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I've Been Approved By the IRS! Now What?

By Raul Rivera

If we are being honest with one another, obtaining 501(c)(3) recognition is something you worked hard for. There were times when you may have thought this day would never come.

But when that day did finally come, you raised your hands in celebration. You thanked God! And there may even have been some cake!

Oh yes, it was the day you received your Federal Determination Letter - THE Approval.

That plain white piece of paper with the IRS logo telling you that you are exempt from federal income tax. You hold it in you hands with a sense of completion (and perhaps a few tears of joy), and then it comes to you:

“Now what?!?”

This is the NUMBER ONE question pastors and ministry leaders have once they receive the IRS approval letter for their church or ministry.

Because of this, I want to spend some time educating you on how to maintain compliance now that (or once) you are 501(c)(3) approved.

In reality, there are many things you need consider when it comes to maintaining compliance for your church or ministry. But today I want to cover the basics that will help you to get started.

So, are you ready to go on this journey?

Where it all begins

Once you’ve received 501(c)(3) approval for your church or ministry, the path to maintaining compliance begins with the Annual Board Meeting.

This is the most important board meeting you will hold all year. It is this board meeting that will help set the tone for your church or ministry each year. Many boards choose to hold this meeting at the very end of their fiscal year, or within the first month of their fiscal year.

In the following paragraphs I will share with you what should be considered and reviewed during this meeting, and along the way I will suggest some resources to help you get the job done.

4 compliance steps to consider

1. Review last year

When it’s time to hold this meeting your secretary and treasurer should have completed an internal audit of all records. Now, most boards remember to reconcile their financial records, but not everyone reviews and reconciles their board meeting minutes, contracts, and other written agreements.

If your board made a decision last year to establish a lease, hire someone, or to make a purchase outside of last year’s budget, you need to make sure you recorded it in your board meeting minutes.

Have your secretary look through last year's minutes to ensure all important measures were recorded and filed. If any discrepancies are found, cover and ratify those during your Annual Board Meeting.

2. Create this year’s budget

Projecting the budget for your church or charity is very similar to projecting your family’s home budget.

First determine what you need to pay for (such as facilities costs, liability insurance, administrative costs), and then you can consider and plan for the things you want to purchase (such as children's church check-in system, mission trip to Kenya, new sound board, etc.).

Having a budget will save you time. It will not only create peace of mind, but your budget will help you plan your fundraising campaigns. Once you know what you need to spend, you will then know how much you need. More importantly, creating a budget will help prevent you from calling a board meeting every time someone needs to run to the store for office supplies.

3. Create, renew, or review all compensation agreements

This is the perfect time to create, renew, or review your church's or charity’s compensation agreements and benefits packages.

I want you to latch on to two words here: Renew and Review.

If your board approved a compensation agreement and/or benefits package for an employee last year, you need to reevaluate and renew the agreement.

This is to ensure that the compensation agreement remains “reasonable”.

Reasonability is a term the IRS uses when speaking about compensation within the charitable sphere. Though it encompasses many things, the easiest way to think about reasonability is for you and your board members to ask:

“Can our church or charity still afford to pay this person, meet our obligations, and continue to further our charitable purposes?”

If yes, renew the package. If you can give them a raise, do it! If you can add more staff, do that too!

The important takeaway here is that compensation agreements and benefits packages are not perpetual in the charitable world. They require your consideration.

Your first duty, administratively, is to manage public funds responsibly in order to fulfill your charitable purposes. Reviewing and renewing compensation/benefits is just one of the many ways your board accomplishes such a task.

(To learn more about compensation agreements, click here. To read more about pastoral compensation, you may want to read “3 Common Mistakes Churches Make When Paying Pastors”)

4. Establish this year’s corporate calendar and assign responsibilities

Each board members should have access to your organization’s corporate calendar.

In addition, each board member should be aware of your organization’s yearly responsibilities.

After identifying your organization’s obligations be sure to assign someone to their completion. As you will see, failing to accomplish some of the below tasks could put your church or ministry in dire straits.

- Filing Your Annual Report

Most states require all corporations to file an Annual or Periodic report with the Secretary of State. Failing to file this report may lead to your corporation’s involuntary dissolution. This applies to both churches and charities.
Applies to every state with the exception of the following: AL, MS, NY, NC, OK, PA, SC, WY

- Filing Your Annual IRS Form 990

The IRS requires all charitable corporations, with the exception of churches, to file an annual Form 990. If your charity were to fail to file this form for three consecutive years, your charitable status would be automatically revoked. There are also fines for filing this form late! This applies only to non-church charities.

- Renewing Your Charity Registration

Some states require your corporation to not only register as a charity but to renew that registration annually. Please keep in mind that registering as a charity is different from incorporating (which you will have taken care of by now). This applies to both churches and charities.
Applies to every state with the exception of the following: AL, AZ, DE, ID, IN, IA, MT, NE, NV, SD, TX, WY

- Renewing Your Sales Tax Exemption

Some states also require your corporation to renew your sales tax exemption annually or periodically. Make sure to find out if this applies to your organization as it would be awful to lose out on this amazing benefit. This applies to both churches and charities.
Applies to the following states: FL, IL, KS, PA, VA

If you are not sure when your reports and/or renewals are due, or if you don’t know which 990 to file, call us today at (770) 638-3444!

Meeting adjourned

Whew! That was it!

Those are the basics of the basics to cover during your Annual Board Meeting and to help your church or ministry maintain compliance.

We want you to maintain the joy of operating your church or charity all the way through.  I realize you may have additional questions and that’s fine. We can help answer those questions. Just give us a call at (770) 638-3444, or register to attend one of our conferences.

In the mean time, sit back with another slice of cake and tell yourself, “I can do this!” Because now you have the answer to, “Now What?!?”

Here are some other blog posts you may find helpful:

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