Tax Issues

Another Form…Another revision...Why are we surprised?

In accordance with the new IRS requirements, as published by the August 28, 2006 issue of Non-Profit Legal & Tax Letter…

After December 1, 2006, a 501(c)(3) organization applying for tax-exempt status must file a new Form 1023 (revision date June 2006). It is currently available on the IRS website .

The only change is Part XI, User Fee Information. It reflects the new user fees ($750 for organizations with annual gross receipts of greater than $10,000, $300 for less than $10,000) that became effective July 1, 2006.

Specialized clothing worn and paid by a pastor…a “business expense”? (2 of 3)

A pastor would like double-breasted, black suits for special television events. He did not wear these suits in his private life and he maintained the suits at his residence. The church did not pay for these suits, but the pastor incurred these costs and wants to know if this is a business expense, deductible in his personal tax return?

Television Wardrobe Maintained at HOME??? (1 of 3 related to clothing)

A pastor has special clothing or uniforms that are worn during television broadcasts. The church pays for the clothing or wardrobe and the pastor would like to keep the clothing at home instead of the television studio. Are these uniforms a legitimate expense of the church …and is it permissible to maintain the clothing at the pastor’s home?

The general rule is that the cost of clothing of an employee is deductible (and presumably can be provided tax-free by the employer) if both of the following tests are met:

Oklahoma Sales Tax Exemption for Church Construction

In typical legislative style, the Oklahoma Legislature passed, and then inadvertently repealed, and then promised to pass again, a bill exempting church construction contracts from OK sales tax. Normally, churches are exempt from OK sales tax. However, if a church undertakes a construction project and hires a contractor who purchases the materials, the contractor has to pay sales tax on the materials. The contractor would naturally pass through this tax in his billings under the contract.

Does a Church Bookstore create UBIT?

So what types of receipts affect UBIT???

The sale of religious publications or sermon tapes is generally related to the exempt purposes of a church. A bookstore is a little trickier.

We can eliminate any bookstore that is:

(1) Run by unpaid volunteers

(2) Provided only for the convenience of church members, or

(3) Selling only merchandise received as contributions.

Maybe we do have UBIT

If your exempt organization is making money other than from contributions, you need to consider the possibility that you have unrelated business taxable income (UBIT). In our previous blog, we listed three easy exceptions. Activities that don't pass those exceptions need to consider the following three tests.

First, look at whether or not the activity is a business. Generally, this is any activity carried on to make a profit from the sale of goods or services.

What Do You Mean Unrelated Business Income?

Most churches and ministries believe everything they do is part of their overall mission to further the work of Christ. Therefore, there couldn't possibly be anything unrelated about their operations...or could there?

Many organizations operate book or music stores, concession stands, coffee shops, or teen game rooms. They may sell advertising spots in a magazine or rent space in their building. So they may, unknowingly, have unrelated business income subject to tax.

Let's look at how to determine if your organization has an issue.

Avoiding Campaign Activities

On June 1, 2006, the IRS issued a Newswire Release Number IR-2006-087 reminding charities to avoid campaign activities this election season.
Why?