A New IRS Law That Makes It Tougher on Churches
By Raul Rivera
An important update has been issued on this article.
Every Church in America is required to issue and file 1099-Misc forms. The new changes to the way 1099 forms are issued will cause churches and ministries to come under intense and burdensome regulations. The 2010 Health Care Act under subsection 9006(b)(1) amended old rules and it now mandates all churches, ministries, non-profit organizations and businesses to issue a 1099-Misc form to any and all people, businesses and corporations for payments of $600.00 or more. The amendment now applies to transactions in "exchange for property or gross proceeds". The text contained within the law clearly state that new requirements will force your church to issue 1099-Misc forms if you buy merchandise.
Seriously burdensome regulations
This means that churches will now have to gather the name, address, and taxpayer identification number of every single person, business or corporation in order to do business with them by having them fill out a form W-9.
Form W-9; and what happens if my church does not get it from a vendor?
If your church/ministry does not get a W-9 from a vendor then your church will have to withhold 28% of the payment and then submit the withholding to the IRS on a monthly basis using form 945. Imagine withholding part of your phone bill, or other bill simply because they have not given you a W-9 form. If your church does not withhold the tax, then your church will have to pay it out of its own pocket. Do you know how heavy this is going to be for the average church or ministry? I am afraid that under the renewed IRS vigor for church audits, it may force many churches to close their doors.
When will this new rule be enforced?
The new law was signed and is now the law of the land. Prepare for the new requirements kick in at the end of 2011 Our hope is that by the end of 2011, amendments will be written to revise the law and that regulations published as the full force and effect of law are watered down so that merchandise is excluded form the terms property
A voice in the wilderness
Like John the Baptist, I often times feel like a voice in the wilderness (not that I have his anointing; it's a comparison). I have been crying out at volume 10, that the church needs to prepare itself for the coming IRS enforcement presence designed to "increase" compliance with tax laws. Under the audit procedures of section 7611, the IRS can invoke current laws such as sections 4958, 6041(a), 6721, 6722, 6723, or 6071, (I could go on forever), and fine churches thousands upon thousands of dollars to the point of bankrupting them for not complying with the numerous requirements contained in the tax code. Though I have been trumpeting this call, many churches hear me at volume 2.
My opinion on the matter
Frankly, I am shocked that Congress passed such a burdensome and costly mandate without any real debate or consideration. It is estimated that the IRS will receive several billion more 1099-Misc forms per year. It may generate the Federal Government a few more dollars in taxes per year, but at what cost? Who pays for it? You got it . . .we do. Is the cost worth the tax raised? No. The amount of money spent by churches, ministries and businesses to comply will be greater than the revenue it raises for the government. As you can tell, I do not applaud the decision. In Biblical light, however, we must move forward with compliance, remembering that the King of Righteousness will one day establish a perfect government...until then, we are in training within an imperfect one.
Who will get a 1099-Misc from your church?
Remember, it no longer matters whether they are a sole proprietor or corporation; everyone now gets a 1099-Misc. Following is a list of individuals and companies that must receive a 1099-Misc from your church if you do any business with them of $600 or more.
1. Landlords
2. Guest speakers, musicians, nursery workers and babysitters
3. Coffee vendors such as Starbucks, Caribou and others
4. Landscapers and lawn care providers
5. Doctors and hospitals, chiropractors
6. Lawyers
7. Cleaning/Janitorial companies
8. Video companies
9. StartCHURCH, for the services we provide
10. Copier maintenance agreements
11. Parcel delivery companies such as FedEx, UPS and DHL
12. Drinking water companies
13. Vending machine companies
14. Insurance companies
15. Subscription magazines, books and pastoral study aid providers
16. Fitness centers
17. Painters, contractors, renovation companies
18. Restaurants and catering companies
19. Church cruise/tour companies
The business types below are industries where the IRS has not issued sufficient guidance. For now it appears under the new law that they are subject to receiving a 1099-Misc from you if you do business with them of $600.00 or more.
20. Cell phone companies
21. Telephone companies
22. Internet service providers
23. Utilities companies such as water, sewer, electric and gas
24. Hotels and retreat centers
25. Airlines
26. Office supply stores such as Office Depot, Staples and Office Max
27. Wholesale vendors such as Sam's Club, Costco and BJ's
28. Car dealerships, whether used or new
29. Gasoline stations
Getting good tools
I think you get the point. As burdensome as this new legislation may be, we are still called to "render to Caesar what is Caesar's," and therefore, your church/ministry will have to get a good set of tools to be able to keep up with the new regulations. Software like the W-2 and 1099 Tax Kit will help make sure you remain compliant with the latest 1099 regulations.
Another great tool is our Church Compliance and Ministry Empowerment conference! Thousands of pastors and leaders have attended and become empowered with the knowledge they need to manage the business side of ministry.