Something to Consider…

We previously asked church leaders about the following situation::

Your church’s bylaws explain how your church is organized, governed and operated. They may also include a statement of why your church was organized and what it sees as its primary mission. It’s your church’s most important document.

How often should a church’s bylaws be reviewed?

  1. Annually.
  2. Every time applicable state or federal laws change.
  3. Every three to four years.
  4. Every ten years.
  5. They were never meant to change.

If it isn’t broke, don’t fix it.

How often have you heard that proclamation? Has it been applied to your church’s bylaws? Is it possible your bylaws are broken but no one at your church knows it?

As your church’s primary legal document, the effort and expense of keeping it up to date could save your church considerable unplanned expenses.

As a tax exempt organization your church must pass two tests. Your bylaws are how you tell the world that you pass both the organizational test and the operational test. In other words, does your church meet the legal qualifications of a tax exempt organization and does it operate as the law requires a tax exempt entity to operate?

It would be nice to think that once a church’s bylaws are created and verified to be compliant with the law that they could be considered engraved in stone. Sadly that’s not the case.

The first statute recognizing churches as tax-exempt organizations was passed in 1919. But since then the law regarding the requirements for tax-exempt organizations has changed many times. In addition the Internal Revenue Service (IRS) and the courts have constantly re-interpreted these requirements. A church losing its tax-exempt status is a real possibility if its bylaws fail to keep pace with the changes.

Such a loss could be retroactive to a church’s founding. The back taxes suddenly owed could exceed the net worth of the church. Donor’s would lose the right to deduct their contributions from the income they pay taxes on. The consequences would be serious.

Some of the current organization requirements that must be included in bylaws are a statement that the organization is set up exclusively to pursue exempt functions. A church’s bylaws should clearly state that the organization is intended to be a church. They must prohibit all forms of inurement and private benefit, and limit lobbying to the statutory limit while prohibiting all forms of political activity. A conflict of interest policy must be included. Another tax-exempt organization must be designated to receive the church’s assets if the church is dissolved. Please understand that this is just a sampling of the current requirements for a church’s bylaws.

Your state’s nonprofit corporation law may also contain additional restrictions that your bylaws must conform to. This is because the IRS requires that your bylaws not exceed what is allowed under state guidelines—a problem area for many churches. If your church copied its bylaws from a denominational headquarters, another church, or a guidebook or kit please understand that these sources are frequently written for a national audience and pay little heed to the nuances of state nonprofit corporation laws.

A reasonable course of action for church leaders is to have their bylaws and other governing documents reviewed every three to four years. This review should be conducted by an attorney. Please understand that the legal profession can be very specialized. You should be sure that the attorney you engage is familiar with IRS requirements and your state’s nonprofit laws.

We at Church Administrative Professionals have the resources to help you find a suitable attorney. We can also help you prepare for a review. Call us.

Please Note: This information is provided with the understanding that Church Administrative Professionals is not rendering professional advice or service.

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Deborah Miller, cca

Charles Kneyse

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