Many churches have long-term debts, such as a mortgage, that have variable interest rates associated with them. There is much uncertainty that comes along with paying variable interest rates on large amounts of debt over 20 to 30 year periods. Entering into an interest rate swap is an option available to churches that can help reduce this uncertainty. Although the term "interest rate swap" may sound intimidating on the surface, they really work quite simply.
For example, a church has a 20 year mortgage in the amount of $2 million. The mortgage has an interest rate of prime plus 1%. The church is uncomfortable paying a variable rate on $2 million so they enter into an interest rate swap agreement to effectively fix the rate at 6%. Big picture, the church would continue to pay their mortgage payment at the variable rate. The swap counter-party would reimburse the church for the amount of variable interest paid in exchange for the church paying the swap counter-party a fixed rate of 6%. So, effectively, the church is able to pay a fixed rate of 6% throughout the life of the interest rate swap agreement.
There could be a price to pay for eliminating this uncertainty. Using the example above, at times when the variable rate is less than 6%, the church would be paying more interest than they would had they not entered into a swap agreement. On the flip side, then the variable rate rises above 6%, the church would be saving money.
Of course there is no way to predict which direction that rates will go (unless you have a crystal ball!!). However, from a budgeting standpoint, a fixed interest rate can be more attractive then a variable rate. It could also protect against unexpected increases in mortgage payments if interest rates were to rise dramatically.
If not, should you be? That is the question the IRS will spend a lot of time trying to answer in the next couple of years. The IRS's overseer, the Treasury Inspector General for Tax Administration (TIGTA), recently audited the IRS. The TIGTA said the IRS should take steps to identify tax-exempt organizations that are not filing the required returns. Therefore, the IRS has been requested to take steps to address tax exempt non-filers.
Who is required to file a form 990, 990-EZ, or 990-N? As with anything that deals with the IRS, the question is who is not required to file? Here is the answer from the IRS's website. If you have any questions or need advice, please contact us for a discussion on your specific situation.
Click here to see the TIGTA's full report.
The IRS has issued the 2009 version of IRS Publication 919, How Do I Adjust My Tax Withholding? as a result of the "Making Work Pay" credit in the American Recovery and Reinvestment Act of 2009 (ARRA).
Employees can use this publication to help them determine if their federal income tax withholding is sufficient, and, if necessary, prepare a new Form W-4 to adjust their withholding. The publication includes worksheets for projecting 2009 tax, withholding, and deductions. For 2009, a new worksheet (Worksheet 12) has been added on the "Making Work Pay" credit.The amount of the "Making Work Pay" credit is $400 (unless the person makes under $6,450; then it’s 6,2% of compensation). Because the credit is refundable (people can get it even if they owe no tax), most low-income workers will also qualify for the full credit. The credit is phased out for a married couple filing a joint return whose modified adjusted gross income (AGI) is between $150,000 and $190,000, and for other taxpayers whose modified AGI is between $75,000 and $95,000.
It is a good idea to look at Publication 15T and print out the employee notice (on page 73 of the publication) that you should provide to your employees explaining the changes. Some employees are beginning to discover after filing their 2008 personal income tax returns that they didn't have enough money withheld from their paychecks. Employees may really feel the shortfall in 2009 with the changes in the withholding rates.
… and charitable organizations make the 2008 list.
The IRS listed the misuse of charitable organizations as one of the 12 most egregious tax scams by taxpayers. Abuse by donors who try to maintain control over donated assets or income from donated assets is just one example. Taxpayers are also claiming overvalued property donations for a larger deduction. Finally, taxpayers are disguising private tuition payments as contributions to charitable or religious organizations.
This information is good to keep in mind. We all like to think that our donors have the best intentions but the IRS is saying that these scams are happening on a large scale basis. If you have someone who wants to control how their donation is used, you should know that the donation is considered a donor advised fund and is subject to strict rules.
Noncash contributions also have certain requirements. Individuals are required to file a form 8283 for noncash donations over $500. A form 8282 is generally required to be completed by the charitable organization (aka you) to report dispositions of certain charitable property made within 3 years after the donor contributed the property. Yes, I did say 3 years. Certain charitable property is any donated property other than money and publicly traded securities over $5,000.
Remember there are usually exceptions to the rules but I have listed the general rules.
This article (http://www.msnbc.msn.com/id/30089614/) reminded me of a fraud prevention principle – Most church embezzlements are probably not committed by crooks. Sinister looking guys usually don’t hang around churches with cigarettes hanging out of their mouths looking for the right opportunity to jump. Instead, I think more financial attacks on churches are committed by people who are basically good but, for one reason or another, find themselves in bad circumstances such as addictions (gambling being the most frequent), business reversals, and health issues.
Unfortunately, many churches operate under the belief that you have to be a crook to be a church embezzler, and convince themselves that since “We have no crooks here we have nothing to worry about.” What they forget is this: they do have hurting people. Probably more than they realize. In fact, every church has plenty of wounded members and employees with all sorts of “issues”. And unfortunately, many of their wounds can be eliminated, or at least, soothed with money.
I don’t know if the need for plastic surgery and Botox constitutes an “issue”. But it did for this particular priest. And his church is $85,000 the poorer for it…
Churches and schools often have annual meetings or retreats that employees must attend. A source of irritation for employees can be the issue of pay — or no pay — for time spent attending meetings and training sessions.
Tell employees they have to attend a meeting or training program, and the employees may raise questions like these:
- Is attendance mandatory, or can we skip it?
- If we show up, do we get paid?
- If we don’t get paid for the time at the meeting or training, why do we have to attend?
Church leadership can lessen, and even end, the irritation employees experience, and avoid having to deal with questions like those above by adopting a clear policy on the topic.
Address the following in this policy:
- How often do you have employee meetings? For example: once a year…once a month…every other month.
- Is employee attendance requested or mandatory? This is especially important if meetings are held when all employees aren’t on-duty but are required to come into work to attend the meeting.
Warning: Keep in mind that if you require off-duty employees to attend meetings… you must pay them for that time, if they are non-exempt employees. Under the Fair Labor Standards Act, employers must pay employees for attending meetings: (1) if their attendance is mandatory and (2) the meeting serves to benefit the employer. If meetings are strictly voluntary and outside of working hours, you may not be required to pay employees. Get information on the Fair Labor Standards Act from the U.S. Department of Labor’s “ELAWS” website –
http://www.dol.gov/elaws/flsa.htm
- Be sure and mention where the meetings are usually held, what time they are held and what type of topics will be discussed.
Here’s some wording to consider in a meetings policy: “The Company holds monthly employee meetings. These meetings are usually held at 4 p.m. in the staff lounge. All employees are required to attend. Off-duty personnel are required to punch-in at the start of the meeting and punch-out at the end of the meeting. You will be paid your regular rate of pay for your attendance at these meetings.”
NOTE: We’re not lawyers or spokespersons for the government! We do try to provide accurate and helpful information. But this is not intended to provide a legal service for your individual needs. For legal guidance in your specific situations, always consult with an attorney who is familiar with employment law and labor issues. Our friends at the Church Law Group would be happy to assist with legal guidance – www.churchlawgroup.com. That having been said, we can offer you a sample policy on the meetings and training topic – www.pskcpa.com.
What’s the group in your church that has the real authority? Whatever you call them – Board of Deacons, Board of Elders, Pastoral Council, Leadership Team – you need to have them read this March 30th article from the Fort Worth Star Telegram –
http://www.star-telegram.com/804/story/1288144.html
Scary stuff! The IRS is starting to enforce rules regarding the responsibility that board members of nonprofit organizations have.
For some time, I’ve been telling people, who are on the boards/councils charged with the governance of their church, they really HAVE to be on top of what’s happening in their church. If you’re a member of the board of directors (or your church’s equivalent), you are held responsible for the actions and the “mis-actions” of your church. The rules have been in place for some time but most people aren’t aware of them and the IRS hasn’t enforced them. But they are on the books and the implications are very significant!
I rely on The Church Law Group for expert advice on such matters. Their website is –
http://www.churchlawgroup.com/
Of note, their book entitled Nonprofit Law for Religious Organizations, by Bruce Hopkins and David Middlebrook. I have a copy of it on my credenza, within arm’s reach!
Bottom line: don’t be scared off, just be informed (know what’s going on) and involved (make sure it’s done right).
In the past year or two, Texas and many other states, have enacted a version of a new model institutional funds act (UPMIFA). In response, the Financial Accounting Standards Board issued a staff position paper (FAS 117-1) in August 2008. It applies to not-for-profit organizations (including churches) beginning with 2008 year-ends. Many are completely unaware of this new pronouncement which addresses net asset classification as well as enhanced (financial statement) disclosures. In addition to disclosure of more details about endowment activities, the organization must disclose in the notes to its financial statements information about:
1. its governing board's interpretation of the laws pertaining to the endowments,
2. investment policies, and
3. spending policies and how they relate to the organization's investment policies.
In light of the recent securities markets doldrums, many funds have deficiencies that require disclosure as well (not related to new pronouncement, but according to FAS 124.)
The FASB staff position paper is available on line: http://www.fasb.org/pdf/fsp_fas117-1.pdf
Also, in Texas, UPMIFA is technically Chapter 163 of the Texas Property Code: http://www.statutes.legis.state.tx.us/SOTWDocs/PR/htm/PR.163.htm
Unfortunately, there are lots of good reasons for terminating an employee. But be aware! What may appear to be an ironclad reason for dismissal still needs to be approached and executed with good planning. And the keys to your plan are documentation and communication.
When an incident occurs, make your written record of the incident as soon as possible. Keep your documentation to an accurate accounting of the job-related facts. Be specific and clear about the reason for dismissal.
This documentation will serve two important purposes: It is a record for the employee’s file. And it will be a key source of any written communication to the employee about the reason for the termination.
Communicating the specific reasons for dismissal to the employee makes it more difficult for the employee to later allege other discriminatory causes for the termination. (Example: If the discharged employee is a member of a legally protected group, you will need to be concerned that the employee may later claim discrimination as your real reason for discharge. Leaving the grounds for discharge vague and general runs the risk that a court will fail to see evidence that your decisions and actions were fair.)
Human resource professionals generally agree that proper documentation is essential and will work for you in defense of an unjust claim.
Now, to get even more specific. An employer’s specific documentation needs to begin long before the moment of termination, in most instances of a firing. The employer who wants the strongest possible defense against a potential charge of illegal discrimination or wrongful discharge will have written documentation of each significant incident and action leading up to a termination.
Especially helpful to an employer’s defense are written documents–such as warnings to the employee and performance reviews–that show the employer informed the employee of specific unacceptable behavior or performance… informed the employee of the required behavior or performance… and informed the employee of the consequences if the employee’s behavior does not change or performance does not improve.
Remember – these blog thoughts are meant to be accurate and helpful. BUT, I am not an attorney! For legal guidance regarding your specific situation, always consult with an attorney who is familiar with employment law and labor issues. Don't know one? Give us a call at PSK!
Does your church have a coffee shop? Many churches have found that coffee shops are a great way to increase fellowship at their churches. Often times, PSK is asked about the tax and accounting issues that come along with coffee shops. These are great questions! Nonprofit organizations can be taxed on dollars that are earned from activities that are not related to their tax-exempt purpose. So, is selling coffee supportive of the church's tax-exempt status?
The IRS has some specific rules regarding coffee shops run by churches. If the shop is run by volunteers and the purpose of the shop is to provide a format for church members to congregate and have religious discussions, then the shop supports the exempt purpose of the church and income would not be taxable. If the church's coffee shop is attempting to compete with Starbucks, then there could be some tax ramifications. Whether or not that income is taxable, it is a good idea to code all coffee shop activity separate general ledger accounts, one account for income and another account for expenses.
Contact PSK if you have specific questions about your church's coffee shop!
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