Reporting Issues


Contributions represent the largest source of income for most charitable organizations. Churches are classified as a charitable organization, or a 501(c)(3) and they are funded almost entirely by contributions. Understanding the rules for contributions and developing procedures to comply with the technical legal rules is important.

Record Retention - (Mega church series)

In our previous post discussing record retention, we noted that it is important for churches/ministries and other organizations to discuss and adopt a record retention policy.

What should be maintained and how long?

Typical Content of a Management Representation Letter

In prior postings, we discussed the reasons an external independent auditor would request their client to sign a management representation letter as well as who should sign the letter. In this post, we will discuss the typical content of the letter.

The letter itself, including the written representations, should be addressed to the auditor. Because the auditor is concerned with events occurring through the date of his or her report, the representations should be made as of the date of the auditor’s report.

Sunday School

On a recent trip I met a young passenger who discussed the "fee" for Sunday School. When he found out that I taught Sunday School...he said "When you go to Sunday school, you have to pay a dollar".

I laughed out loud, or (LOL) in teenage terminology.

and yes, Sunday school is a place where sometimes you pay a dollar.

UBTI Defined...again

If a Church receives advertising or sponsorship/promotional income, the activity related to the income may be considered unrelated to the exempt purpose of the church.

Receiving advertising income may be unrelated business taxable income (UBTI), if the activity does not relate to the exempt purpose of the 501(c)(3) organization.

The IRS defines UBTI activity as follows:
1) the activity involved constitutes a "trade or business";
2) an activity that is "regularly carried on" by the organization; and

Understanding GAAP for Churches

Financial Accounting Standards Board (FASB) provides guidance on how Churches and Ministries should report information in their financial statements. FASB is the authoritative entity providing direction on how things should be accounted for and reported in accordance with generally accepted accounting principles (GAAP).

Over the last 10-15 years, the FASB has written and re-written several standards that specifically address non-profit (ie., which include Churches/Ministries) entities.

FASB Statement 116 Accounting for Contributions Received and Contributions Made

Donor Imposed Condition

A donor-imposed condition relates to a future specified event whose occurence or failure to occur gives the donor a right of return of the assets transferred. Failure of the condition releases the donor from its obligation to transfer assets promised.

How do you record? The assets transfered (fair value) are recorded as:

DR - Assets
CR - Deferred Revenue

The revenue has not been earned until the specified event occurs, thus meeting the "deferral" definition.

1099’s Issued for Benevolence?

Question - Are churches/ministries required to provide a Form 1099 to individuals who receive benevolent payments?

Reporting Payments to Guest Speakers

Occasionally ministers speak for another church and the church collects a love offering that will be paid to the guest speaker. How is the payment reported to the IRS? Is this taxable income to the minister?

If the church paid more than $600 for these services, the church reports these payments to the guest pastor, using Form 1099 Misc. For instructions for Form 1099-Misc, see instructions.

Minutes Up to Date?

The start of a new year is a good time to take care of a few “housekeeping” details in your ministry. One of those details, and it’s a very important one, is making certain that your board minutes are complete, accurate, and up to date. As we have discussed previously, housing allowances should not be paid until they are designated and approved by the board.

To preserve the legal benefits of incorporation, church boards should hold regular meetings. By keeping clear and appropriate records of these meetings in the form of corporate minutes, churches avoid business problems.