Tuesday, June 14, 2011

Is Your Church Supporting a Charity that Just Lost its Tax-exempt Status?

The IRS just declared 275,000 charities as no longer qualifying for tax-exempt status. Some of the “defrocked” charities could be ones your church has been supporting for missions or other outreach endeavors.

Contributions made by donors to these charities, formerly recognized as tax-exempt by the IRS, are not deductible as charitable deductions. So, can a church still support a charity that is now a taxable organization? Leaving that question for you to discuss with your tax counsel, at a minimum, it would cause some pause for many churches.

Be prepared for someone in your church to ask if any charities the church is supporting lost their tax-exempt status. It seems like it would be excellent if you could say a resounding “No.”

These are days for churches to be squeaky clean in their financial dealings—abiding by the law…and then some!

Click here for more information.

To see if a ministry is an ECFA member:

To see if a non-member is listed as a 501(c)(3):

For more information, see:

Wednesday, June 8, 2011

Setting Policies is Step 1 for Short-term Mission Trips

It is so easy for a church to say “Yes” to sponsoring a short-term mission trip. But it is so much more challenging to put appropriate policies in place before raising the first dollar for the trip.

Too often questions arise after fundraising for the trip begins or, worse yet, after the trip is in progress or finished. It is take-off of the old adage: “A policy in time saves a lot of agony.”

A few of the key issues include:

  • The funding concept. Will the church provide the funds out of its budget? While this is possible, few do. More than likely, trip participants will raise the funds needed for the trip. But are they raising the funds for church or themselves? How does a church demonstrate discretion and control over the funds?
  • Gift acknowledgments. Do gifts to support the expenses of the mission trip qualify for charitable gift acknowledgments? Most probably do; some may not. What is the phrase that should be on all charitable gift acknowledgments? No good or services where provided in exchange for this gift (if this is actually the fact).
  • Refunds of gifts for a trip. Should a church ever refund a gift given for a trip? Generally, no. One of the rare possible exceptions is when a trip is cancelled.
  • Trip expenses. What expenses qualify for reimbursement? The short answer is only those expenses that comply with the church’s accountable expense reimbursement plan. If your church doesn’t have one of those policies—well, it a good time to get one set up before you plan your trip.
  • Church staff participating in trips. When church staff are involved in a trip, should they raise their own support, how many trips a year are permissible for staff and if they are covered by the Fair Labor Standards Act, how do you track the hours staff are on or off duty? There are no firm answers here but there is certainly much to consider.

For help with these issues, check out a newly posted document on ECFA’s website: Short-term Mission Trip and Mission Field Assessment Visit Sample Policy

Also, consider joining us for 7 Key Issues to Properly Handle Missions Finances Webinar on June 28 cobranded by ECFA and Church Executive, featuring Dan Busby, ECFA president, Samantha Cave, McLean Bible Church global impact administrator, Pat Willow-Kulesza, Willow Creek Community Church director of international serving and John Van Drunen, ECFA vice president.

Click here to register.

Monday, June 6, 2011

Don’t Rush to Deduct Your Second Home under the Housing Allowance Rules

For years most of us thought a minister could only claim the expenses of one home at a time when excluding expenses under the housing allowance rules. This was the position consistently taken by the IRS.

Then along came Phil Driscoll—best known for playing his trumpet. Phil and the IRS mixed it up over the one versus two house issue for housing allowance purposes. Phil wanted to exclude the expenses for a home in the city plus his lake home. And in a split decision on December 14, 2010, Phil won his case in court allowing him to exclude the expenses for both homes. In fact, Phil’s victory opened the door for excluding more than two homes.

You say, “What difference does this make? How many ministers can afford to own two homes?” Relatively few, I suppose. But it is not unusual for a minister to get caught owning a second home when relocating—especially in today’s housing market. So, the Driscoll case could come in handy for some ministers.

But not so fast says the IRS! They decided to challenge the Tax Court decision on May 24, 2011. So now we are off to the races again on the “more-than-one-house-at-a-time” issue.

So, you will likely want to go slow in jumping into excluding your second home under the housing allowance rules. There is another chapter being written!

For more information see:

Wednesday, June 1, 2011

How Much Should Your Church Have in Cash Reserves?

The recent recession highlighted the importance of adequate cash reserves for churches. Which churches were most significantly impacted by the recession? Generally, it was the churches which went into the recession with inadequate cash reserves.

As Dr. John Zietlow aptly put it, “Oh, if we had only known how deep this recession would be, how long its after-affects could linger, and how pronounced its effects on givers might be, we would have held more in cash reserves.”1

Determining how much cash reserves are needed can be difficult and often feels like a shot in the dark. Plus, it is not a “one-size-fits-all” issue. What is “enough” for one church may be too much or not enough for another church.

There are a few concepts that may form a common thread for your consideration of the adequacy of church cash reserves:

  • God is sovereign and He will provide. However, setting aside little or no reserves ignores the biblical admonition of our responsibility to plan and set aside resources for lean times. A healthy tension exists between these two biblical truths.2
  • Cash and cash equivalents (savings accounts, for example) are generally considered as “cash” for purposes of considering cash liquidity.
  • Liquidity is often measured in the number of months of cash. If the church annual operating budget is $300,000 and the cash balance is $25,000, the church has one month of cash in reserves.
  • Donor restricted funds should be subtracted from the cash balance when determining cash reserves. If the church has $75,000 of cash on hand but $30,000 of the cash relates to gifts given for the church building fund, the operating cash reserves are only $45,000.
  • Cash flow fluctuations are a reality for churches. For example, the summer months are often lean cash months for churches.
  • Unplanned events should be considered. The sudden loss of key leaders or donors are just a couple examples of unplanned events.
  • Cash reserves may be necessary to take advantage of opportunities. These may include new ministry opportunities or the open door to hire a new staff leader.

Even though it may be challenging to reach an agreement on the cash liquidity issues for a church, it is worth the effort. It simply part of proper planning!

If you are interested in learning more about church cash reserves, I invite you to join me on July 14 as I talk with three experts on this topic. We will be conducting a Cash Reserves and Liquidity Webinar on July 14 with Mark L. Jones, vice president and senior banking consultant for the Evangelical Christian Credit Union (ECCU), Jeremy Moser, chief financial officer for Mariners Church in Newport Beach, California, and Jon Roberts, Mission Hills Church in Littleton, Colorado.

One of many lessons churches have learned from the recession is the importance of liquidity—having cash reserves available when you need them. Without adequate liquidity, the pursuit of your church’s mission may be in jeopardy.

Click here to register.

1 Building the Oil Supply and Stocking the Storehouse, Dr. John Zietlow, Focus on Accountability, Second Quarter, 2011

2 Cash Reserves: How Much is Enough, Mark L. Jones, Evangelical Christian Credit Union, https://www.eccu.org/assets/white_paper_pages/8/pdfs.pdf