Starting Right and Staying Right
By Raul Rivera
Starting a ministry is one thing, but managing a ministry is a completely different matter! It is my experience that many ministries have a much more difficult time managing their ministries than they do starting them. Don't you know that the call to preach is also the call to stewardship (1 Cor. 4:2)? Although we would all say amen to that statement, few ever achieve a well managed ministry where the balance between good preaching and good management are on equal par. I recently helped a church in New York that lost 100 percent of its assets due to a seemingly unimportant clause in a contract they entered. Because they lacked proper counseling or consultation, no one performed a critical analysis of the contract. Five years later they found themselves starting from the ground up. This did not have to happen to them, and it does not have to happen to you!
Following below are four things to consider that will instantly strengthen your ministry's ability to protect its assets. Some are very simple, while others will require that you do some homework.
- Annual Reports: Almost every state requires that your church file an annual report. When a church or ministry becomes incorporated, it must perform its annual corporate maintenance. Whether it's preparing annual minutes or filing an annual report, the law in most states require that a report be sent in to the secretary of state. Failure to file will result in an administrative dissolution. When a ministry gets administratively dissolved, it loses its corporate existence and places all of its assets at risk. Current IRS regulation requires that all assets of a tax exempt organization be distributed to other tax exempt organizations if it dissolves. I have conducted informal studies and have discovered that approximately 10 to 20 percent of churches and ministries fail to do their annual report each year.*
. - Annual Tax Reporting: Did you know that one of the quickest ways to lose assets is by failing to file annual information returns to the IRS? Pastors and ministry leaders continually ask me if their church or ministry is required to do tax returns at the end of the year. Churches and ministries are very likely required to file some sort of tax related information. The most common being W-2 and 1099-Misc. Forms. When a church or ministry fails to file these returns, they face severe penalties under sections 6721 and 4958. Needless to say, the penalties can be high.
Because of this potential, we created a new resource called the W-2 and 1099-Misc Tax Kit For Churches and Ministries.
. - Obtain liability insurance: Insurance is something everyone hates to buy, but we're glad to have it when an unfortunate event takes place. In today's world, there is insurance for just about everything. More than ever, churches and ministries need good insurance. Lawsuits against churches are at an all time high and continue to rise. Ministries have had to close their doors because of lawsuits, and they and those they serve have suffered because of it. When I pastored in Florida, a young girl in our church fell and injured her arm. The girl's mother took her to the emergency room and it turns out she suffered from a slightly dislocated elbow. The ER bill was well over $1,000.00. While I was certain that the girl's mother had no intent of suing our church, our liability insurance company stepped in and paid her entire medical bill. When you have a good insurance policy, you have the resources of your insurance company at your disposal. If your church ever faces a lawsuit, the insurance company will bring its attorneys in for your defense because they are on the hook with you.
. - Make sure that the checking account is tied to the church Tax ID and not some one's social security number: This is one most pastor's and leaders never think about. When starting a ministry, one of the very first things the founder does is open a checking account in the name of the ministry. There is also a large number of ministry leaders who open up accounts before incorporating and obtaining a Tax ID number. Typically when this happens, the bank allows them to open a checking account with the founder's social security number. This is a big mistake! It leaves the church's checking account open to IRS and personal lawsuit judgments. For example, a pastor in Chicago started a church 12 years ago. At the time, he used his own social security number to open the church checking account. All went well for about 10 years until the IRS adjusted one of his personal tax returns and sent him a bill for over 12,000.00 dollars. He did not have the money to pay it all at once, So the IRS did an assets search and noticed that he had a bank account tied to his social security number and placed a lien on it. Soon after, the church checking account was emptied. I believe that if you find yourself in this situation, it is best to close the current account and open a new one with just the church tax ID.
Do Not Become a Statistic
Did you know that the IRS currently cannot audit your church? Under recent court rulings, the IRS will not audit a church until the current regulation of section 7611 is changed. That change will likely happen in April or May of 2010. Now is time to get your church in order. Through my years of experience, I can say that audit proofing your church from a compliance perspective is the best way to protect your church assets. StartCHURCH offers a resource called The Advanced Compliance System II. With it we walk you through a 53-step self audit of your ministry. You become your own IRS agent auditing your own church or ministry. Most likely you will discover that your ministry is out of compliance on many fronts. Below are some of the areas the software will audit.
- Related board members
- Credit card policy
- Anti terrorism policy and the OFAC list with Presidential executive orders
- Benevolence policy
- Guest speakers and how to walk out love offerings
- Letters to guest speakers as a way to avoid liability
- Church/ministry minutes . . . Why have them?
- The importance of ecclesiastical order on the church
- Correcting past mistakesl
To get more information on this product please go to http://www.startchurch.com/software/complete-church-compliance-kit.
*California requires a statement of information within 90 days of incorporation and subsequent reports every other year, while Ohio requires one every fifth year.