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Who May Benefit When a Church Enters Transactions with Third Parties?

Who May Benefit When a Church Enters a Transaction with a Third Party?

By | Church

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.”

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