Ministry Finance, Governence & Tax

1. Ministry Finance, Governence & Tax Rev. Bruce H Verkruyse JR. Chief Financial and Operating Officer Vice President of Unity Worldwide Ministries Unity Worldwide Ministries (816) 524-7414, bverkruyse@unity.org Polity 2019

2. 1. Ministry Tax & Finance • Association of Unity Churches, dba Unity Worldwide Ministries (UWM) provides consulting services to our membership on tax, finance, human resources and business best practices. • UWM provides a Group 403(b) Retirement Plan to member ministries through Empower Retirement. It is very beneficial to ministers. • UWM provides has negotiated a ministry insurance liability discount for member ministries. Church Mutual offers a discount 10%.

3. Are churches required to apply for tax exempt status under IRS Code 501(c)3? A Church is not required to file: An application for exemption number (Form 1023) IRS Annual report (Form 990) (Treas. Reg. 1.6033-2) Key: Churches do not have to apply for tax-exempt status to qualify as tax exemption organization. Churches are exempted from paying income tax simply by their operation as a church (Treas. Reg.1.511-2a) UWM provides a Group Tax Exemption Number (GEN 2062) to member ministries which elect into the UWM umbrella tax coverage. You must file an annual report to UWM to be included. IRS Publication 1828 is worth keeping on file. https://www.irs.gov/pub/irs-pdf/p1828.pdf Ministry: Tax Exemption Status

4. Churches are required to acquire there own FEIN. Churches affiliated with the UWM are not required to file a separate application for exemption number for IRS Code 501c3 (Form 1023). Member ministries may use the Association’s Group Tax Exempt Number - Umbrella # (GEN2062) An Annual Report must be filed. The report is due in March each year in order to be included in the group tax filing. Unity Worldwide Ministries is responsible for reporting the tax status of its affiliated ministries on an annual basis. Do Ministries have to apply for a federal tax exemption number?

5. A ministry must file a Form SS-4 to be a member of the Association Group Tax umbrella. https://www.irs.gov/pub/irs-pdf/fss4.pdf Each ministry has its own FEI Number. The Federal Tax Identification Number 44-0661875 is for UWM’s use only. An EIN is required even if the church has no employee: This EIN shall be used for all payroll reports, bank account,& other annual reports. Do churches have to apply for a federal tax exemption number? (Cont.)

6. The UWM has applied and received approval from the IRS for a tax exemption number. UWM is not listed in Publication 78. List of Organizations. This is due to UWM not filing a form 990. All church organizations are exempt from the filing requirement for 990’s. https://www.irs.gov/charities-non-profits/annual-exempt-organization-return-who-must-file However, UWM is required to file an annual report on behalf of all affiliated ministries. Member ministries are required to make an annual report to UWM to be a part of this filing. UWM files an annual report with the IRS. Your annual report is due by March 1st each year. Tax Exemption Number

7. Annual Membership Report to UWM • Due to Unity Worldwide Ministries by March 1st each year. • http://www.unityworldwideministries.org/annual-report-form-ministries • Failure to file your annual report excludes your ministry from the group • tax umbrella. • Who are members of UWM? • Ministers • Ministries • Integrated Auxiliary member Regions (non-voting)

8. Association of Unity Churches Tax Determination Letter - 1970

9. Where do I find this information? • You may contact Unity Worldwide Ministries at 816-524-7414ask for Administration & Finance. When you provide an e-mail address and a copy of the document will be sent. • It is best practice to maintain a copy of this information in your office as the federal government requires the banking industry to attain this information before opening any new account.

10. Churches are recognized as tax exempt, yet a church with an exemption number has several advantages: Contribution are deductible by donors There is a reduced nonprofit mailing rate Eligibility for government/foundation grant application Eligible for property & sales taxes exemption application Members of a 403(b) Retirement Plan Eligibility for Federal and State Unemployment Tax Acts Eligible for public service announcements Eligible to opt out of Self-Employment Contributions Act of 1954 Advantage of Tax Exemption Number

11. Change of Address or Responsible Party - Business https://www.irs.gov/site-index-search?search=Form+8822-B&field_pup_historical_1=1&field_pup_historical=1 Keep a copy of this on File. Who is the responsible party? When does this need to be filed? Form 8822-B

12. IRS Form 8822-B • Please note that if you move your property or create a new responsible party, a • new IRS Form 8822-B must be filed within 60 days of the change.

13. Are ministries required to send an annual statement of receipts record to their donors at year end? Donors are not allowed a charitable deduction for gifts (donations) of $250 or more unless the donor has a receipt from the ministry (Title XIII of OBRA '93 P.L. 103-66) A church must submit a letter of contributions to donors, post-marked before February 1 of the following year. A church may choose to total all contributions received by a donor and only show the total amount on the annual statement of Charitable Contributions. Gifts Acknowledgement

14. Information on each gift receipt (IRS required) “ No benefits were provided to you in return for your contribution other than intangible religious benefits. Please retain this letter for your tax records, as it fulfills the requirements necessary in order to deduct your charitable contribution." (Title XIII of OBRA '93 P.L. 103-66) What does intangible benefit mean? Required Statement for all receipts

15. Gift receipt statement will include: The donor’s name Description of the gifts Amount of cash, or description of property received. The dates the gifts were made. The ministry’s information (name, address, etc.) A statement explaining whether there were any services or exchanges made for the gift withthe ministry. (if yes, then see thenext slide) Gifts Acknowledgement

16. A Quid pro quo gift of more than $75(Title XIII of OBRA '93 P.L. 103-66) A payment made partly as a contribution and partly for goods or services provided to the donor by the ministry. The organization is required to provide a receipt for all transactions where the donor makes a payment to the ministry and receives goods or services other than intangible religious benefits. Any single payment of more than $75 is subject to this rule. http://www.irs.gov/Charities-&-Non-Profits/Charitable-Organizations/Charitable-Contributions-Quid-Pro-Quo-Contributions Quid Pro Quo Gifts

17. Revenue Ruling 90-12, 1990-1 • This is an explanation as to how to record donations from donors that • Receive a benefit for their gift. • https://www.irs.gov/pub/irs-tege/rp_1990-12.pdf • If a donors gives $100 and receives a $20 ticket, what is the donation?

18. Property gift in excess of $5,000 The donor must obtain a qualified appraisal and attach it to the Form 8283. The ministry must sign on the completed Form 8283 and give it back to the donor. Property gift in excess of $500 but less than $5,000 Complete the first page of the Form 8283. Here there is no requirement for an appraisal or a ministries signature. Property Gift (>$5,000)

19. A donors Guide to Car Donation • https://www.irs.gov/pub/irs-pdf/p4303.pdf

20. If the ministry decides to sell the vehicle: The ministry must send a statement to the donor within 30 days of the date in which the item was sold, this document will include: a description, date, and sales price of the vehicle. Vehicle in excess of $500 sale price The donor must attach the above statement from the church. A ministry decides to keep the vehicle (or sells it to a low income earner) Donors still claim the fair market value, based on the rule of other property donations found in Form (Form 8283). Property Gift - Vehicle

21. Form 8283, Noncash Charitable Contributions • http://www.irs.gov/uac/Form-8283,-Noncash-Charitable-Contributions

22. When a tangible property gift of $5,000 or more is sold, exchanged, or disposed of within three years after the gift was received, the ministry must file Form 8282 with the IRS within 125 days of the disposition. Exception: There is no need to file Form 8282 if the donor is a Corporate entity. https://www.irs.gov/forms-pubs/form-8282-donee-information-return Property Gift & Sale

23. Non-tax deductible contribution: A conditions attached gift (revocable with some conditions) may not be deductible. Services (professional hour, etc) - Rev Rul. 67-236 However, the 2018 allowable mileage rate of $.14 per mile may be deducted for services provided. Note: the ministry must issue a statement if the annual total out-of-pocket expense including the mileage exceeds $250. Nondeductible Gifts

24. What about a Class, Workshop, or Special Events? Adult Classes (fees or love offering) are deductible when: They are related to the ministry mission/activities. The presenters are ministry ministers or staff. Contributors are likely ministry members. The payment is made to the ministry. Workshops and/or Special Events If none of the above bullets are met, then the gift is non-deductible. https://www.irs.gov/site-index-search?search=Pub+526&field_pup_historical_1=1&field_pup_historical=1 Nondeductible Gifts - continued

25. Unrelated Business Taxable Income(UBTI) • The term “unrelated business taxable income” generally means the gross income derived from any unrelated trade or business regularly conducted by an exempt organization, less the deductions directly connected with carrying on the business. If an organization regularly carries on two or more unrelated business activities, its unrelated business taxable income is the total of gross income from all such activities less the total allowable deductions attributable to all the activities. • In computing unrelated business taxable income, gross income and deductions are subject to the modifications and special rules explained in this publication. Whether a particular item of income or expense falls within any of these modifications or special rules must be determined by all the facts and circumstances in each specific case. For example, if the organization received a payment termed rent that is in fact a return of profits by a person operating the property for the benefit of the organization, or that is a share of the profits retained by the organization as a partner or joint venture, the payment is not within the income exclusion for rents, discussed under Exclusions. • https://www.irs.gov/site-index-search?search=pub+598&field_pup_historical_1=1&field_pup_historical=1

26. Publication 598:UBTI • https://www.irs.gov/forms-pubs/about-publication-598

27. All ministry incomes are presumed to be tax exempted.(IRC Sec 511-13). Exception: The following UBTI are taxable: When the income is not substantially related to the ministry mission. A restaurant with paid staff, tours with social purposes, leased space of a mortgaged property to an unrelated business entity, etc. Or regularly operates a non-related business. The ministry charges a parking fee on a regular basis for non-church related activities. (defined as more than twice a year.) Unrelated Business Taxable Income(UBTI)

28. Rental income from unused space & interest income from funds may not trigger UBTI: Rental income to another exempt organization (tenant) is not taxable. Rental income from property with no mortgage is not taxable, regardless of tenants. if there is a mortgage on the property, then the 85% rule applies for the test. Ministries are required to pay taxes if their annual UBTI gross income is more than $1,000. An excessive UBTI may face revocation of their 501(c)3 Status (UBTI >50%) - TCM 566(1990). UBTI - Rental Income & Interest Income

29. IRS Form 990-T • Form 990-T • http://www.irs.gov/pub/irs-pdf/f990t.pdf

30. If a bookstore is in place for the convenience of the ministry members alone, the income is Not UBTI. 1. A ministry must eliminate all unrelated items from its bookstore, or 2. A ministry may create a separate subsidiary (a for-profit entity) if the ministry wants to keep unrelated items. (Rev. Ruling 8706012 & Reg 1.501 (c)3..1(e)) and 3. A ministry must receive an IRS determination letter clearly stating what is sales taxable and what is not sales taxable. 4. The bookstore is only open during church service hours. UBTI - Bookstore

31. Best Practices for Ministry Finance - 1 • Separation of duties is vital in the accounting department. The receipt of and the disbursement of funds are best not handled by the same individual. • Creating a Budget and Finance Ministry Team with qualified and informed members is essential. It is recommended that a minimum of two board members serve on this team. • Create simple and clear financial reports for your membership.

32. Best Practices for Ministry Finance - 2 • Use a Statement of Financial Position (Balance Sheet) and Use a Statement of Income and Expense (P&L) to report financial information. • Record depreciation expense as a non-cash adjustment. • Keep excellent records of your designated gifts. It may be necessary to contact the givers in the future. • Contact UWM member services if you are hiring a new staff position. A comparative church compensation booklet as a resource to membership. • Use a standard payroll period, such as semi-monthly or monthly.

33. Best Practices for Ministry Finance - 3 • Never make a cash disbursement from your weekly offerings or a class. • All income should flow through the ministry first. • A written receipt is required for all distributions. • Make all financial arrangements in writing. • Set specific cash distribution dates each month. • Create a list of monthly general journal entries to ensure you have captured all standard activity. • Ministry groups such as the music department, the youth department and the men’s group do not have their own financial accounts.

34. Sample: Statement of Income and Expense

35. Sample: Statement of Financial Position • Apr 30, 15 • ASSETS • Current Assets • Checking/Savings • 00500 · Banking • 00525 · Bank of America Checking 325,397.17 • 00550 · United Missouri Bank Checking 65,107.79 • Total 00500 · Banking 390,504.96 • 11000 · Brokerage Accounts • 11001 · Bank of America Savings 218,137.32 • 11100 · Bank of West - MM 55,473.78 • 11500 · Well's Fargo Advisors • 11501 · Unrealized Gain/(Loss) -1,372.97 • 11500 · Well's Fargo Advisors - Other 261,027.42 • Total 11500 · Well's Fargo Advisors 259,654.45 • Total 11000 · Brokerage Accounts 533,265.55 • Total Checking/Savings 923,770.51 • Accounts Receivable • 11002 · Accounts Receivable 5,833.76 • Total Accounts Receivable 5,833.76 • Other Current Assets • 11900 · Other Current Assets Assets • 11910 · Prepaid Insurance 20,529.00 • 11950 · Prepaid Postage 580.81 • 19100 · Other Current Assets - Operati 57,000.00 • Total 11900 · Other Current Assets Assets 78,109.81 • 12000 · Undeposited Funds 77,364.92 • 12100 · Inventory Asset 42,426.66 • Total Other Current Assets 197,901.39 • Total Current Assets 1,127,505.66 • Fixed Assets • 15000 · Plant Property & Equipment • 15100 · Land 700.00 • 15150 · Building • 15151 · Accum Depreciation-Building -810,697.47 • 15150 · Building - Other 898,857.17 • Total 15150 · Building 88,159.70 • 15160 · Equipment • 15161 · Accum. Depreciation - Equipment -796,330.85 • 15160 · Equipment - Other 820,246.90 • Total 15160 · Equipment 23,916.05 • Total 15000 · Plant Property & Equipment 112,775.75 • Total Fixed Assets 112,775.75 • TOTAL ASSETS 1,240,281.41 • LIABILITIES & EQUITY • Liabilities • Current Liabilities • Accounts Payable • 20000 · Accounts Payable 17,036.07 • 20100 · Tithe Payable • 20105 · Tithe Payable-Urban Ministry 2,813.09 • 20110 · Tithe Payable-Unity HQ 7,041.40 • 20115 · Tithe Payable-Domestic 3,762.91 • 20120 · Tithe Payable-International 4,965.50 • Total 20100 · Tithe Payable 18,582.90 • Total Accounts Payable 35,618.97 • Other Current Liabilities • 24000 · Payroll Liabilities • 24500 · Vacation Accrual 31,986.52 • Total 24000 · Payroll Liabilities 31,986.52 • Total Other Current Liabilities 31,986.52 • Total Current Liabilities 67,605.49 • Long Term Liabilities • 27200 · Other Liabilities • 27210 · Other Liabilities-HUG 23,770.50 • Total 27200 · Other Liabilities 23,770.50 • Total Long Term Liabilities 23,770.50 • Total Liabilities 91,375.99 • Equity • 30000 · Opening Balance Equity 1,768,889.53 • 32000 · Unrestricted Net Assets -773,333.87 • Net Income 153,349.76 • Total Equity 1,148,905.42 • TOTAL LIABILITIES & EQUITY 1,240,281.41

36. A minimum of two members of the team are in custody of the offering until it is deposited in the bank, placed in a night depository, or in the church’s safe. (The pastor and treasurer are best not included in this group.) Stamp all checks immediately after the contents have been verified. Verify the information on both the inside & outside of your deposit envelope. Require at least two persons to verify the count, then seal and sign the envelope. Rotate counters, preferably each week or every other week. Offering Counting – Cash & Check receiptsBest Practices for Counting

37. 5 Conditions for Deposits All funds are promptly deposited. (The same day or next working day at a minimum.) Create and use a document to clearly identify donor-restricted funds during the count. Compare offering and other receipt records with your bank monthly statements. All receipts are deposited intact? “Receipts are not to be used to pay cash expenses.” (Create a separate small Petty Cash Fund for any minimal disbursements.) Best practice is for no counter to be the individual making the deposit. Depositing of funds—Cash receipts

38. Building a Cash Reserve Fund • It is important to set aside a monthly amount for future repair and maintenance opportunities. Create a reserve fund that is equal to 3 months (minimum) and 6 months for future unexpected expenses. • Example: UWM is setting aside $3,000 a month for such a reserve. This goal is to reach a reserve of $500K to $1M. • It is very important to note that your Board of Trustees needs to establish a policy for the approval and use of reserve funds.

39. Fund Accounting or Earmarked Gifts • Earmarked gifts may be accounted for in the general fund, yet the general fund is never to maintain a balance that is less that than the accumulated total of all earmarked gifts and reserve funds. • Earmarked funds should be reported in the Statement of Financial Position or on a separate worksheet verifying the relationship of earmarked and reserve funds to the overall cash position of the ministry.

40. Recommended Retention Periods • https://www.irs.gov/businesses/small-businesses-self-employed/how-long-should-i-keep-records • This information may be found at IRS.gov in the link above.

41. Ministry Finance and Tax 2. Ministers Taxes & Benefits Rev. Bruce H Verkruyse JR. Chief Financial and Operating Officer Vice President of Unity Worldwide Ministries (816) 524-7414, bverkruyse@unity.org Polity 2019

42. 2. Ministers Benefits, Contracts & Taxes • UWM provides consulting services for ministers benefits, contracts, retirement plans and taxes. • UWM approves retired and unassigned ministers manse allowance requests and retirement distributions. (Currently Empower retirement.) • Member ministers may opt out from Social Security Tax with using the AUCI’s Group Tax Exemption number. (Form 4361) This election must be made within two years of becoming an ordained minister. • Ministers are considered hybrid employees by the IRS. They are self-employed for tax purposes and employees for all purposes.

43. Minister: Employee or self-employed for income tax purposes? All ministers are hybrid employees for federal income tax purposes. (Treas. 31-3401, Rul. 80-110) Here are a few common-law tests to determine whether one is an employee or self-employed: In general, a minister is an employee if the ministry has the legal right to control both what, how and where the work is done. (e.g.) A minister is an employee when the church has a right to hire/fire him/her. Per IRS regulations a licensed or ordained minister is considered to be self-employed for tax purposes.

44. Minister Compensation and Taxes • Salary: Taxable for both Income and Self Employment Tax after qualified expenses. • Manse (Housing) Allowance: Non-taxable for Income, yet Taxable for Self-Employment Tax. • Fringe Benefits: May be non-taxable for Income or Self-Employment Tax. • Mileage: Not taxable for Income or Self-Employment Tax, as long as IRS Regulations on reporting are complete and substantiated.

45. IRS Form W-2 • https://www.irs.gov/pub/irs-pdf/fw2.pdf • Link to the 2018 W-2 Form and Instructions.

46. IRS Form W-2: 2018: 1 • Box 1: includes all earnings minus manse allowance. 100% of earnings may be manse includable. • Box 2: federal income tax paid through the church only. (This is not best practice. I recommend that the minister pay their own tax Estimated taxes.) • Box 3: Normally this is all earnings including manse allowance, unless you have an approved Form 4361 returned from the IRS or reach the current maximum of $128,400 for 2018. It is best practice for the ministry to show this box as zero and the minister to make quarterly tax payments. • Box 5: The same as box 3, unless you reach the threshold of $200,000 from individual earnings or $250,000 on married filing jointly, whereas an additional 0.9% of tax will be due on earnings on these excess earnings. There is no cap for Medicare earnings. • https://www.irs.gov/newsroom/what-is-the-additional-medicare-tax

47. IRS Form W-2: 2018: 2 • Box 12:List employee contributions to a qualified retirement plan with code E. This is where employee contributions to the 403B Plan are recorded. • Box 12: Use code C for taxable cost of company provided life insurance over $50,000 (included in boxes 1, 3 (up to social security wage base), and 5) • Box 13: Check the retirement plan box. • Box 14: List manse allowance amount here as Housing or Manse. • Box14: List other forms of income that maybe received my the minister from the ministry.

48. IRS Form 1099 MISC • NOTE: • It is not best practice to report minister compensation on a Form 1099 unless the minister is temporary (Less than three months) or works for multiple ministries at the same time.

49. Housing (Manse) Allowance Taxable, is it? The housing allowance is not taxable for federal income tax, yet is taxable for social security tax (SECA). Code 107, unless you have an approved From 4361 request from the IRS in your hands. The housing allowance currently may include cash or a ministry-provided living facility. May a minister designate the full amount of compensation as a housing allowance? The housing allowance must be approved in advance by the ministry or ordaining body. This means that the Ministry Board or UWM Board must approve the request of the minister prior to those expenses being eligible. (Next)

50. Housing (Manse) Allowance (3 Requirements) 2. Only actual expenses may be excluded from taxable income. If the approved manse allowance is greater than the actual manse expense, the lessor of the two amounts is available to the minister. 3. The housing exclusion cannot exceed the fair rental value of the property. (Rev Ruling 71-280, 1971). Exclusion Rules (Treas. Reg. 1.107-1b, Warren v. Commissioner 114 T.C. 2000, Ltr.Rul.8937025, 835005) It is the responsibility of the minister to submit the manse request to its ministry board and not the responsibility of the board of the ministry to set the amount, (unless the manse is an actual physical property that is being offered by the ministry.)