The Church Law Group is a boutique law firm concentrating on the representation of nonprofit, tax-exempt organizations, including public charities, churches and religious organizations, private foundations, private schools, colleges and universities, charitable trusts, and supporting organizations. The Church Law Group focuses on the specific legal needs of faith-based organizations, churches, ministries, and clergy throughout the United States.
Our firm is composed of a team of committed individuals dedicated to building lasting relationships with our clients and serving them with excellence and integrity. In addition to providing ongoing counsel to our clients on how to address day-to-day nonprofit corporate and tax issues, we excel in assisting our clients in resolving IRS controversies throughout the country. We also conduct in-depth legal and tax compliance reviews or internal investigations to assist our clients in proactively identifying – and self-correcting – tax and other legal issues before an IRS is initiated, and before the United States Attorney, State Attorney General, or Congressional inquiry is initiated.
The work of The Church Law Group. includes both the creation of new nonprofit organizations and consulting with existing ones. We advise our clients on legal questions relating to general corporate and business matters, as well as a broad range of other issues that often have unique application in the religious nonprofit environment. The firm conducts legal compliance reviews, designers, and implements children’s safety procedures and employment practices and termination procedures, the correct application of Copyright and Trademark conventions, and various other federal and state statues. From the boardroom to the courtroom Matt Anthony and his team can provide both transactional services related to drafting and reviewing corporate documents and litigation services. Our work also involves navigating complex business transactions, including the acquisition, construction, financing, and disposition of real property in addition to the merger and dissolution of churches.
Our attorneys have considerable experience in litigating a diverse array of matters in federal and state courts, involving tax proceedings, probate, construction, commercial transactions, employment disputes, and general civil litigation. If and when our clients become involved in a lawsuit, we are well positioned to assist them with their litigation needs. We also assist clients in responding to law enforcement agencies. We have successfully guided clients through white collar criminal investigations related to the operation of tax-exempt entities.
Matt Anthony and his team are located in the Dallas/Fort Worth area, minutes from the DFW airport, which allows us to maintain a national presence, while keeping our high-end legal services affordable to our nonprofit and tax-exempt client base. Our attorneys are admitted to the state bars and licensed to practice in the states of Texas, New York, Florida, California, Georgia and Tennessee.
We invite you to learn more about us and the array of additional legal services we provide.
Most Frequently Asked Questions
Most of us fast-forward right through the FBI warning at the beginning of videos and DVDs we watch. Ever wondered what it actually says? The Federal Copyright Act of 1976 stipulates that pre-recorded videos are authorized for personal home use only. Special permission must be granted for any public performance…and that includes church services. Violations can result in substantial fines, up to $30,000 per infringement.
Use of video clips from movies and television is happening in churches across the country. Pastors use portions of movies to enhance sermon points. Sunday school teachers and childcare workers play a full-length feature. Youth leaders show the latest videos. Educators use movies to train and inspire.
Christian Video Licensing International (CVLI), provides licenses for churches and other ministry organizations who show videos and DVDs. Their licensing covers some, but not all, of the videos and movies focused on religious and family-based themes as well as many big-name studios like Universal Pictures, Warner Brothers, Walt Disney Pictures, Touchstone, Paramount, and Fox.
It is possible to contact the various studios and seek special permission to air a video clip during your church (See, e.g., http://www.universalclips.com/).
Generically, the document by which a tax-exempt organization is created is known, in the parlance of state and federal law, as articles of organization. There usually is a separate document containing rules by which the organization conducts its affairs; this document is most often termed “bylaws. The organization may develop other documents governing its operations, such as various policies and procedures, an employee handbook, a conflict-of-interest policy (although that may be part of the bylaws), and/or a code of ethics.
There are several types of articles of organization for each of the principal types of tax-exempt, nonprofit organizations:
- Corporation: articles of incorporation
- Unincorporated Association: constitution
- Trust: declaration of trust or trust agreement
The contents of a set of articles of organization should include the following:
- The name of the organization
- A statement of its purpose
- The name(s) and address(s) of its initial directors or trustees
- The name and address of the registered agent (if a corporation)
- The name(s) and address(s) of its incorporator(s) (if a corporation)
- A statement as to whether the entity has members
- A statement as to whether the entity can issue stock (if a corporation)
- Provisions reflecting any other state law requirements
- A dissolution clause
Bylaws contain the rules of internal governance an entity has chosen to adopt, or in some cases, is required to follow by statute. It is mandated by the state law of most states that bylaws must be adopted by corporations, although unlike articles of incorporation, bylaws are not filed with the state. The bylaws of a nonprofit organization (if any) will usually include provisions with respect to the following:
- The organization’s purposes
- The origins (e.g., election) and duties of its directors
- The origins and duties of its officers
- The role of its members (if any)
- Meetings of members and directors, including dates, notice, quorum, and voting
- The role of executive and other committees
- The role of its chapters (if any)
- The organization’s fiscal year
- A conflict-of-interest policy (if not separately stated)
- Reference to (any) affiliated entities
- Restatement of the federal tax law requirements
Bylaws should be revised when they do not accurately reflect the way your church/nonprofit is being run. It is a good idea to review them annually to determine if they are still reflective of your operations.
The housing allowance is only available to “ministers.” Merely performing the functions of a minister is not enough to be eligible for a housing allowance. A minister must meet the requirements of the tax code. The tax code defines ministers as “persons who are ordained, commissioned, or licensed by a religious organization constituting a church or church denomination, and who are authorized to conduct religious worship, perform sacerdotal functions, and administer ordinances or sacraments according to the tenets and practices of that church or denomination.” Part-time ministers can be treated as ministers for tax purposes if they satisfy these requirements. A housing allowance designated by a church cannot exceed certain limits. For pastors who own their home, the allowance is nontaxable in computing federal income taxes only to the extent that it is used to pay housing expenses and does not exceed the fair rental value of the home.
The term nonprofit organization can be misleading if one attributes the “literal” implications, but regrettably, the English language lacks a better one. The term does not mean that the organization cannot profit from its activities, rather, the organization does not exist to generate profits distributable to owners. Many nonprofit organizations are enjoying profits. An entity of any type cannot exist without revenues that at least equal expenses. Most U.S. charitable, religious, and educational entities have elected to be nonprofit corporations, incorporated pursuant to the laws of the chosen state, though other modalities exist.
The easiest way to define a nonprofit organization is to first define its counterpart: the for-profit organization. A for-profit organization exists to operate a business that generates profits (revenue is excess of costs) from that business for those who own the enterprise. Typically, the owners of a for-profit corporation are stockholders who take their profits in the form of dividends. Thus, when the term for-profit is used, it refers to profits acquired by the owners of the business, not by the business itself. The law, therefore, differentiates between profits at the entity level and profits at the ownership level.
Both for-profit and nonprofit organizations are allowed by the law to earn profits at the entity level. But only for-profit organizations are permitted profits at the ownership level. Nonprofit organizations rarely have owners; these organizations are not permitted to pass along profits (net earnings) to those who control them.
So, what happens to the “profits” earned by a nonprofit organization? Nonprofit organizations are required to use their “profits” in the advancement of their program activities. In the case of tax exempt nonprofit organizations, these activities are termed their “exempt functions.”
There is no limit on the amount of surplus revenues a federally tax-exempt nonprofit can maintain in its treasury. The Tax Code neither limits nor taxes the surplus amount. We are not aware of any state limitations on the amount of surplus a nonprofit can keep on account, so long as the funds are used to further the purposes of the organization. Certain nonprofit organizations that qualify as “foundations” under the tax code are required to pay out 5% or more of their assets on an annual basis. However, for the nonprofit religious corporation that operates as a church or ministry, there is not a similar requirement.
A nonprofit organization has the same set of rights available to protect its name as any other enterprise. Certain limited protection arises simply by selecting the name to incorporate under and using the name, while more extensive protection may be sought through formal applications for trademark and service mark protection.
Churches, for example, often have similar names derived from prevalent principles or themes of the Bible. The preferred and most extensive protection for the name of the church, religious organizations, or other nonprofit organization is protection under federal trademark law. A trademark is defined by the federal Trademark Act as “any work, symbol, or device, or any combination thereof adopted and used by a manufacturer and sold by others.” Trademark protection is thus available when an organization has put the use of the symbol, mark, name etc., to use in commerce such as publishing literature with the mark affixed its name to such literature, thereby identifying the source of the goods and services. Obviously, the same principle holds true equally for any number of nonprofit entities such as counseling centers, correspondence school, private elementary or secondary schools, nursing homes, radio or television stations, or magazines, etc.
U.S. and state common law protects the names of existing enterprises against unauthorized use of confusingly similar names by other organizations. Most states prohibit new corporations from using names that are identical or confusingly similar to those of existing organizations registered in that state. The names of nonprofit organizations have been protected as well on the basis of one or more of the following theories: the applicable nonprofit corporation statute protecting preexisting registered names; application of the name protection provided by business corporation statues to nonprofit corporations when the state nonprofit law does not specifically provide such protection; the common law of unfair competition; as well as trademark protection.
Some states have a statute protecting the names of religious corporations, such that a church’s name will be protected against later use of the same or a confusingly similar name in either of two ways: 1) the state official (typically secretary of state) charged with the duty of reviewing applications for incorporation rejects the application of an organization whose name is either identical or deceptively similar to the name of an existing corporation, or 2) if the state recognizes the corporate status of an organization whose name is either identical or confusingly similar to an existing entity’s, the offended corporation may seek legal recourse to stop further use of the name.
As a rule, charities, religious organizations such as churches, educational organizations and other groups that are tax-exempt under section 501(c)(3) of the tax code are prohibited from participating in or intervening in any political campaign on behalf of or in opposition to any candidate for public office. This prohibition means 501(c)(3) organizations may not endorse candidates, distribute statements for or against candidates, raise funds for or donate to candidates or become involved in any activity that would be either supportive or opposed to any candidate.
Total compensation to any church employee must be “reasonable.” There is, in fact, little guidance for what constitutes reasonableness. However, there are methods that a board of directors can employ to support the reasonableness of compensation, before an issue has arisen with the IRS.
“Total compensation” includes more than just the employee’s salary or taxable income. The IRS, when considering the reasonableness of total compensation includes not only the employee’s salary but other benefits paid by the Church. For a minister, this might include the minister’s taxable income PLUS housing allowance AND tax-free fringe benefits.
Four pieces to consider when calculating the employee’s total compensation plan:
- Gross Salary.
- Housing Allowance for pastoral staff (a portion should be designated as a housing allowance even if living in a parsonage).
- Tax-free Fringe Benefits (include church provided health insurance and medical reimbursement).
- Expense Reimbursements (unless allowances handled under a properly adopted “accountable reimbursement plan,” they must be added to gross compensation).
Based on our experience, it is clear that very few church employees receive compensation that is unreasonably high when one considers their work. In fact, most churches struggle to pay their employees what they are worth. On the other hand, compensation that is determined to be unreasonably high or “excessive” may jeopardize the tax-exempt status of the church.