
1. The corporation owns and can transfer title to property in its own name, rather than through one or more trustees or individuals.
2. Individual church members and their personal assets are shielded from liability for corporate debts and obligations, limiting the liability of pastors, board members, and individuals to their own personal actions for such debts.
3. Because there is a question whether a deed to an unincorporated association is void, and could require judicial action to reform it, local churches need to be incorporated to be certain that they have good title to their property.
It is desirable to have the assistance of counsel in the formation of a local church corporation.
Church and clergy taxes
A tax guide for churches and religious organizations is available from the IRS. This booklet covers:
The IRS provides general tax information on its web site or by calling (800) 829-1040. You may also get tax information specific to exempt organizations by calling (877) 829-5500 or going here.
Other helpful resources:
Employer ID numbers
Apply for an employer identification number (EIN) from the IRS.
Any organization within the local church whose funds are not part of the church funds, such as United Methodist Women, must have their own EIN separate from that of the church. For more information on the required separation of local church and UMW funds, please refer to page 75 in the United Methodist Women Handbook.
Capital Facilities Development & Finance Commission
The primary purpose of this commission is to support financing and refinancing of church buildings, church building construction, or expansion projects. The program was established at the 1960 Minnesota Annual Conference to assist local churches in financing new and expanding church facilities. The support comes in the form of a loan guarantee. This loan guarantee by the commission adds the credit of the annual conference to that of the local church and therefore may lower the interest rate charged by the bank on the loan. The cost to the local church is 0.25 percent of the amount guaranteed. Commission members have a broad background in finance and related disciplines and should be viewed as a resource for churches contemplating capital projects. For more information contact Rev. Gail Alexander or Barb Brower. To access an application for a loan guarantee, click here.
Property-tax exemption of parsonages
Questions about the use of a church-owned parsonage for something other than housing for the church pastor resulted in an opinion written by Conference Chancellor Wayne Popham on the property tax-exemption of parsonages. Read opinion.
Leasing church space to a third party
Many churches have received requests by third parties to rent a room or space in the church. In exploring such an arrangement, be sure to consider the following:
Piano lessons in church
Can music staff offer piano lessons in a church building? Many churches throughout the denomination have asked this question. Allowing such lessons in your church could jeopardize your church’s tax status. Before making a decision about this, please refer to a Church Law & Tax Report article and a Church Professional Administrators article.
Certification for church-run schools and day cares
Does your church run a preschool or day care? If so, the IRS requires you to file Form 5578—Annual Certification of Racial Nondiscrimination for a Private School Exempt From Federal Income Tax—each year. The form must be filed by the 15th day of the fifth month following the end of your calendar year or fiscal period. Learn more and obtain form.
Minnesota Annual Conference of the United Methodist Church