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The Value of Tax-Exempt Status

Q:  I am aware that churches risk the loss of their tax-
exempt status if they participate in political campaigns. Several people in our congregation would like for our church to be more politically active. As a practical matter, what difference would it make if we lost our tax-exempt status?

A: Loss of your church's exemption from federal income taxation would have several consequences, including the following:

  • The church's net income would be subject to federal income taxation.
  • The church's net income would be subject to state income taxation (except in the few states that do not have an income tax).
  • Donors no longer could deduct charitable contributions they make to the church.
  • The church would be ineligible to establish or maintain 403(b) tax-sheltered annuities.
  • The church could lose its property tax exemption under state law.
  • The church could lose its sales tax exemption under state law.
  • The church could lose its exemption from unemployment tax under state and federal law.
  • The church could suffer an adverse impact on its zoning classification.
  • The church could lose its preferential mailing rates.
  • The church could lose its exemption from registration of securities under state law.
  • Nondiscrimination rules pertaining to various fringe benefits (including an employer's payment of medical insurance premiums) would apply.
  • In some cases a minister's housing allowance may be affected.
  • In some cases the exempt status of ministers who opted out of Social Security may be affected.

Employer ID Number on Receipts?

Q: A member of our church is being audited by the IRS. The IRS auditor is telling her that the church's contribution receipts are not acceptable because they do not list the church's employer identification number. Are you aware of any such requirement?

A:There is no such requirement. IRS Publication 526 ("Charitable Contributions") states:

You cannot deduct a cash contribution, regardless of the amount, unless you keep one of the following. (1) A bank record that shows the name of the qualified organization, the date of the contribution, and the amount of the contribution … . (2) A receipt (or letter or other written communication) from the qualified organization showing the name of the organization, the date of the contribution, and the amount of the contribution.

If you made more than one contribution of $250 or more, you must have either a separate acknowledgment for each or one acknowledgment that lists each contribution and shows your total contributions … . The acknowledgment must meet these tests. (1) It must be written. (2) It must include: (a) the amount of cash you contributed, (b) whether the qualified organization gave you any goods or services as a result of your contribution (other than certain token items and membership benefits), (c) a description and good faith estimate of the value of any goods or services described in (b) (other than intangible religious benefits), and (d) a statement that the only benefit you received was an intangible religious benefit, if that was the case. The acknowledgment does not need to describe or estimate the value of an intangible religious benefit.

The tax code and regulations contain almost identical language. Neither Publication 526, nor the tax code or regulations, requires churches to list their employer identification number on contribution receipts.

In no reported case has any court ever interpreted the tax code and regulations to require that a charity's employer identification number be listed on contribution receipts.

These articles first appeared in Church Finance Today, 2008. To subscribe to the Church Finance Today monthly newsletter, and for additional resources on this and related subjects, visit our store at ChurchLawAndTaxStore.com.

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