ChurchSafety

See also: Assessment: Do We Have Clear Procedures for Facility Use?  

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Churches frequently own large meeting facilities but do not utilize them every moment of every day. By allowing others to use the church's facilities, the churches become the center of community activities and para-church ministries. Churches also frequently want to serve the needs of their members and staff, so they allow them to use the church's facilities.

The use of church facilities by non-church entities and individuals creates many federal and state tax issues. In sum, the tax rules will dictate when and how a church's facilities may be used by outside groups and individuals. This article summarizes the rules, but each church is reminded to seek competent advice before actually agreeing to some uses. Every rule has exceptions, and exceptions to those exceptions are common.

Two levels of taxation must be analyzed before allowing an outside group to use church facilities: federal income taxes and state property taxes. Since the state property tax exemptions vary from state to state, the church should check with local property taxing authorities before allowing outside organizations to use its facilities.

The church may allow any organization to use its facilities that is recognized by the Internal Revenue Service as exempt from income tax and described in Section 501(c)(3) of the Internal Revenue Code. This normally includes charitable, educational or religious organizations. Before allowing the use, the church should have in its files a copy of the determination letter issued by the Internal Revenue Service to the organization. The organization should confirm that the determination letter has not been revoked or otherwise restricted since its issuance. Once the church confirms the current status of the organization, then the church may allow the use of the facilities for no charge, or the church may charge any amount it chooses that the organization is willing to pay.

Another allowable use would be where the use furthers an exempt purpose. Exempt purposes would be use that furthers its religious, educational or charitable activities. For example, most faiths view a wedding as a religious service. The church may allow an individual to use its facilities to conduct a wedding service without any federal income tax consequences. The key here is that the church is furthering its exempt purposes.

I need to insert a word of caution here. If the church charges any amount and the church has a debt outstanding related to the facility, then the church will receive taxable income. Further, if the use involves personal property (such as chairs and tables) and the rental value of the personal property is more than 10% of the amount received, then the amount received from the rent of personal property will always be taxable income. Also, if the taxable amount received is more than $1,000.00 per year, then the church must file Form 990-T even if no profits are realized.

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See Related Assessment:

Do We Have Clear Procedures for Facility Use?

Next: Step-by-Step—Implement a Practical Plan