Commercial Activity – Can the Church also operate an Italian restaurant?
In the “Norman Rockwell” past, the Church was a little white church in the valley that got by on the weekly donations of its congregation. Today, many churches have expansive campuses with millions of dollars worth of sophisticated video, sound, and computer equipment, satellite campuses, fleets of cars and trucks, and other extensive holdings. They operate coffee shops and book stores, bowling alleys, and even water parks. At any given time, the Church may have a finance or building project to further expand the operations of the Church.
These activities involve hiring third-party contractors, signing finance documents, and entering into long-term leases and other contracts. Many churches are now entering into joint venture projects with for-profit companies. In all of these instances, the Church needs to make sure the documents it is signing are fair and in its best interest and do not jeopardize the church’s nonprofit, tax-exempt status. In some instances, income earned by the Church will be treated as unrelated business income for which there is a tax liability. If that unrelated business income is too great, the Church’s nonprofit, tax-exempt status can be revoked. That revocation would only come after the IRS or local state attorney general had conducted an extensive and invasive investigation into the Church practices.
Finally, the Church is a frequent and recurring target for con men, which prey upon the trusting nature of a church organization.
Seven Questions about your Church’s Commercial Activities:
- What contracts is your Church currently obligated under? Are there any unforeseen or “gotcha” provisions? Who reviewed these before the Church signed them?
- Does your Church have a conflict of interest policy regarding who it can do business with?
- Does your Church have a standard independent contractor agreement or standard contractual language it requires before accepting goods or services?
- Does your Church have contractual provisions that allow it to stay out of court in the event of a dispute?
- Is your Church getting a fair deal in its current financing documents? Could it lose all of its property if there was a dispute?
- Is your Church engaged in activity that the IRS would characterize as unrelated business income? If so, what is it supposed to do?
- Could your Church be tricked or defrauded out of its money? What safeguards are in place to prevent that possibility?