Transparency In Ministry

Below is a summary of the fifth through ninth Schedules that may need to be attached to the new Form 990.

New Schedule F is added to report foreign activities. If a non-profit has a foreign bank account or a foreign office or has employees or activities outside of the U.S., they will disclose the activities on this new form.

New Schedule G gathers information on fundraising and gaming. All organization with more than $10,000 from fundraising events or outside fundraising costs will be required to complete this form. There will be expanded reporting on certain professional fundraising activities.

New Schedule H will be prepared by organizations that operate a hospital facility that provides medical care, even if it is just a part of a hospital or university. Information must be provided on policies, community benefits, billings, collections, joint ventures, facilities, and services provided.

New Schedule I will be prepared by organizations that make more then $5,000 of grants. The required information will be similar to the attachments currently required with the Form 990, Part II on lines 22b and 23.

Have questions? Contact me.

On a recent trip I met a young passenger who discussed the "fee" for Sunday School. When he found out that I taught Sunday School...he said "When you go to Sunday school, you have to pay a dollar".

I laughed out loud, or (LOL) in teenage terminology.

and yes, Sunday school is a place where sometimes you pay a dollar.

These "Sunday school dollars" are collected and reported as contributions by the Church. It is difficult for donors to receive "credit" for these contributions, because the documentation is not provided with the collection. However, if donors would like to receive a donor statement or acknowledgement by the Church, additional information including "name and amount" should be included with the "Sunday school dollars".

More questions about record keeping for contributions...contact me.

Churches are classified as a charitable organization under the IRS code. They are defined as a 501(c)(3) organization and they are not required to apply for an exemption, (Form 1023) with the IRS. However many churches voluntarily elect to apply for exemption.

Charitable organizations or non-profit organizations range in sizes from small local entities to large international organizations. They encompass almost every activity imaginable – including health and welfare (i.e., American Red Cross), religion (i.e., churches and ministries), education (i.e., private schools and colleges/universities), research, social activities (i.e., private golf clubs/courses) and professional activities (i.e., AICPA).

The Financial Accounting Standards Board (FASB) defined nonprofit organizations by contrasting them to for-profit entities. Specifically, it defines nonprofit organizations as entities that possess the following characteristics not typically found in business enterprises:

a. They receive contributions of significant resources from resource providers who do not expect a commensurate or proportionate monetary return.

b. They operate for purposes other than to make a profit.

c. There is an absence of ownership interests like those of business enterprises.

Over the next series of posts, we will discuss contributions and the general requirements that are imposed by the IRS. We will also discuss the FASB requirements for reporting contributions in the financial statements.

According to an interview with co-authors Scott Thumma and Dave Travis, as viewed in the following link:

Mega Churches bring the message of the gospel and the truth of Christianity to a contemporary society. Mega churches have a strong appeal to the modern American people, not only thru the preaching sermons with modern examples, but by the music, style of ministry and mission activities of these large churches.

Scott Thumma and Dave Travis are the co-authors of the new book Beyond Megachurch Myths.

IRS Revenue Ruling 2007-41 issued June 1, 2007 examines prohibitions for political campaign intervention by churches, ministries and other charities. The ruling provides scenarios to illustrate considerations that should be made in determining whether a 501(c)3 organization has participated in a political campaign for a candidate running for public office.

Additional information for churches and other exempt organizations is included plus a copy of IRS Publication 1828. If you have any questions, please don't hesitate to contact us.

During the NACBA conference I briefly attended a session facilitated by Glenn Woods and Bill Gruenewald that discussed issues relating to Mega-Churches. One of the key issues for churches of all sizes is record retention.

Part of developing a strong internal control structure is defining what and how long certain information will be retained and maintained. Best practices for boards and management includes discussing and adopting a record retention policy. It is important to determine where the information will be filed, (electronically, on-site or off-site) security of the information and condition for maintenance (heat and dampness may be destructive to certain files).

Information such as tax returns and governmental reports affecting a ministry's taxes should be maintained permanently. However, most backup records, such as receipts documenting income deductions should only be kept for seven years. The IRS calls for a six-year statue of limiations for tax receipts. The IRS has 3 years from the date the return is filed to question or audit the return.If the IRS can prove an omission of at least 25% of income, the time period doubles to six years. Therefore, the seven-year period gives a one-year cushion beyond the IRS limit. While most churches are not required to file tax returns, ministries and ministers are required to file selected forms. These rules apply to any entity or individual that must file. So be prepared and retain certain information.

What kind of information should be retained and for how long? See our next post.

The new Schedules J and R will cover compensation and related organizations in more detail than did the old Form 990.

New Schedule J will report compensation details. The current Part V-A and B schedules of compensation, benefit plans, and expense accounts for current and former officers, directors, trustees, and key employees will be on the new Schedule J. Also, it will include information from the current Schedule A, Part I on compensation of the five highest paid employees. There is also additional reporting regarding compensation practices and additional detail for various types of compensation. Only organizations paying certain amounts of compensation will be required to complete this form.

New Schedule R consolidates information on related organizations currently reported in several different places on the Form 990 and Schedule A. The schedule will be completed by organizations that own a controlling interest in a partnership, LLC, corporation, trust, or other exempt entity and also by organizations that are under common control of one of these entities.

Difficulties understanding related organizations. Contact us.

Finally, below is a summary of the final four schedules that may need to be attached to the new Form 990.

New Schedule K was added for organizations with an outstanding tax-exempt bond issue greater than $100,000. The schedule covers information previously required on the balance sheet. In addition, the use and investment of proceeds and relationships with outside advisors will be reported.

New Schedule L will by required by organizations that lend money to or borrow from officers, directors, and certain disqualified persons. This will replace the attachments currently required on the Balance Sheet of Form 990.

New Schedule M will be used to report non-cash contributions over $5,000. The type of contribution and information regarding the donee’s valuation methods for financial reporting will be required.

New Schedule N, Termination or Significant Disposition of Assets, will replace the Part VI, Other Information question and attachment on the current Form 990. Part I is for expanded reporting on a current termination of an organization. Part II is for reporting dispositions of more than 25% of the organization’s net assets if at fair market value.

Remember, these schedules are still in draft form and the IRS is taking comments from the public until mid September. Draft schedules can be viewed at the IRS website .

As I began preparing for the Church's 2007 audit, I encountered some difficulties in calculating the activity for the temporarily restricted contributions. Over the past year our Church has launched a building campaign and we are tracking the donor contributions, expenses that have been incurred and the related third party debt that has been obtained to help finance the early phase of the construction.

My question to the auditors, are the expenses paid by the 3rd party debt included in the net assets released from restriction on the Statement of Activities? Their answer was No. Third party debt restricted for the capital campaign construction is a management designated account and therefore the activity or disbursements financed by the debt is not a restricted contribution. The management decision to borrow funds is part of “unrestricted net assets” and can be classified as a component of unrestricted net assets.

This made perfect sense, since I knew that it wasn’t a third party designation. Management’s decision to obtain financing is just that, “management” designated for capital expansion, and therefore should be reported as part of unrestricted net assets.

Tammy Bunting is the accounting manager for a large church in the Grapevine Texas area.