Federal Reporting Requirements for Churches 2012

Form I-9

All employers are responsible for verifying the identity and eligibility of employees to work in the United States if those employees were hired after November 6, 1986. As employers, churches must complete an Employment EligibilityVerification form for each new employee.This form is better known as Form I-9.

Form I-9 is not an IRS form and is not filed with any government agency. However, it is important for churches to be familiar with this form because they can be assessed fines for failing to comply with the requirements summarized below.

Churches should:

1. Ensure that each new employee completes Section 1 of the Form I-9 on or before his or her first day of compensated work. Review the employee’s documents and fully complete Section 2 of the Form I-9 within 3 business days of the hire. Collect a Form I-9 for all employees, including ministers, hired after November 6, 1986 even if the church has no doubt that someone is a U.S. citizen. An employee signs part of the form and the employer signs part of the form.The form’s instructions list documents employees may show to verify their identity and eligibility to work in the United States.
2. Review the United States Citizenship and Immigration Services Web site (uscis.gov) for instructions that will assist you in completing the Form I-9.You can also download Form I-9 from the USCIS Web site.
3. Collect forms from new employees only, not from all applicants.When extending job offers, churches should clarify that employment is conditioned on completion of a Form I-9. Employers should remind new employees to bring their documents the first day of work. Forms should be completed no later than the end of the employee’s third day at work.
4. Accept documents that appear to be genuine and relate to the employee. If churches act reasonably when deciding that a document is genuine, they will not be held responsible for a mistake. Churches may keep photocopies of original identification and verification documents with each employee form. This is not required by law but may be helpful in case there is ever a question about whether a document was genuine.
5. Keep each Form I-9 for at least three years. If a church employs a person for more than three years, the church must retain the form until one year after the person leaves employment. Forms should be kept confidential.
6. Upon request, show completed forms to authorized officials of the Department of Homeland Security, the Department of Labor, or the Justice Department’s Office of Special Counsel for Unfair Immigration-Related Employment Practices (OSC). Officials will give a minimum of three days’ notice before inspection.

Churches, like any employer, can be penalized for failing to comply with the I-9 requirement. If you fail to complete, retain, or make available for inspection a Form I-9 as required by law, you may face a civil penalty of not less than $110 and not more than $1,100 per violation. If DHS determines that you knowingly hired unauthorized aliens, you may be ordered to cease and desist from such an activity and pay a civil penalty of not less than $375 or more than $3,200 for the first offense. These penalties increase significantly for repeat offenses.

Annual certification of racial nondiscrimination

Churches and other religious organizations that operate, supervise, or control a private school must file a certificate of racial nondiscrimination (Form 5578) each year with the IRS.The certificate is due by the 15th day of the 5th month following the end of the organization’s fiscal year. This is May 15 of the following year for organizations that operate on a calendar year basis. For example, the Form 5578 for 2011 is due May 15, 2012.

A private school is defined as an educational organization that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly conducted. The term “private school” includes preschools: primary, secondary, preparatory, or high schools; and colleges and universities. In all cases, it does not matter whether the school is operated as a separate legal entity or an activity of a church.

Key Point. The term “school” also includes preschools, and this is what makes the reporting requirement relevant for many churches. As many as 25 percent of all churches operate a preschool program.

Key Point. Independent religious schools that are not affiliated with a church or denomination, and that file Form 990, do not file Form 5578. Instead, they make their annual certification of racial nondiscrimination directly on Form 990.

Form 5578 is easy to complete. A church official simply identifies the church and the school and certifies that the school has “satisfied the applicable requirements of sections 4.01 through 4.05 of Revenue Procedure 75-50.” This reference is to the following requirements:

1. The school has a statement in its charter, by laws, or other governing instrument, or in a resolution of its governing body, that it has a racially non- discriminatory policy toward students.
2. The school has a statement of its racially nondiscriminatory policy toward students in all its brochures and catalogs dealing with student admissions, programs, and scholarships.
3. The school makes its racially non discriminatory policy known to all segments of the general community served by the school through the publication of a notice of its racially nondiscriminatory policy at least annually in a newspaper of general circulation or through utilization of the broadcast media. However, such notice is not required if one or more exceptions apply.These include the following: (a) During the preceding three years, the enrollment consists of students at least 75 percent of whom are members of the sponsoring church or religious denomination, and the school publicizes its nondiscriminatory pol- icy in religious periodicals distributed in the community. (b) The school draws its students from local communities, follows a racially nondiscriminatory policy toward students and demonstrates that it does so by currently enrolling students of racial minority groups in meaningful numbers.
4. The school can demonstrate that all scholarshipsor other comparable benefits are offered on a racially nondiscriminatory basis.

Filing the certificate of racial nondiscrimination is one of the most commonly ignored federal reporting requirements. Churches that operate a private school (including a preschool), as well as independent schools, may obtain copies of Form 5578 by calling the IRS forms number (1-800-829-3676).

Charitable contribution substantiation rules

Several important rules apply to the substantiation of charitable contributions, including the following:

1. Cash contributions. All cash contributions, regardless of amount, must be substantiated by either a bank record (such as a cancelled check) or a written communication from the charity showing the name of the charity, and the date and amount of the contribution. The recordkeeping requirements may not be satisfied by maintaining other written records. In the past, donors could substantiate cash contributions of less than $250 with “other reliable written records showing the name of the charity, the date of the contribution, and the amount of the contribution” if no cancelled check or receipt was available.This is no longer allowed. As noted below, additional substantiation requirements apply to contributions (of cash or property) of $250 or more, and these must be satisfied as well.

2. Substantiation of contributions of $250 or more. Donors will not be allowed a tax deduction for any individual cash (or property) contribution of $250 or more unless they receive a written acknowledgment from the church that satisfies the following requirements:

• The receipt must be in writing.
• The receipt must identify the donor by name (a Social Security number is not required).
• For contributions of property (not including cash) valued by the donor at $250 or more, the receipt must describe the property. No value should be stated.
• The receipt must state whether or not the church provided any goods or services to the donor in exchange for the contribution, and if so, the receipt must include a good faith estimate of the value of those goods or services.
• If the church provides no goods or services to a donor in exchange for a contribution, or if the only goods or services the church provides are “intangible religious benefits,” then the receipt must contain a statement to that effect.
• The written acknowledgment must be received by the donor on or before the earlier of the following two dates: (1) the date the donor files a tax return claiming a deduction for the contribution, or (2) the due date (including extensions) for filing the return.

3. Quid pro quo contributions of more than $75. If a donor makes a “quid pro quo” contribution of more than $75 (that is, a payment that is partly a contribution and partly a payment for goods or services received in exchange), the church must provide a written statement to the donor that satisfies two conditions:

• The statement must inform the donor that the amount of the contribution that is tax- deductible is limited to the excess of the amount of any money (or the value of any property other than money) contributed by the donor over the value of any goods or services provided by the church or other charity in return.The statement must provide the donor with a good faith estimate of the value of the goods or services furnished to the donor.
• A written statement need not be issued if only “token” goods or services are provided to the donor. For 2011, token goods or services were those having a value not exceeding the lesser of $96 or two percent of the amount of the contribution.This amount is adjusted annually for inflation. In addition, the rules do not apply to contributions in return for which the donor receives solely an intangible religious benefit that generally is not sold in a commercial context outside the donative context.

4. Gifts of property. Several additional rules apply to the substantiation of contributions of noncash property valued by the donor at $500 or more. Donors who claim a deduction over $500 but not over $5,000 for a noncash charitable contribution must retain certain records and complete the front side (Section A, Part I, and Part II if applicable) of IRS Form 8283 and enclose the completed form with the Form 1040 on which the charitable contribution is claimed.

Special rules apply to donations of cars, boats, and planes valued by the donor at more than $500. The church must provide the donor with a written acknowledgment, and send a Form 1098-C to the IRS containing required information about the donation. The Form 1098-C can be used as the written acknowledgment that must be issued to a donor. See the instructions to Form 1098-C for more information.

For contributions of noncash property valued at more than $5,000, a donor must obtain a qualified appraisal of the donated property from a qualified appraiser and complete a qualified appraisal summary (Section B of Form 8283) and have the summary signed by the appraiser and a church representative.The completed Form 8283 is then enclosed with the Form 1040 on which the charitable contribution deduction is claimed.

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Helpful Numbers and Resources

• To request IRS forms 800-TAX-FORM or 800-829-3676
• The Ministers and Missionaries Benefit Board (MMBB)
  -Tel:800.986.6222-Fax:800.986.6782-Web: www.mmbb.org
• Internal Revenue Service (IRS) homepage: www.irs.gov
• www.ChurchLawandTax.com — A Christianity Today website featuring Richard Hammar
• www.YourChurchResources.com — An online store with church management resources to keep your church safe, legal, and financially sound
• Church & Clergy Tax Guide — Richard Hammar’s comprehensive tax guide published annually by Christianity Today International

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