Richard King
Puritan Board Senior
The topic came up in the RC Jr discussion and I just started wondering about the origin of incorporating and becoming a 501c3 government approved church. What is the history or thinking on that?
Why do churches incorporate
- Thread starter Richard King
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There are two reasons (mainly) why churches choose to incorporate (it is not required):
1. Tax benefits for donees - the deduction makes it in theory more beneficial to donate to the church and hence increases donations
2. Limitation on liability. Without corporate limitation, it is likely that church members would be personally financially liable in the event of a judgment from a lawsuit (think child molestation case by a nursery worker) or failure to pay a loan on the property.
1. Tax benefits for donees - the deduction makes it in theory more beneficial to donate to the church and hence increases donations
2. Limitation on liability. Without corporate limitation, it is likely that church members would be personally financially liable in the event of a judgment from a lawsuit (think child molestation case by a nursery worker) or failure to pay a loan on the property.
SolaScriptura
Puritanboard Brimstone
Is incorporation required for tax exemption on both revenue brought in as well as for avoiding sales tax when making a purchase?
I don't think so, but then again I am not a tax attorney.
I believe that there are some tax exemptions available to the church even if it is unincorporated because of the history of church-state relations. (Chris Coldwell - any info here? ) But I also believe that in order to have an itemized deduction, an individual must show that it is given to a 501(c)(3) corporation.
No additional info really; FPCR is not incorporated by choice; we actually unincorporated I think some years ago. Any way, to be a tax deduction I think the church has to give a statement for giving at the end of the year, which we do; we also are excempt from state taxes. As far as membership liability risk in the cases Fred mentioned, don't know about that.
Originally posted by fredtgreco
I don't think so, but then again I am not a tax attorney.
I believe that there are some tax exemptions available to the church even if it is unincorporated because of the history of church-state relations. (Chris Coldwell - any info here? ) But I also believe that in order to have an itemized deduction, an individual must show that it is given to a 501(c)(3) corporation.
It would depend heavily on State law. The danger is that the church would be classified as a partnership and that each member would be a partner.
Short version: the liability of the shareholders/members of a corporation is limited to their investment in the corporation (i.e. the corporation's assets). The liability of partners is not; you can attach their personal assets.
That is why there are virtually no partnerships in existence today - except for people who don't know what they are doing. In some cases (real estate investment, professional associations) limited partnerships are formed with one "general" (totally liable) partner and several "limited" partners.
Short version: the liability of the shareholders/members of a corporation is limited to their investment in the corporation (i.e. the corporation's assets). The liability of partners is not; you can attach their personal assets.
That is why there are virtually no partnerships in existence today - except for people who don't know what they are doing. In some cases (real estate investment, professional associations) limited partnerships are formed with one "general" (totally liable) partner and several "limited" partners.
wow... Fred, are you saying that if the pastor hypothetical pastor of a church was to do something the incurred civil liability the members could be made liable as well? If the suit was brought against the church as opposed to against the pastor individually?
I never imagined things would work that way.
I never imagined things would work that way.
LawrenceU
Puritan Board Doctor
I had an attorney tell me once, on the issue of membership liability, that if bylaws were worded properly then only the culpable person could be held liable. I don't know if that still stands or not. I do know of a church that was not incorporated and suit was brought against the elders and members of the church dut to the 'upsetness' of a man who was publically and Biblically brought under church discipline. After three appeals in both criminal and civil court the judges all sided with the church because of properly worded bylaws and 'agreements' made by members. (Think membership covenant here.)
C. Matthew McMahon
Christian Preacher
I have some things I am reading through now on tax law and so forth. I've found that the church is a lot more protected than we would imagine if we did not incorporate. People think that one "has to" incorporate in order to get the same tax benefits, but that's not true. There are some other things that work in our favor in the same way with the same ultiamte benefits.
Erastianism, though, I believe, is more of a plague on the church than one realizes with all that the government can do to the church as a result of a 501 (C)3. Its eye opening. No wonder Westminster outrightly rejected it.
Erastianism, though, I believe, is more of a plague on the church than one realizes with all that the government can do to the church as a result of a 501 (C)3. Its eye opening. No wonder Westminster outrightly rejected it.
I believe that the more significant factor is liability, not tax benefits.
What can the government do to a church that it could not if it did not incorporate - beyond revoking its 501c3 status? I haven't looked into this.
From a lending perspective unless the churchis a "corporate entity" a personal guarantee would be required on any loans. I've heard of instances where the church trustees personally guaranteed loans for the church. In this instance those trustees will be liable in the event of a default. This is crazy if you ask me. Just another reason why a church should avoid debt.
Richard King
Puritan Board Senior
Wow! There are several things listed that never would have occurred to me. Very interesting. And a little sad that it gets so complex to simply gather together with fellow believers to worship the Creator.
wsw201
Puritan Board Senior
We live in a fallen world so God through His providence has given the church means to protect itself.
Law suits against churches do happen and liability can attach to the members. Our church looked into this a number of years ago as we had some members who were well off and wanted to know if they could be held liable.
Laws associated with incorporation are State issues and the laws will vary some from State to State. In Texas, they allow churches to be non-profit 'Associations". Under this law a church would get the same protections regarding liability as a corporation, they jsut don't cll them Corporations. Unfortunately, this law has yet to be tested in court. When we investigated this we found that a number of States were enacting Association laws for non-profits.
The main issue that the Church is somehow subjecting itself to the State by incorporating just doesn't hold water. I have been in the Banking business for over 25 years dealing with such issues and all incorporation does is allow everyone to know the status of any entity, both tax wise and liability wise. Plus its just another way for the government to collect a fee.
Ambrose
Puritan Board Freshman
Where liability is limited, justice is often limited as well.
The concept of limited liability is so ingrained in the modern practice of commerce that it is practically considered beyond question. Lord Chancellor's famous quotation about corporations having "no soul to be damned" were echoed by Presbyterian theologian R.L. Dabney in his essay entitled The Philosophy Regulating Private Corporations, but modern opposition to the idea of limited liability is scarce.
R.J. Rushdoony said this:
"Liability is inescapable; by limiting the liability of the company which contracts a debt, or permits a fraud, the liability is then passed on to innocent parties. Limited liability thus shifts responsibility away from the responsible to society at large. A partner or shareholder in a company will exercise cautious and conscientious control over his company, if his liability for the debts and frauds of that company are not limited to the extent of his investment. The result is sound, moral, and careful management of a company by actual owners. But, with limited liability, a premium is placed on profit irrespective of responsibility. The shareholder is less concerned with buying responsible ownership and more concerned with buying a share in profits. And then, as the State further protects the shareholder against liabilities in his irresponsible pursuit of profits, the shareholder becomes less and less concerned with the responsible and moral management of his company." ~ Rousas John Rushdoony, Politics of Guilt and Pity, pp. 256-57.
The concept of limited liability is so ingrained in the modern practice of commerce that it is practically considered beyond question. Lord Chancellor's famous quotation about corporations having "no soul to be damned" were echoed by Presbyterian theologian R.L. Dabney in his essay entitled The Philosophy Regulating Private Corporations, but modern opposition to the idea of limited liability is scarce.
R.J. Rushdoony said this:
"Liability is inescapable; by limiting the liability of the company which contracts a debt, or permits a fraud, the liability is then passed on to innocent parties. Limited liability thus shifts responsibility away from the responsible to society at large. A partner or shareholder in a company will exercise cautious and conscientious control over his company, if his liability for the debts and frauds of that company are not limited to the extent of his investment. The result is sound, moral, and careful management of a company by actual owners. But, with limited liability, a premium is placed on profit irrespective of responsibility. The shareholder is less concerned with buying responsible ownership and more concerned with buying a share in profits. And then, as the State further protects the shareholder against liabilities in his irresponsible pursuit of profits, the shareholder becomes less and less concerned with the responsible and moral management of his company." ~ Rousas John Rushdoony, Politics of Guilt and Pity, pp. 256-57.
Puritanhead
Puritan Board Professor
A corporation is an "artificial person," and the state giveth and state taketh away. Madison and Jefferson had it right in my state In my humble opinion about the non-establishment of religion, but then Jerry Falwell and the ACLU come along and screwed it up, in a lawsuit.
And I most definitely believe that Fred is right, in saying, "tax exemptions available to the church even if it is unincorporated because of the history of church-state relations." I concur, and have it on a good authority from a church-state constitutional guru.
And I most definitely believe that Fred is right, in saying, "tax exemptions available to the church even if it is unincorporated because of the history of church-state relations." I concur, and have it on a good authority from a church-state constitutional guru.
Ambrose
Puritan Board Freshman
That is partially correct. The IRS treats churches as tax-exempt even if they are not incorporated, but only if they comply with the guidelines set forth in 501c3. Per IRS Publication 1828, Tax Guide For Churches and Religious Organizations:
"Churches that meet the requirements of IRC section 501(c)(3) are automatically considered tax exempt and are not required to apply for and obtain recognition of tax-exempt status from the IRS."
If the IRS did not believe that a church met the requirements of 501c3, it would consider it subject to taxation. (Wrongly so, however, as it would be operating outside its jurisdiction).
A distinction should be made between tax-exemption, which is a conditional favor granted by the state and essentially means that the entity is taxable but exempt by statute, and non-taxable or tax-immune.
The biggest problem (outside the erastian charge) with incorporation, is the fact that the minister can not speak for or against any particular political candidate. To me (to be blunt), this seems like accepting a bribe to shut up.
Surely the Lord has something to say about what kind of people should be in office (not only in theory, but in practice).
Surely the Lord has something to say about what kind of people should be in office (not only in theory, but in practice).
Puritanhead
Puritan Board Professor
They can if they are Democrats when Clinton is in office... it's called double standards!
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