Corporate, Legal, Property

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All churches must follow specific laws and procedures when it comes to taxes, church property, workers’ compensation, and more. Here’s an overview of corporate, legal, and property guidelines you need to know.

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Corporate

Electing church officers

Church trustees should refer to the 2016 Book of Discipline paragraphs 2525, 2526, 2530, 2532 and 2533 for officers that need to be elected, timing of the elections, and more. Additional information for trustees can be found here.

Taking care of corporate matters

While your church’s most important work is reaching new people with the gospel, helping people grow in love of God and neighbor, and healing a broken world, there are certain corporate matters that also need regular attention. 

Here is some homework to help you protect church assets and protect the persons elected to lead your church:

1. Find your articles of incorporation and read them. If you are a nonprofit corporation filed under Minnesota Statute 317A, research your incorporation status at the Minnesota Secretary of State’s website where you will also file the annual renewal of your corporation. If your church has not done the required annual filing with the Minnesota Secretary of State’s office, your corporate status may have been dissolved and you should contact the Secretary of State’s office to reinstate the corporation. Note that if you are a nonprofit corporation filed under Minnesota Statute 315 and only filed with the county recorder's office, no annual renewal is required.
2. Review your articles of incorporation and bylaws to make sure they are up to date. For example, do your articles allow you to have meetings and votes of the trustees by conference call or e-mail? If you sometimes have such meetings or votes, then your articles need to provide for that. There is a template of a basic articles of incorporation and bylaws on the General Council of Finance and Administration website, but you should work with an attorney who will make sure that your articles and bylaws are appropriate under the United Methodist Book of Discipline, Minnesota state statute, and appropriate for your church.
3. If you are working on marketing your church and are considering using a different name (commonly called dba, which stands for “doing business as”), you need to protect your corporate existence and your legal name. You will need an attorney to help you do this correctly. You will need to work closely with your bank and contributors to ensure that the church’s accounts are properly named so donors know to whom they write their contribution checks and so there is no doubt about who owns the funds in the accounts.
4. Who are your corporate officers? The corporate officers must be elected according to your articles of incorporation, the United Methodist Book of Discipline, and Minnesota statute. Make sure that the trustees approve corporate resolutions that name those who will sign legal documents. Trustees also need to authorize all bank accounts opened in the church’s name and the signers of those accounts. Neither the chair of the administrative council nor your pastor is the president of the corporation. Incidentally, your pastor should not be signing checks or other legal documents on behalf of the church, and whichever corporate officer is authorized by the trustees to execute deeds or contracts should sign his or her name, followed by the proper title. For example, “Jane Doe, president” or “John Doe, secretary.

This may seem like a lot of work and you may not wish to incur legal expenses. Please don’t wait until you decide to buy or sell property or open a bank account because the costs, hassle, and potential negative impact will be much greater. 

Refer to the General Council of Finance and Administration legal manual for additional information.

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Legal

Incorporation

All churches need to have a corporation. 

1. The corporation owns and can transfer title to property in its own name, rather than through one or more trustees or individuals.

2. Individual church members and their personal assets are shielded from liability for corporate debts and obligations, limiting the liability of pastors, board members, and individuals to their own personal actions for such debts.

3. Because there is a question whether a deed to an unincorporated association is void, and could require judicial action to reform it, local churches need to be incorporated to be certain that they have good title to their property.

It is desirable to have the assistance of counsel in the formation of a local church corporation.  

Download incorporation statutes and procedures

Church and clergy taxes

A tax guide for churches and religious organizations is available from the IRS. This booklet covers:

• Tax Exempt Status
• Jeopardizing Tax-Exempt Status
• Unrelated Business Income Tax (UBIT)
• Employment Tax
• Special Rules for Compensation of Ministers
• Payment of Employee Business Expenses
• Recordkeeping Requirements
• Filing Requirements
• Charitable Contributions–Substantiation and Disclosure Rules
• Recordkeeping
• Special Rules Limiting IRS Authority to Audit a Church

Download tax guide

The IRS provides general tax information on its web site or by calling (800) 829-1040. You may also get tax information specific to exempt organizations by calling (877) 829-5500 or going here.

Other helpful resources:

General Council of Finance and Administration legal manual

GCFA Legal on Recent Housing Allowance Opinion 

Social Security and Other Information for Clergy and Religious Workers

IRS Requirements: Earnings for Clergy

Housing Allowance Q&As for Clergy

Employer ID numbers

Apply for an employer identification number (EIN) from the IRS.

Any organization within the local church whose funds are not part of the church funds, such as United Methodist Women, must have their own EIN separate from that of the church. For more information on the required separation of local church and UMW funds, please refer to page 75 in the United Methodist Women Handbook.

Scouting Ministries

Access information on Boy Scouts of America Affiliation Agreement and more resources and information.

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Property

Capital Facilities Development & Finance Commission

The primary purpose of this commission is to support financing and refinancing of church buildings, church building construction, or expansion projects. The program was established at the 1960 Minnesota Annual Conference to assist local churches in financing new and expanding church facilities. The support comes in the form of a loan guarantee. This loan guarantee by the commission adds the credit of the annual conference to that of the local church and therefore may lower the interest rate charged by the bank on the loan. The cost to the local church is 0.25 percent of the amount guaranteed. Commission members have a broad background in finance and related disciplines and should be viewed as a resource for churches contemplating capital projects. For more information contact Rev. Gail Alexander or Jody Witter. To access an application for a loan guarantee, click here.

Property-tax exemption of parsonages

Questions about the use of a church-owned parsonage for something other than housing for the church pastor resulted in an opinion written by Conference Chancellor Wayne Popham on the property tax-exemption of parsonages. Read opinion.

Leasing church space to a third party

Many churches have received requests by third parties to rent a room or space in the church. In exploring such an arrangement, be sure to consider the following:

• Most churches are tax-exempt and maintain that status provided the property is used exclusively for religious purposes. Leasing space to a for-profit business could jeopardize that status.
• Be sure your property is zoned for commercial use.
• The money collected from lease payments may result in federal “unrelated business income tax.”
• Be aware of the church’s liability for accidents or injuries on church property as a result of the lease agreement.
• In considering leasing space, church leaders should carefully consider all the risk, tax, and legal implications of such an action in addition to the opportunity for outreach that leasing space may provide.
• For more information on leasing to a third party, please visit a related page on the General Council on Finance & Administration (GCFA) website.
• It is always advisable when in doubt to consult an attorney.

Piano lessons in church

Can music staff offer piano lessons in a church building? Many churches throughout the denomination have asked this question. Allowing such lessons in your church could jeopardize your church’s tax status. Before making a decision about this, please refer to a Church Law & Tax Report article and a Church Professional Administrators article. 

Certification for church-run schools and day cares

Does your church run a preschool or day care? If so, the IRS requires you to file Form 5578—Annual Certification of Racial Nondiscrimination for a Private School Exempt From Federal Income Tax—each year. The form must be filed by the 15th day of the fifth month following the end of your calendar year or fiscal period.  Learn more and obtain form.