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American Bar Association - Defending Liberty, Pursuing Justice

Spring 2009

Vol. 5, No. 3

 

Business Law

 

Representing Religious Organizations

Many attorneys wish to assist their favorite religious organization by providing legal advice. And often the religious organization would prefer to be represented by someone from their congregation, because such an individual is not only sympathetic to their concerns, but also does not have to be educated about the organization and operation. The problem, of course, is figuring out what the law is concerning these organizations, when the volunteer attorney can help, and when expert advice needs to be obtained.

Knowing the general law of a particular area is important, because much of the law that applies to other entities also applies to religious organizations. For example, a real estate attorney is likely well qualified to advise the organization when it enters into a lease agreement or purchases a building, although the attorney will also have to understand what property tax exemptions are available under state law. And most contracts can be drafted by an attorney familiar with basic contract law, although again there may be specific concerns, such as how entering into a joint venture will impact the exempt status of the organization. Litigation, of course, should be handled by an attorney who is familiar with the court system, although again there might be special rules that apply, especially if the religious organization is a part of an hierarchical type of structure that has its own method of resolving disputes.

But other areas of law have unexpected pitfalls. Not only are there special rules that impact nonprofits, but being a religious organization adds another layer of complexity. For example, employment law applicable to businesses typically also applies to nonprofits, although how volunteers fit into the picture complicates the matter. But employment law applicable to religious organizations contains many other differences: They may be able to discriminate on the basis of religion, may be exempt from unemployment insurance, have special laws that apply to their ministers (such as parsonage allowances, inclusion in SECA rather than FICA, and no withholding requirements), and have special retirement options. Knowing the intricacies of these differences will go a long way toward keeping the organization out of trouble. For example, although a church may discriminate on the basis of religion, it cannot discriminate on the basis of sex. And a religious organization that is not a church may be able to discriminate on the basis of religion only if it is a bona fide occupational qualification.

With regard to tax law, a crucial question is whether the organization is a “church,” as there are special benefits available to such an entity under the Internal Revenue Code. Although “church” is not defined, it clearly includes mosques, synagogues, temples, and similar entities. If the organization is a church, it is exempt without actually having to first establish its exempt status with the IRS, it is exempt from the annual informational filing (Form 990), it can clearly pay a parsonage allowance to its minister(s), and it can force the IRS to comply with the Church Audit Procedures Act (Section 7701 of the IRS) before it can be audited. Any organization wishing to fit into this category should carefully review the 14 factors considered by the IRS in making this determination. The 14 factors are:

  • A distinct legal existence
  • A recognized creed and form of worship
  • A definite and distinct ecclesiastical government
  • A formal code of doctrine and discipline
  • A distinct religious history
  • A membership not associated with another church or denomination
  • An organization of ordained ministers
  • Ordained ministers selected after completing prescribed studies
  • A literature of its own
  • Established places of worship
  • Regular congregations
  • Regular worship services
  • Sunday schools for religious instruction of the young
  • Schools for the preparation of ministers

No factor is controlling, and most churches do not have all 14; however, I would recommend that the church establish which factors it meets and why, in the event it is ever an issue. The most important factor appears to be having a regular congregation.

An organization may also qualify under the Internal Revenue Code as a “convention or association of churches,” or an “integrated auxiliary of a church,” in which case many of the benefits available to churches will continue to be available. Religious organizations that do not qualify for special consideration will be subject to the regular filing requirements.

Fundraising is another area that has its own religious organization issues. For example, the deduction of significant contributions to several churches recently has been challenged by the IRS, on the basis that the receipts did not state that the church provided only “intangible religious benefits” to the contributor. Another ongoing concern for many religious organizations is the deductibility of contributions made to benefit a particular employee of the organization (among other things, the organization must exercise control over the funds received and must pay the employee the agreed upon salary regardless of the amount of funds actually received).

Tort liability also continues to be an area fraught with potential for trouble. The cases involving abuse of children by clergy have been widely publicized, but are only one facet of this area. How the organization treats its volunteers, what steps it takes to protect children in its care, when a religious organization can be held liable for counseling, and how to avoid defamation claims all have special concerns that should be addressed by the advising attorney.

Lisa A. Runquist is a principal of the Los Angeles firm of Runquist & Associates, emphasizing nonprofit organizations. She can be reached at Lisa@Runquist.com, or 818-609-7761. Ms. Runquist is a member and past chair of the California State Bar Nonprofit Organizations Committee, the ABA Business Law Section Committee on Nonprofit Corporations, its Religious Organizations Subcommittee, and the Section of Taxation Exempt Organization’s Subcommittee on Religious Organizations. Ms. Runquist is also the author and editor of numerous publications, most recently a principal author and editor of Guide to Representing Religious Organizations (ABA 2009). She is also the author of The ABC’s of Nonprofits (ABA 2005) and is a frequent speaker at seminars on nonprofit organizations.

Guide to Representing Religious Organizations

Did you find this article helpful? Do you need more information on representing religious organizations? To provide some basic assistance in this area, we are pleased to introduce the Guide to Representing Religious Organizations. This book should provide attorneys with some basic knowledge that will allow them to guide their religious organizations along the path toward legal enlightenment. It can be purchased at: http://www.abanet.org/abastore/

Note
Excerpted from Guide to Representing Religious Organizations, 2008, by Lisa A. Runquist, published by the American Bar Association Section of Business Law. Copyright © 2008 by the American Bar Association. Reprinted with permission.

© Copyright 2009, American Bar Association.