Transparency In Ministry

Intellectual property is created by individuals using the mind or intellect. These creations include songs, books, sermons, dramas, bible study materials, inventions, websites, etc. Employees may produce or create these items as part of their employment.

Who owns the rights to this property is becoming a significant issue with churches and ministries.

If the Church oversees or controls the work performed, provides a place, equipment or support for creation - the Church owns the property. If the Church or employer pays the employee to create the product, defines the product - Church/Employer owns the property.

Intellectual property is protected by the U.S. Copyright Act and under this act the Work for Hire Doctrine applies. This doctrine applies to entities who request and pay for the created property. If a minister or employees wishes to own the property, a written contract must be negotiated between the organization, defining who owns the property. This contract should be in place prior to creating the property. Any Church resources utilized by the employee to create the property should be reimbursed or is included in the taxable compensation of the employee. The amount taxable to the minister is based on the fair value of the resources used - whether it is a computer, office space, secretarial support.

This is a complex area for churches. We suggest you consult an attorney to provide guidance in these areas.

It’s been a while since we discussed contributions of autos and other vehicles to nonprofit organizations. In 2005 and 2006 significant changes were adopted requiring better substantiation of value and detailed recordkeeping. See our prior post on valuing donated vehicles posted by Sandy Siegfried on September 27, 2006.

Here is a summary of the current requirements in case you are considering accepting gifts such as cars, boats or aircraft.

If the claimed value of the vehicle is less than $500 a church may use its own form or the copy C of of Form 1098-C to make your contemporaneous written acknowledgement to the donor. If you use 1098-C, you must check box 7. You will need the name, address, donor social security number, date, make/model and VIN#. Give copy C only to the Donor within 30 days of the contribution and keep a copy. Do not give copy B to the donor and do not file copy A with the IRS. If the donor refuses to supply his Social Security number you must check box 7, regardless of the value of the vehicle.

If the value is over $500, see post #2.

As a pastor, imagine walking into your church and having an executive assistance that is proficient in typing, writing letters, using the phone system and keeping you on schedule with all appointments. This would be fantastic, but as you know for most churches it is hard to hire highly skilled administrative staff with starting salaries that are may be below the industry average.

As a result, the human resource administrator/pastor is left with the task of inspiring individuals to connect with the church’s mission. Nonprofit organizations should place a high priority on exercising fair and equitable practices that attract and retain qualified volunteers and employees. In addition, nonprofits (including churches) have an obligation to adhere to all applicable employment laws and to provide a safe and productive work environment. Churches/Ministries should establish specific policies and practices that promote cooperation and open communication among employees, volunteers and other constituents so that they can effectively work together to advance the organization’s mission.

Over the next several posts we will discuss example of employee policies, training/development, and retention.

Avoid the last minute crunch of trying to organize your personal records for tax time. Maintaining your information, (receipts and payments) will make it much easier to estimate the taxes and prepare the information for the tax professional.

Keep track of Cash Donations – Tithes, offerings, and contributions. The IRS requires proof so be sure and write a check or get a written receipt from the organization you contribute to.

Keep track of Non-Cash Donations – Make a list of the items donated and get a receipt from the organization you donate to. Usually the organization will provide you with a blank receipt if household goods and/or clothing are donated and it is a good idea to attach a list of items and their fair market value when the donation is made so you don’t forget what was donated at tax time. If any one item is valued at $500 or more you need to get an appraisal to be able to claim the donation on your taxes.

Keep track of items purchased entirely for church use. If new items are personally purchased and given directly to the church, be sure and keep the receipt for your records.

Have questions, call us.

If your organization is being audited by an external (independent) auditor, you have probably heard them use phrases like “that’s material” or “that’s not material.” This posting attempts to clarify how auditors make that determination as it relates to your business.

The concept of materiality recognizes that some matters, either individually or in the aggregate, are important for financial statements to be fairly presented in conformity with generally accepted accounting principles. In performing the audit, the auditor is concerned with matters that, either individually or in the aggregate, could be material to the financial statements. The auditor’s responsibility is to plan and perform the audit to obtain reasonable assurance that material misstatements, whether caused by errors or fraud, are detected.

The auditor's consideration of materiality is a matter of professional judgment and is influenced by the auditor’s perception of the needs of users (which could be different from client to client) of financial statements. Materiality has been defined as "the magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement." That discussion recognizes that materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative considerations.

The evaluation of whether a misstatement could influence economic decisions of users, and therefore be material, involves consideration of the characteristics of those users. Users are assumed to:

a. Have an appropriate knowledge of business and economic activities and accounting and a willingness to study the information in the financial statements with an appropriate diligence;
b. Understand that financial statements are prepared and audited to levels of materiality;
c. Recognize the uncertainties inherent in the measurement of amounts based on the use of estimates, judgment, and the consideration of future events; and
d. Make appropriate economic decisions on the basis of the information in the financial statements.

The determination of materiality, therefore, takes into account how users with such characteristics could reasonably be expected to be influenced in making economic decisions.

More questions? Contact us.

Scenario: A church has determined that additional space is needed for a satellite location. A warehouse has been located, however significant renovations will be needed. A private individual (taxpayer) is willing to purchase the land and building and the church will finance the renovations. The church will rent the facility for three years and the rent will be $1 per year. In three years the taxpayer would donate the property to the church and receive a charitable deduction.

Question: Does the donor receive a deduction for the appraised value of the donated property?

Answer: The IRS has ruled in a technical advice memorandum (9639009 dated 9/27/96) that a donor may not take a charitable contribution deduction equal to the full fair market value of real property leased to and renovated by a charity and later donated to the charity. The taxpayer’s deduction is limited to the fair market value of the property at the time of the donation excluding the renovations. The taxpayer never owned the renovations for tax purposes.

Any questions? Contact us.

On November 29, 2007 NACBA and Your Church(Christianity Today) is sponsoring a webinar relating to the tax and financial reporting requirements for contributions. The webinar lasts an hour, with a 45 minute audio/video lecture and then a 15 minute question and answer period.

For more information, go the registration website and consider signing up for this webinar.

All you ever wanted to know about contributions!