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What's the Cost of Losing Our Tax-Exemption?

Richard R. Hammar
Do you know the consequences?
posted 8/25/2009

Try also: Audit, Financial reporting, Money, Tax audit, Tax exempt, Unrelated business income tax

What's the Cost of Losing Our Tax-Exemption?
Loss of your church's exemption from federal income taxation would have several consequences. Test your understanding of these consequences by answering true or false to the questions below.
Last Name:  First Name: 
1
The church's net income would be subject to federal income taxation.

2
The church's net income would be subject to state income taxation (except in the few states that do not have an income tax).

3
Donors could continue to deduct charitable contributions they make to the church.

4
The church would be ineligible to establish or maintain 403(b) taxsheltered annuities.

5
The church's property tax exemption under state law would still be guaranteed.

6
The church would keep its sales tax exemption under state law.

7
The church could lose its exemption from unemployment tax under state and federal law.

8
The church could suffer an adverse impact on its zoning classification.

9
The church could lose its preferential mailing rates.

10
The church could lose its exemption from registration of securities under state law.

11
Nondiscrimination rules pertaining to various fringe benefits (including an employer's payment of medical insurance premiums) would apply.

12
A minister's housing allowance will not be affected.

13
In some cases the exempt status of ministers who opted out of Social Security may be affected.

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Anonymous

March 26, 2011  2:25pm

#1 and #2 really aren't true. Most of a church's revenue is from contributions and donations, which are gifts. Gifts aren't taxable to any recipient, regardless of exempt or non-exempt status. I could send a $1 million donation to AT&T, and -- although I'd suffer some gift-tax consequences and couldn't claim a charitable contribution deduction -- AT&T wouldn't be liable for income tax on my gift. But, if the church has sources of true income -- as examples, interest and dividends from investments, capital gains from sales of assets, and special fundraising events -- the taxman would cometh.

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