January-February 2016

Written by Dan Busby
From his column God, Government and Me—Money in the Church

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It’s that time of year again—when churches must file certain data with the IRS—and filling out W-2 forms is just the beginning. Today, let’s examine some of the non-employee reports your church may be required to submit.

FUNDS RECEIVED

Form 1098 - Receipt of Interest on Mortgages – This form is used to report mortgage interest of $600 or more received by your church during 2015 from an individual, including a sole proprietor. A transmittal Form 1096 must accompany one or more Form 1098. The same transmittal form can be used for other Form 1099s such as Form 1099-MISC (see below).

Form 990-T - Unrelated Business Income – All churches are exempt from filing Form 990; however, if a church has $1,000 or more of gross unrelated business income, Form 990-T must be filed with the IRS. A detailed definition of unrelated business income is beyond the scope of this article, but usually it is income generated by an activity that is not substantially related to the church’s exempt purpose—a trade or business—and regularly carried on.

Gift Reporting – Certain charitable contributions require special reporting to the IRS. When a church receives a gift of property valued at $5,000 or more, a portion of Form 8283 generally must be completed. If required to complete a portion of Form 8283 (and if within three years after the date of the contribution the property is sold, exchanged, or otherwise disposed of by the church) Form 8282 must also be completed and filed by the church. IRS gift-related filings are done in addition to the acknowledgments the church provides to donors for single gifts of $250 or more.

FUNDS PAID

Form 1099-MISC Income – Complete this form for each recipient to whom the church paid at least $600 in rents or payments for services in 2015.

 1099 misc

Form 1099-INT - Payment of Interest – Complete this form for each person to whom the church paid interest of at least $10 in 2015. In certain instances, the $10 limit increases to $600. The $10 limit applies if the interest is on “evidences of indebtedness” (bonds and promissory notes) issued by a corporation in “registered form.” A note or bond is in “registered form” if its transfer must be effected by the surrender of the old instrument and either the reissuance by the corporation of the old instrument to the new holder or the issuance by the corporation of a new instrument to the new holder.

Benevolence Payments – When a church makes charitable distributions or benevolence payments to nonemployees, no information reporting is required to the IRS–such as a Form 1099. However, if the payments are made to employees, the amounts are generally reportable on Form W-2.

Volunteers – Payments to volunteers that represent a reimbursement under an accountable business expense reimbursement plan for expenses directly connected with the volunteer services are not reportable by the church. Payments for auto mileage up to the maximum IRS rate for business miles (54 cents per mile for 2016) are generally considered to be tax-free for volunteers.

Forms 1042 and 1042-S Payments to Nonresident Aliens – Your church may have made payments during 2015 to noncitizens (nonresident aliens) who were temporarily in this country. All payments, other than expense reimbursements and amounts reported on Form W-2, must be reported on Form 1042 and 1042-S. These forms are filed with the IRS Service Center in Philadelphia by March 15 for the previous calendar year, and a copy of Form 1042-S is sent to the nonresident alien.

OTHER REPORTING

Form 5578 - Racial Discrimination – Form 5578 must be filed by churches that operate, supervise, or control a private school. The “private school” definition includes preschools; primary, secondary, preparatory, and high schools; and colleges and universities, whether operated as a separate legal entity or an activity of a church, including preschools.

Property Tax Exemption Filing – In some states, annual filings may be required to establish property tax exemption.

State Corporate Filing – In some states, incorporated churches must file annual reports to renew their nonprofit status.

Sales Tax Returns – Quarterly or annual reporting may be required to report and pay sales tax relating to the sale of materials, such as sermon tapes.

General Information – Forms 1098 and 1099 must generally be provided to recipients by January 31 and filed with the IRS by February 28. Various other due dates apply to other forms referenced in this article. Form 1098s or 1099s are generally not required to be filed if the payments are from or to a corporation, partnership, trust, estate, or association. However, payments to attorneys must be included on Form 1099-MISC even if the law firm is incorporated.

For those in the church who are not involved in oversight of the financial matters of the congregation, such detailed reporting sounds boring (and it can be), but it is essential if a church is to fulfill its obligations to be accountable to the government for its handling of money. All this should also remind us that the oft-times thankless job of the treasurer is a key role in every church. Next time you see your church treasurer, tell him or her how much you appreciate all they do for your congregation.

Dan Busby is a certified public accountant and president of the Evangelical Council for Financial Accountability (ECFA).

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