Church

Passed in 1997, the Federal Volunteers Protection Act (VPA) was crafted with the purpose of limiting the amount of legal and financial liability that volunteers to nonprofit organizations—including unpaid Directors—might have otherwise been subject to for harms caused in the course of their service. In drafting the Act, Congress made explicit its goal to “promote the interests” of churches and nonprofits by providing“certain protections from liability abuses related to volunteers serving nonprofit organizations and governmental entities” (42 U.S.C. § 14501). The passage of the Act was in response to a decrease in volunteerism in society at large, which Congress attributed in part to a belief that church and ministry volunteers were facing financial harm because they were judged to have caused some sort of harm to others in the course of their volunteer efforts.

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As part of the 2017 Tax Cuts and Jobs Act, a new tax was imposed on churches and other nonprofits that assigned a value to the concept of providing parking to employees—essentially treating employee parking as a form of “unrelated business taxable income” (UBTI). The Act referred to this provision of parking for employees as a “qualified transportation fringe” (QTF) benefit.  This new tax would have resulted in many churches having to file tax returns and pay tax who had not done so previously. This new tax was a surprise to many nonprofits—and immediately sparked a great deal of pushback. The good news is that, because of the backlash, Congress recently repealed this tax.

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Sad though it may be, churches are not immune to the threat of lawsuit. Indeed, the ever-increasing litigious nature of our society brings the courts into the business of churches at a rather alarming rate. This may lead churches to think that it is not a matter of whether a church is likely to get sued, but when. The question is: what should you do if you find your church suddenly subject to a lawsuit.

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Churches are subject to many external laws and rules but the law, and the Church’s constitutional rights, give a church the ability to define for itself how it will be governed. Another way to put this is to say that churches have the right to set up the rules they will abide by as they go about their business as a church. This self-definition is generally laid out in what are referred to as “bylaws.”

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When a director’s action or inaction comes under fire via lawsuit, the question of whether the behavior in question is covered by insurance policies owned by the church can become one of vital concern. The fact is, there are a number of different types of insurance available to churches that cover various forms of director behavior.

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It may surprise many to learn that, where the Internal Revenue Service is concerned, there is a difference between how it classifies churches and ministries. It may be confusing on the surface but makes sense once you consider the differences in these two types of organizations.

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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.

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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.

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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.”.

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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.

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