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Can A Church Get Sued for Giving Too Much?

By Raul Rivera

A man who was dismissed from membership for causing division and strife over love offerings given to guest speakers filed a lawsuit against the church and the pastor, claiming defamation, intentional infliction of emotional distress, and fraud.  The claim dates back to 2007, when the church hired a new comptroller to review the church books.  The comptroller became dissatisfied with his job and resigned from his post, but in the process, he inappropriately took some private financial documents of the church and turned them over to the media, which, in turn, posted them on the web for the entire world to see. 

The documents revealed that the church had a tradition of being very generous to its guest speakers and others who rendered services to the church.  After becoming aware of what was happening, the pastor addressed the matter internally with church leadership and the congregation.  It was resolved that the church’s giving of offerings was based on a Biblical conviction of being generous to those who served the church. However, that was not enough for the disgruntled man who believed the church was “too generous.”

Is it Really Possible?

Many factors could contribute to a scenario where a church's generosity breaches expected norms. However, Flamboyant benevolence seldom leads to legal complications. There are two circumstances under which a church might find itself navigating the tumultuous waters of the legal system, followed by a detailed account of a congregation that encountered litigation due to their excessive financial liberality.

  1. Giving From the Church’s Restricted Funds: Churches often initiate capital campaigns, announcing that contributions will finance the acquisition of land, a building, or the construction of a new facility. These funds must be securely allocated and dedicated exclusively to their declared purpose. Most states have adopted some version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA), which provides guidance on how to handle such restricted funds.

    Yet, there are instances when churches, out of a commitment to the great commission, internally resolve to dedicate a significant portion of their revenue—between 10% and 20%—to mission work. When financial downturns occur, these churches may continue contributing 20% towards missions. This practice can cause financial instability, leading to the unlawful redirection of capital campaign funds.

  2. Excessive Compensation to Individuals: If a church gives a substantial amount of its income as financial gifts or compensation to its pastors, staff, or guest speakers in amounts considered unreasonable1 or not commensurate with the services rendered, the IRS may view these as private inurement. This could potentially lead to losing the church's tax-exempt status and other legal penalties.

How The Church Approached the Matter

When confronted with conflicts such as the one described, it is essential for a pastor to endeavor to reconcile with the individual who has become estranged from the church. In alignment with this imperative, the pastor, in collaboration with the board of directors, decided to address the issue through a dual-strategy approach.

  1. They looked to scripture: The pastoral leadership and board of elders were cognizant of the pressures exerted by a discontented individual and the press. They turned to the scriptures for guidance in such situations. Once they had discerned direction from these scriptures, they proceeded with further steps.

  2. The leaders understood the implications of their actions in a legal context: The pastor, together with the board of elders, resolved to address the actions of the discontented individual by presenting the issue to the congregation. When excluding this individual, they prepared a formal declaration, which the pastor read from the pulpit. It should be emphasized that the communication was crafted to highlight that their motive for discussing this publicly was rooted in church governance rather than civil concerns. The details are below:

    1. The church leadership was aware of its constitutional rights and responsibilities to enforce church discipline guided by Scriptural interpretation.

    2. They turned to Romans 16:17, instructing the assembly to identify and avoid those who foster division and offenses contrary to the learned doctrine. The church was cognizant of the need for such measures.

    3. Additionally, they cited 1 Timothy 5, which advises public reprimand for those who transgress, serving as a deterrent to others.

    4. The church managed this circumstance in accordance with its bylaws, a process that was thoroughly documented.

    5. This section is not to discuss whether one agrees or not with the way the church handled this situation.  The focus here is on the process by which a church may address disruptions to its unity without fearing legal defeat if the discontented party seeks to litigate.

Why Your Church’s Organizing Documents Matter

This situation is an excellent illustration of a church that established comprehensive policies for managing members who cause upheaval or discord. When starting a church, most leaders rarely anticipate encountering the level of confrontation detailed in this case.2 Nonetheless, these challenges are the realities modern churches face, and it is crucial for pastors and church leaders to be equipped for such eventualities. The church in question detailed two critical provisions in its foundational documents that safeguarded them from legal complications.

  1. The church incorporated scriptural references into its bylaws: Bylaws, reflecting the church's sincerely held scriptural interpretations, were drafted to guide the resolution of such matters. These bylaws were made part of the church’s public record during its application for 501(c)(3) status.3 Making these records public is an effective means to demonstrate the church's convictions and the governance of its scriptural foundation.

  2. The church had explicit written doctrines: It had well-defined written doctrines that specified its prerogatives and responsibilities in ministering to its congregation. Nowadays, many churches lack such comprehensive, documented doctrines that encapsulate their full scope of beliefs. Detailed written doctrines not only ensure internal consistency but also serve as a formidable First Amendment defense.

Conclusion

Repeatedly, courts have refrained from intervening in ecclesiastical disputes that pertain to doctrinal interpretation or disciplinary action. Through our StartRIGHT and GetRIGHT programs, thousands of churches have established robust foundational governance, allowing them to navigate such disputes with greater confidence and legal standing. If you're looking to strengthen your church's governance, give us a call at 770-638-3444 to learn more about our programs today or schedule a call below.

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  1. IRC 4958 and Treas. Reg. 53.4958
  2. Matthew 10:17: “Beware of men, for they will deliver you over to courts and flog you in their synagogues” (ESV).
  3. When an application for 501(c)(3) status is submitted to the IRS, it becomes a public record anyone can request to see. This is a good thing as it can be used to show that your church or ministry is an exclusively religious organization and that all your activities are motivated by scripture.

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