Child abuse is considered by advocates to be a “hidden epidemic” in our society at large. And Arizona is no exception. We’ve witnessed recently churches and even entire denominations reeling from allegations of abuse cover-ups. One of the top reasons churches end up in court is related to child abuse. The question arises often—what are the obligations of clergy when they learn of allegations or suspect child abuse? Arizona has adopted “required reporting” provisions in Revised Statute section 13-3620(A)-(B)—enumerating those people in specific professions that must report cases of child abuse or neglect. Clergy (as well as Christian Science practitioners) are listed among these mandated reporters.
Most churches in the state of Arizona are incorporated as nonprofit corporations. From time to time a church or religious nonprofit will cease to be necessary, for whatever reason. In that case, the nonprofit will need to be dissolved so that the legal entity ceases to exist and that all its responsibilities are discharged.
Directors of churches are classified in Arizona law as directors of nonprofits. Arizona statutes provide a standard of conduct for such directors, along with protections for them. For purposes of director liability, whether the church has been incorporated or remained unincorporated is not taken into consideration. A church director will not be held liable for actions taken in accordance with their role under what is known as the “business judgment rule.”.
In a very real sense it is the generosity of a church’s members, and their belief in its mission, that keeps a religious community alive. Donations of various sorts are the lifeblood of countless churches throughout the United States. It matters for tax purposes whether a donor gives the money to the church without restrictions or whether the donor restricts the money they give to a particular benefit to a church. The IRS recognizes (and enforces) a difference between “designated offerings” and “restricted offerings”—and it treats these types of offerings differently for tax purposes.
Where the tax rules on employee business expenditures are concerned, a church is generally treated like any other employer. Which is to say, the rules will be different depending on the sort of plan the expenses will be paid through: an accountable reimbursement plan or a non-accountable reimbursement plan. The difference between these two types of plans will determine whether the expenditures are considered employer costs of business (and, as the church is tax-exempt, then so will be the expenses) or whether the expenses will be considered the employee’s income (and, therefore, taxable).
Churches provide tremendous value to their surrounding communities, and beyond, in the outreach activities they undertake. It’s a truism that human beings derive benefit both materially and spiritually from charitable exchange—both in the giving and in the receiving. In its outreach, it is imperative that a church create guidelines to direct the sort of charitable giving that may occur. This will be based mainly on who may receive the benefits of such outreach.
Every election season, churches find themselves caught in the midst of questions about what is permissible when it comes to political candidates. The current tax law limits what a church may do if it wants to maintain its tax-exempt status. In short, churches must not endorse or oppose candidates for public office if they wish to avoid endangering their tax-exempt status.
As nonprofit organizations, churches are not in it for the money—though of course, they must bring in funds in order to perform their operations, to secure places of worship, to pay their employees, and so forth. Still, they don’t have “shareholders” in the sense that standard corporations do. And therefore the standard of care and the duties those running the church (the elder board, deacon board, or other governing body—also called “directors” of the corporation) must adhere to are different in kind. For their part, church directors have a fiduciary duty to the church itself, which means that a church director must act in the best interest of the church, taking care to stick to its mission—and this means, in turn, that they cannot act in their own self-interest to the church’s detriment.
The tax-exempt status granted to churches by law is fundamentally designed such that its benefits are essentially funneled to the churches themselves. If an individual receives too much benefit from a transaction with the church—in the form of payment by the church for products, property, or services that goes well beyond market value—particularly if that person is somehow linked to the church in one of a number of key ways—then the IRS may choose to impose sometimes severe penalties on the church. That is to say, the only parties that may benefit when a church enters transactions with third parties are the church itself and the third party—and that third party must not be someone who is defined as a “disqualified person.” Any transaction that violates this principle is called an “excess benefit transaction.”
Today, the United States Supreme Court granted review of two cases involving the ministerial exception doctrine. The two cases are the first time the high Court will consider the ministerial exception since it unanimously upheld the doctrine in 2012.