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Tax Exempt and Government Entities
EXEMPT ORGANIZATIONS
( )( )
501c 3
Tax Guide for
Churches & Religious
Organizations
Publication 1828 (Rev. 8-2015) Catalog Number 21096G Department of the Treasury Internal Revenue Service www.irs.gov
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| Congress has enacted special tax laws that apply to churches, religious organizations and ministers in recognition of their unique status in American society and of their rights guaran- teed by the First Amendment of the Constitution of the United States. Churches and religious organizations are generally exempt from income tax and receive other favorable treatment under the tax law; however, certain income of a church or religious organization may be subject to tax, such as income from an unrelated business. The Internal Revenue Service offers this quick reference guide of federal tax law and proce- dures for churches and religious organizations to help them voluntarily comply with tax rules. The contents of this publication reflect the IRS interpretation of tax laws enacted by Congress, Treasury regulations and court decisions. The information given is not comprehensive, however, and doesn’t cover every situation. Thus, it isn’t intended to replace the law or be the sole source of information. The resolution of any particular issue may depend on the specific facts and circumstances of a given taxpayer. In addition, this publication covers subjects on which a court may have made a decision more favorable to taxpayers than the interpretation by the IRS. Until these differing interpretations are resolved by higher court decisions, or in some other way, this publication will present the interpretation of the IRS. For more detailed tax information, the IRS has assistance programs and tax information products for churches and religious organizations, as noted at the end of this publication. Most IRS publications and forms can be downloaded from the IRS website at www.irs.gov. Specialized information can be accessed through the Exempt Organizations (EO) website under the IRS Tax Exempt and Government Entities division at www.irs.gov/eo or by calling EO Customer Account Services toll free at 877-829-5500. The IRS considers this publication a living document, one that will be revised to take into account future developments and feedback. Comments on the publication may be submitted to the IRS at: Internal Revenue Service 1111 Constitution Avenue, NW Washington, DC 20224 Attn: SE:T:C&L |
| Contents Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Tax-Exempt Status........................................................... 2 Recognition of Tax-Exempt Status .............................................. 2 Applying for Tax-Exempt Status ................................................ 3 Public Listing of Tax-Exempt Organizations ...................................... 4 Jeopardizing Tax-Exempt Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Inurement and Private Benefit ................................................. 5 Substantial Lobbying Activity .................................................. 6 Measuring Lobbying Activity .................................................. 6 Political Campaign Activity .................................................... 7 Unrelated Business Income Tax (UBIT) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Net Income Subject to the UBIT ............................................... 19 Examples of Unrelated Trade or Business Activities ............................... 19 iii Tax on Income-Producing Activities ............................................ 20 Employment Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Social Security and Medicare Taxes — Federal Insurance Contributions Act (FICA)...... 21 Federal Unemployment Tax Act (FUTA) ......................................... 22 Special Rules for Compensation of Ministers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Withholding Income Tax for Ministers ........................................... 22 Parsonage or Housing Allowances ............................................. 22 Social Security and Medicare Taxes — Federal Insurance Contributions Act (FICA) vs. Self-Employment Contributions Act (SECA) ................................... 23 Payment of Employee Business Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Accountable Reimbursement Plan ............................................. 24 Non-accountable Reimbursement Plan ......................................... 24 |
| Recordkeeping Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Books of Accounting and Other Types of Records ................................ 25 Length of Time to Retain Records.............................................. 26 Filing Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Information and Tax Returns — Forms to File and Due Dates........................ 27 Charitable Contributions— Substantiation and Disclosure Rules . . . . . . . . . . . . . . . . . . 29 Recordkeeping............................................................. 29 Recordkeeping Rules........................................................ 29 Substantiation Rules ........................................................ 29 Disclosure Rules that Apply to Quid Pro Quo Contributions ......................... 30 Exceptions to Disclosure Statement ............................................ 30 Special Rules Limiting IRS Authority to Audit a Church . . . . . . . . . . . . . . . . . . . . . . . . . 31 Tax Inquiries and Examinations of Churches ..................................... 31 Audit Process.............................................................. 32 iv Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Help From The IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 IRS Tax Publications ........................................................ 35 IRS Customer Service ...................................................... 36 EO Customer Service ....................................................... 36 EO Website ............................................................... 36 EO Update ................................................................ 36 |
| Introduction This publication explains the benefits and the responsibilities under the federal tax system for churches and religious organizations. The term church is found, but not specifically defined, in the Internal Revenue Code (IRC). The term is not used by all faiths; however, in an attempt to make this publication easy to read, we use it in its generic sense as a place of worship includ- ing, for example, mosques and synagogues. With the exception of the special rules for church audits, the use of the term church throughout this publication also includes conventions and associations of churches as well as integrated auxiliaries of a church. Because special tax rules apply to churches, it’s important to distinguish churches from other religious organizations. Therefore, when this publication uses the term “religious organiza- tions,” it isn’t referring to churches or integrated auxiliaries. Religious organizations that are not churches typically include nondenominational ministries, interdenominational and ecumenical organizations, and other entities whose principal purpose is the study or advancement of religion. Churches and religious organizations may be legally organized in a variety of ways under state 1 law, such as unincorporated associations, nonprofit corporations, corporations sole and chari- table trusts. Certain terms used throughout this publication—church, integrated auxiliary of a church, minis- ter and IRC Section 501(c)(3) — are defined in the Glossary. |
| Tax-Exempt Status Churches and religious organizations, like many other charitable organizations, qualify for exemption from federal income tax under IRC Section 501(c)(3) and are generally eligible to receive tax-deductible contributions. To qualify for tax-exempt status, the organization must meet the following requirements (covered in greater detail throughout this publication): n the organization must be organized and operated exclusively for religious, educational, scientific or other charitable purposes; n net earnings may not inure to the benefit of any private individual or shareholder; n no substantial part of its activity may be attempting to influence legislation; n the organization may not intervene in political campaigns; and n the organization’s purposes and activities may not be illegal or violate fundamental public policy. Recognition of Tax-Exempt Status Automatic Exemption for Churches Churches that meet the requirements of IRC Section 501(c)(3) are automatically 2 considered tax exempt and are not required to apply for and obtain recognition of tax-exempt status from the IRS. Although there is no requirement to do so, many churches seek recognition of tax-exempt status from the IRS because this recognition assures church leaders, members and contributors that the church is recognized as exempt and qualifies for related tax benefits. For example, contributors to a church that has been recognized as tax exempt would know that their contributions generally are tax-deductible. Church Exemption Through a Central/Parent Organization A church with a parent organization may wish to contact the parent to see if it has a group ruling. If the parent holds a group ruling, then the IRS may already recognize the church as tax exempt. Under the group exemption process, the parent organization becomes the holder of a group ruling that identifies other affiliated churches or other affiliated organizations. A church is recognized as tax exempt if it is included in a list provided by the parent organization. If the church or other affiliated organization is included on the list, it doesn’t need to take further action to obtain recognition of tax-exempt status. An organization that isn’t covered under a group ruling should contact its parent organization to see if it’s eligible to be included in the parent’s application for the group ruling. For general information on the group exemption process, see Publication 4573, Group Exemptions, and Revenue Procedure 80-27, 1980-1 C.B. 677. |
| Religious Organizations Unlike churches, religious organizations that wish to be tax exempt generally must apply to the IRS for tax-exempt status unless their gross receipts do not normally exceed $5,000 annually. Applying for Tax-Exempt Status Employer Identification Number (EIN) Every tax-exempt organization, including a church, should have an employer iden- tification number whether or not the organization has any employees. There are many instances in which an EIN is necessary. For example, a church needs an EIN when it opens a bank account, to be listed as a subordinate in a group ruling or if it files returns with the IRS (for example, Forms W-2, 1099, 990-T). An organization may obtain an EIN by filing Form SS-4, Application for Employer Identification Number, according to its instructions. If the organization is submitting IRS Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code, Form SS-4 should be included with the application. Application Form When applying for recognition as tax exempt under IRC Section 501(c)(3), churches and some religious organizations must use Form 1023. Smaller religious 3 organizations may be eligible to use Form 1023-EZ, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code A religious organization generally must submit its application within 27 months from the end of the month in which the organization is formed to be considered tax exempt and qualified to receive deductible contributions as of the date the organi- zation was formed. On the other hand, a church may obtain recognition of exemp- tion from the date of its formation as a church, even though that date may be prior to 27 months from the end of the month in which its application is submitted. Cost of applying for exemption. The IRS is required to collect a non-refundable fee from any organization seeking a determination of tax-exempt status under IRC Section 501(c)(3). Although churches are not required by law to file an application for exemption, if they choose to do so voluntarily, they’re required to pay the fee for determination. The fee must be submitted with Form 1023; otherwise, the application will be returned to the submitter. Fees change periodically. The most recent user fee can be found at the Exempt Organizations (EO) website under the IRS Tax Exempt and Government Entities Division via www.irs.gov/eo (key word “user fee”) or by calling EO Customer Account Services toll-free at 877-829-5500. |
| IRS Approval of Exemption Application If the application for tax-exempt status is approved, the IRS will notify the organization of its status, any requirement to file an annual information return and its eligibility to receive deductible contributions. The IRS does not assign a special number or other identification as evidence of an organization’s tax-exempt status. Public Listing of Tax-Exempt Organizations Exempt Organizations Select Check is an online search tool that allows users to search for organizations that are eligible to receive tax-deductible charitable contributions. Note that not every organization that is eligible to receive tax-deductible contributions is listed on Select Check. For example, churches that have not applied for recognition of tax-exempt status are not included in the publication. Only the parent organization in a group ruling is included by name on Select Check. Select Check also allows users to search for organizations whose tax-exempt status has been automatically revoked because they have not met their annual filing requirement for three consecutive years. In addition, users may search Select Check for organizations that have filed a Form 990-N (e-Postcard) annual electronic notice. If you have questions about listing an organization, correcting an erroneous entry or deleting a listing on Select Check, contact EO Customer Account Services 4 toll-free at 877-829-5500. Jeopardizing Tax-Exempt Status All IRC Section 501(c)(3) organizations, including churches and religious organizations, must abide by certain rules: n their net earnings may not inure to any private shareholder or individual; n they must not provide a substantial benefit to private interests; n they must not devote a substantial part of their activities to attempting to influence legislation; n they must not participate in, or intervene in, any political campaign on behalf of (or in opposition to) any candidate for public office; and n the organization’s purposes and activities may not be illegal or violate fundamental public policy. |
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Inurement and Private Benefit
Inurement to Insiders
Churches and religious organizations, like all exempt organizations under IRC
Section 501(c)(3), are prohibited from engaging in activities that result in inurement
of the church’s or organization’s income or assets to insiders (such as persons
having a personal and private interest in the activities of the organization). Insiders
could include the minister, church board members, officers, and in certain circum-
stances, employees. Examples of prohibited inurement include the payment of
dividends, the payment of unreasonable compensation to insiders and transferring
property to insiders for less than fair market value. The prohibition against
inurement to insiders is absolute; therefore, any amount of inurement is, poten-
tially, grounds for loss of tax-exempt status. In addition, the insider involved may
be subject to excise tax. See the following section on Excess benefit transactions.
Note that prohibited inurement doesn’t include reasonable payments for services
rendered, payments that further tax-exempt purposes or payments made for the
fair market value of real or personal property.
Excess benefit transactions. In cases where an IRC Section 501(c)(3) organiza-
tion provides an excess economic benefit to an insider, both the organization and
the insider have engaged in an excess benefit transaction. The IRS may impose an
excise tax on any insider who improperly benefits from an excess benefit transac-
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tion, as well as on organization managers who participate in the transaction know-
ing that it’s improper. An insider who benefits from an excess benefit transaction
must return the excess benefits to the organization. Detailed rules on excess
benefit transactions are contained in the Code of Federal Regulations, Title 26,
sections 53.4958-0 through 53.4958-8.
Private Benefit
An IRC Section 501(c)(3) organization’s activities must be directed exclusively
toward charitable, educational, religious or other exempt purposes. The organiza-
tion’s activities may not serve the private interests of any individual or organization.
Rather, beneficiaries of an organization’s activities must be recognized objects of
charity (such as the poor or the distressed) or the community at large (for exam-
ple, through the conduct of religious services or the promotion of religion). Private
benefit is different from inurement to insiders. Private benefit may occur even if
the persons benefited are not insiders. Also, private benefit must be substantial to
jeopardize tax-exempt status.
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| Substantial Lobbying Activity In general, no organization, including a church, may qualify for IRC Section 501(c)(3) status if a substantial part of its activities is attempting to influence legis- lation (commonly known as lobbying). An IRC Section 501(c)(3) organization may engage in some lobbying, but too much lobbying activity risks loss of tax-exempt status. Legislation includes action by Congress, any state legislature, any local council or similar governing body, with respect to acts, bills, resolutions or similar items (such as legislative confirmation of appointive offices), or by the public in a referendum, ballot initiative, constitutional amendment or similar procedure. It doesn’t include actions by executive, judicial or administrative bodies. A church or religious organization will be regarded as attempting to influence legislation if it contacts, or urges the public to contact, members or employees of a legislative body for the purpose of proposing, supporting or opposing legislation, or if the organization advocates the adoption or rejection of legislation. Churches and religious organizations may, however, involve themselves in issues of public policy without the activity being considered as lobbying. For example, churches may conduct educational meetings, prepare and distribute educational materials, or otherwise consider public policy issues in an educational manner without jeopardizing their tax-exempt status. 6 Measuring Lobbying Activity Substantial part test. Whether a church’s or religious organization’s attempts to influence legislation constitute a substantial part of its overall activities is deter- mined on the basis of all the pertinent facts and circumstances in each case. The IRS considers a variety of factors, including the time devoted (by both compen- sated and volunteer workers) and the expenditures devoted by the organization to the activity, when determining whether the lobbying activity is substantial. Churches must use the substantial part test since they aren’t eligible to use the expenditure test described in the next section. Under the substantial part test, a church or religious organization that conducts excessive lobbying activity in any taxable year may lose its tax-exempt status, resulting in all its income being subject to tax. In addition, a religious organization is subject to an excise tax equal to five percent of its lobbying expenditures for the year in which it ceases to qualify for exemption. Further, a tax equal to five percent of the lobbying expenditures for the year may be imposed against organization managers, jointly and severally, who agree to the making of such expenditures knowing that the expenditures would likely result in loss of tax-exempt status. |
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Expenditure test. Although churches aren’t eligible, religious organizations may
elect the expenditure test under IRC Section 501(h) as an alternative method for
measuring lobbying activity. Under the expenditure test, the extent of an organiza-
tion’s lobbying activity won’t jeopardize its tax-exempt status, provided its
expenditures, related to the activity, do not normally exceed an amount specified
in IRC Section 4911. This limit is generally based on the organization’s size and
may not exceed $1,000,000.
Religious organizations electing to use the expenditure test must file IRS Form
5768, Election/Revocation of Election by an Eligible Section 501(c)(3) Organization To
Make Expenditures To Influence Legislation, at any time during the tax year for which
it is to be effective. The election remains in effect for succeeding years unless it’s
revoked by the organization. Revocation of the election is effective beginning with
the year following the year in which the revocation is filed. Religious organizations
may wish to consult their tax advisors to determine their eligibility for, and the
advisability of, electing the expenditure test.
Under the expenditure test, a religious organization that engages in excessive
lobbying activity over a four-year period may lose its tax-exempt status, making
all its income for that period subject to tax. Should the organization exceed its lob-
bying expenditure dollar limit in a particular year, it must pay an excise tax equal to
25 percent of the excess.
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Political Campaign Activity
Under the Internal Revenue Code, all IRC Section 501(c)(3) organizations, includ-
ing churches and religious organizations, are absolutely prohibited from directly or
indirectly participating in, or intervening in, any political campaign on behalf of (or
in opposition to) any candidate for elective public office. Contributions to political
campaign funds or public statements of position (verbal or written) made by or on
behalf of the organization in favor of (or in opposition to) any candidate for public
office clearly violate the prohibition against political campaign activity. Violation
of this prohibition may result in denial or revocation of tax-exempt status and the
imposition of excise tax.
Certain activities or expenditures may not be prohibited depending on the facts
and circumstances. For example, certain voter education activities (including
the presentation of public forums and the publication of voter education guides)
conducted in a non-partisan manner do not constitute prohibited political
campaign activity. In addition, other activities intended to encourage people to
participate in the electoral process, such as voter registration and get-out-the-vote
drives, would not constitute prohibited political campaign activity if conducted in a
non-partisan manner. On the other hand, voter education or registration activities
with evidence of bias that: (a) would favor one candidate over another; (b) oppose
a candidate in some manner; or (c) have the effect of favoring a candidate or
group of candidates, will constitute prohibited participation or intervention.
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Individual Activity by Religious Leaders
The political campaign activity prohibition isn’t intended to restrict free expression
on political matters by leaders of churches or religious organizations speaking for
themselves, as individuals. Nor are leaders prohibited from speaking about impor-
tant issues of public policy. However, for their organizations to remain tax exempt
under IRC Section 501(c)(3), religious leaders can’t make partisan comments in
official organization publications or at official church functions. To avoid potential
attribution of their comments outside of church functions and publications, reli-
gious leaders who speak or write in their individual capacity are encouraged to
clearly indicate that their comments are personal and not intended to represent
the views of the organization. The following are examples of situations involving
endorsements by religious leaders.
EXAMPLE 1
Minister A is the minister of Church J, a Section 501(c)(3) organization, and is well known in the com-
munity. With their permission, Candidate T publishes a full-page ad in the local newspaper listing five
prominent ministers who have personally endorsed Candidate T, including Minister A. Minister A is
identified in the ad as the minister of Church J. The ad states, “Titles and affiliations of each individual
are provided for identification purposes only.” The ad is paid for by Candidate T’s campaign committee.
Since the ad was not paid for by Church J, the ad is not otherwise in an official publication of Church
J, and the endorsement is made by Minister A in a personal capacity, the ad doesn’t constitute political
campaign intervention by Church J.
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EXAMPLE 2
Minister B is the minister of Church K, a Section 501(c)(3) organization, and is well known in the com-
munity. Three weeks before the election, he attends a press conference at Candidate V’s campaign
headquarters and states that Candidate V should be re-elected. Minister B doesn’t say he is speaking
on behalf of Church K. His endorsement is reported on the front page of the local newspaper and he is
identified in the article as the minister of Church K. Because Minister B didn’t make the endorsement at
an official church function, in an official church publication or otherwise use the church’s assets, and
did not state that he was speaking as a representative of Church K, his actions didn’t constitute political
campaign intervention by Church K.
EXAMPLE 3
Minister C is the minister of Church I, a Section 501(c)(3) organization. Church I publishes a monthly
church newsletter that is distributed to all church members. In each issue, Minister C has a column titled
“My Views.” The month before the election, Minister C states in the “My Views” column, “It is my per-
sonal opinion that Candidate U should be re-elected.” For that one issue, Minister C pays from his per-
sonal funds the portion of the cost of the newsletter attributable to the “My Views” column. Even though
he paid part of the cost of the newsletter, the newsletter is an official publication of the church. Because
the endorsement appeared in an official publication of Church I, it constitutes political campaign inter-
vention by Church I.
EXAMPLE 4
Minister D is the minister of Church M, a Section 501(c)(3) organization. During regular services of
Church M shortly before the election, Minister D preached on a number of issues, including the impor-
tance of voting in the upcoming election, and concluded by stating, “It is important that you all do your
duty in the election and vote for Candidate W.” Because Minister D’s remarks indicating support for
Candidate W were made during an official church service, they constitute political campaign intervention
by Church M.
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Issue Advocacy vs . Political Campaign Intervention
Like other Section 501(c)(3) organizations, some churches and religious organi-
zations take positions on public policy issues, including issues that divide candi-
dates in an election for public office. However, 501(c)(3) organizations must avoid
any issue advocacy that functions as political campaign intervention. Even if a
statement does not expressly tell an audience to vote for or against a specific can-
didate, an organization delivering the statement is at risk of violating the political
campaign intervention prohibition if there is any message favoring or opposing
a candidate. A statement can identify a candidate not only by stating the candi-
date’s name but also by other means such as showing a picture of the candidate,
referring to political party affiliations or other distinctive features of a candidate’s
platform or biography. All the facts and circumstances need to be considered to
determine if the advocacy is political campaign intervention.
Key factors in determining whether a communication results in political campaign
intervention include:
n whether the statement identifies one or more candidates for a given public office,
n whether the statement expresses approval or disapproval for one or more
candidates’ positions or actions,
n whether the statement is delivered close in time to the election,
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n whether the statement makes reference to voting or an election,
n whether the issue addressed in the communication has been raised as an issue
distinguishing candidates for a given office,
n whether the communication is part of an ongoing series of communications by
the organization on the same issue that are made independent of the timing of any
election, and
n whether the timing of the communication and identification of the candidate are
related to a non-electoral event such as a scheduled vote on specific legislation by
an officeholder who also happens to be a candidate for public office.
A communication is particularly at risk of political campaign intervention when
it makes reference to candidates or voting in a specific upcoming election.
Nevertheless, the communication must still be considered in context before
arriving at any conclusions.
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| EXAMPLE 1 Church O, a Section 501(c)(3) organization, prepares and finances a full-page newspaper advertisement that is published in several large circulation newspapers in State V shortly before an election in which Senator C is the incumbent candidate for nomination in a party primary. The advertisement states that a pending bill in the United States Senate would provide additional opportunities for State V residents to participate in faith-based programs by providing funding to such church-affiliated programs. The advertisement ends with the statement “Call or write Senator C to tell him to vote for this bill, despite his opposition in the past.” Funding for faith-based programs hasn’t been raised as an issue distinguishing Senator C from any opponent. The bill is scheduled for a vote before the election. The advertisement identifies Senator C’s position as contrary to O’s position. Church O has not violated the political cam- paign intervention prohibition. The advertisement doesn’t mention the election or the candidacy of Senator C or distinguish Senator C from any opponent. The timing of the advertising and the identifi- cation of Senator C are directly related to a vote on the identified legislation. The candidate identified, Senator C, is an officeholder who is in a position to vote on the legislation. EXAMPLE 2 Church R, a Section 501(c)(3) organization, prepares and finances a radio advertisement urging an increase in state funding for faith-based education in State X, which requires a legislative appropriation. Governor E is the governor of State X. The radio advertisement is first broadcast on several radio sta- tions in State X beginning shortly before an election in which Governor E is a candidate for re-election. The advertisement is not part of an ongoing series of substantially similar advocacy communications by Church R on the same issue. The advertisement cites numerous statistics indicating that faith-based education in State X is under funded. Although the advertisement doesn’t say anything about Governor E’s position on funding for faith-based education, it ends with “Tell Governor E what you think about our under-funded schools.” In public appearances and campaign literature, Governor E’s opponent has made funding of faith-based education an issue in the campaign by focusing on Governor E’s veto of 10 an income tax increase to increase funding for faith-based education. At the time the advertisement is broadcast, no legislative vote or other major legislative activity is scheduled in the State X legislature on state funding of faith-based education. Church R has violated the political campaign prohibition. The advertisement identifies Governor E, appears shortly before an election in which Governor E is a can- didate, is not part of an ongoing series of substantially similar advocacy communications by Church R on the same issue, is not timed to coincide with a non-election event such as a legislative vote or other major legislative action on that issue, and takes a position on an issue that the opponent has used to distinguish himself from Governor E. EXAMPLE 3 Candidate A and Candidate B are candidates for the state senate in District W of State X. The issue of State X funding for a faith-based indigent hospital care in District W is a prominent issue in the cam- paign. Both candidates have spoken out on the issue. Candidate A supports funding the care; Candidate B opposes the project and supports increasing State X funding for public hospitals instead. P is the head of the board of elders at Church C, a Section 501(c)(3) organization located in District W. At C’s annual fundraising dinner in District W, which takes place in the month before the election, P gives a long speech about health care issues, including the issue of funding for faith-based programs. P doesn’t mention the name of any candidate or any political party. However, at the end of the speech, P states, “For those of you who care about quality of life in District W and the desire of our community for health care responsive to their faith, there is a very important choice coming up next month. We need more funding for health care. Increased public hospital funding won’t make a difference. You have the power to respond to the needs of this community. Use that power when you go to the polls and cast your vote in the election for your state senator.” C has violated the political campaign intervention prohibition as a result of P’s remarks at C’s official function shortly before the election, in which P referred to the upcoming election after stating a position on a prominent issue in a campaign that distinguishes the candidates. |
| Inviting a Candidate to Speak Depending on the facts and circumstances, a church or religious organization may invite political candidates to speak at its events without jeopardizing its tax-exempt status. Political candidates may be invited in their capacity as candidates, or indi- vidually (not as candidates). Candidates may also appear without an invitation at organization events that are open to the public. Speaking as a candidate. Like any other IRC Section 501(c)(3) organization, when a candidate is invited to speak at a church or religious organization event as a political candidate, factors in determining whether the organization participated or intervened in a political campaign include: n whether the church provides an equal opportunity to the political candidates seeking the same office, n whether the church indicates any support of or opposition to the candidate. This should be stated explicitly when the candidate is introduced and in communica- tions concerning the candidate’s appearance, n whether any political fundraising occurs, n whether the individual is chosen to speak solely for reasons other than candi- dacy for public office, n whether the organization maintains a nonpartisan atmosphere on the premises 11 or at the event where the candidate is present, and n whether the organization clearly indicates the capacity in which the candidate is appearing and does not mention the individual’s political candidacy or the upcom- ing election in the communications announcing the candidate’s attendance at the event. Equal opportunity to participate. Like any other Section 501(c)(3) organization, in determining whether candidates are given an equal opportunity to participate, a church or religious organization should consider the nature of the event to which each candidate is invited, in addition to the manner of presentation. For exam- ple, a church or religious organization that invites one candidate to speak at its well attended annual banquet, but invites the opposing candidate to speak at a sparsely attended general meeting, will likely be found to have violated the political campaign prohibition, even if the manner of presentation for both speakers is oth- erwise neutral. Public forum. Sometimes a church or religious organization invites several candidates to speak at a public forum. A public forum involving several candi- dates for public office may qualify as an exempt educational activity. However, if the forum is operated to show a bias for or against any candidate, then the forum would be prohibited campaign activity, as it would be considered intervention or |
| participation in a political campaign. When an organization invites several candi- dates to speak at a forum, it should consider: n whether questions for the candidate are prepared and presented by an indepen- dent nonpartisan panel; n whether the topics discussed by the candidates cover a broad range of issues that the candidates would address if elected to the office sought and are of interest to the public; n whether each candidate is given an equal opportunity to present his or her views on the issues discussed; n whether the candidates are asked to agree or disagree with positions, agendas, platforms or statements of the organization; and n whether a moderator comments on the questions or otherwise implies approval or disapproval of the candidates. A candidate may seek to reassure the organization that it’s permissible for the organization to do certain things in connection with the candidate’s appearance. An organization in this position should keep in mind that the candidate may not be familiar with the organization’s tax-exempt status and that the candidate may be focused on compliance with the election laws that apply to the candidate’s campaign rather than the federal tax law that applies to the organization. The orga- 12 nization will be in the best position to ensure compliance with the prohibition on political campaign intervention if it makes its own independent conclusion about its compliance with federal tax law. The following are examples of situations where a church or religious organization invites candidates to speak before the congregation. EXAMPLE 1 Minister E is the minister of Church N, a Section 501(c)(3) organization. In the month prior to the election, Minister E invited the three Congressional candidates for the district in which Church N is located to address the congregation, one each on three successive Sundays, as part of regular worship services. Each candidate was given an equal opportunity to address and field questions on a variety of topics from the congregation. Minister E’s introduction of each candidate included no comments on their qualifi- cations or any indication of a preference for any candidate. The actions do not constitute political cam- paign intervention by Church N. EXAMPLE 2 The facts are the same as in Example 1 except there are four candidates in the race rather than three, and one of the candidates declines the invitation to speak. In the publicity announcing the dates for each of the candidate’s speeches, Church N includes a statement that the order of the speakers was deter- mined at random and the fourth candidate declined the church’s invitation to speak. Minister E makes the same statement in his opening remarks at each of the meetings where one of the candidates is speaking. Church N’s actions do not constitute political campaign intervention. |
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EXAMPLE 3
Minister F is the minister of Church O, a Section 501(c)(3) organization. The Sunday before the election,
Minister F invited Senate Candidate X to preach to her congregation during worship services. During his
remarks, Candidate X stated, “I am asking not only for your votes, but for your enthusiasm and dedica-
tion, for your willingness to go the extra mile to get a very large turnout on Tuesday.” Minister F invited
no other candidate to address her congregation during the Senatorial campaign. Because these activ-
ities took place during official church services, they are by Church O. By selectively providing church
facilities to allow Candidate X to speak in support of his campaign, Church O’s actions constitute politi-
cal campaign intervention.
Speaking as a non-candidate. Like any other Section 501(c)(3) organization, a
church or religious organization may invite political candidates (including church
members) to speak in a non-candidate capacity. For instance, a political candidate
may be a public figure because he or she: (a) currently holds, or formerly held,
public office; (b) is considered an expert in a non-political field; or (c) is a celebrity
or has led a distinguished military, legal or public service career. A candidate may
choose to attend an event that is open to the public, such as a lecture, concert or
worship service. The candidate’s presence at a church-sponsored event does not,
by itself, cause the organization to be involved in political campaign intervention.
However, if the candidate is publicly recognized by the organization, or if the can-
didate is invited to speak, factors in determining whether the candidate’s appear-
ance results in political campaign intervention include:
n whether the individual speaks only in a non-candidate capacity,
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n whether either the individual or any representative of the church makes any men-
tion of his or her candidacy or the election,
n whether any campaign activity occurs in connection with the candidate’s atten-
dance,
n whether the individual is chosen to speak solely for reasons other than candi-
dacy for public office,
n whether the organization maintains a nonpartisan atmosphere on the premises
or at the event where the candidate is present, and
n whether the organization clearly indicates the capacity in which the candidate is
appearing and doesn’t mention the individual’s political candidacy or the upcom-
ing election in the communications announcing the candidate’s attendance at the
event.
In addition, the church or religious organization should clearly indicate the capac-
ity in which the candidate is appearing and shouldn’t mention the individual’s polit-
ical candidacy or the upcoming election in the communications announcing the
candidate’s attendance at the event.
Below are examples of situations where a public official appears at a church or
religious organization.
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EXAMPLE 1
Church P, a Section 501(c)(3) organization, is located in the state capital. Minister G customarily
acknowledges the presence of any public officials present during services. During the state guberna-
torial race, Lieutenant Governor Y, a candidate, attended a Wednesday evening prayer service in the
church. Minister G acknowledged the Lieutenant Governor’s presence in his customary manner, saying,
“We are happy to have worshiping with us this evening Lieutenant Governor Y.” Minister G made no ref-
erence in his welcome to the Lieutenant Governor’s candidacy or the election. Minister G’s actions do
not constitute political campaign intervention by Church P.
EXAMPLE 2
Minister H is the minister of Church Q, a Section 501(c)(3) organization. Church Q is building a commu-
nity center. Minister H invites Congressman Z, the representative for the district containing Church Q, to
attend the groundbreaking ceremony for the community center. Congressman Z is running for re-elec-
tion at the time. Minister H makes no reference in her introduction to Congressman Z’s candidacy or the
election. Congressman Z also makes no reference to his candidacy or the election and does not do any
fundraising while at Church Q. Church Q has not intervened in a political campaign
EXAMPLE 3
Church X is a Section 501(c)(3) organization. Church X regularly publishes a member newsletter.
Individual church members are invited to send in updates about their activities, which are printed in each
edition of the newsletter. After receiving an update letter from Member Q, Church X prints the following:
“Member Q is running for city council in Metropolis.” The newsletter does not contain any reference to
this election or to Member Q’s candidacy other than this statement. Church X has not intervened in a
political campaign.
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EXAMPLE 4
Mayor G attends a concert performed by a choir of Church S, a Section 501(c)(3) organization, in City
Park. The concert is free and open to the public. Mayor G is a candidate for re-election, and the concert
takes place after the primary and before the general election. During the concert, Church S’s minister
addresses the crowd and says, “I am pleased to see Mayor G here tonight. Without his support, these
free concerts in City Park would not be possible. We will need his help if we want these concerts to
continue next year so please support Mayor G in November as he has supported us.” As a result of these
remarks, Church S has engaged in political campaign intervention.
Voter Education, Voter Registration and Get-Out-the-Vote Drives
Section 501(c)(3) organizations are permitted to conduct certain voter education
activities (including the presentation of public forums and the publication of voter
education guides) if they are carried out in a non-partisan manner. In addition,
Section 501(c)(3) organizations may encourage people to participate in the elec-
toral process through voter registration and get-out-the-vote drives, conducted in a
non-partisan manner. On the other hand, voter education or registration activities
conducted in a biased manner that favors (or opposes) one or more candidates is
prohibited.
Like other Section 501(c)(3) organizations, some churches and religious organi-
zations undertake voter education activities by distributing voter guides. Voter
guides, generally, are distributed during an election campaign and provide infor-
mation on how all candidates stand on various issues. These guides may be dis-
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| tributed with the purpose of educating voters; however, they may not be used to attempt to favor or oppose candidates for public elected office. A careful review of the following facts and circumstances may help determine whether a church or religious organization’s publication or distribution of voter guides constitutes prohibited political campaign activity: n whether the candidates’ positions are compared to the organization’s position, n whether the guide includes a broad range of issues that the candidates would address if elected to the office sought, n whether the description of issues is neutral, n whether all candidates for an office are included, and n whether the descriptions of candidates’ positions are either: – the candidates’ own words in response to questions, or – a neutral, unbiased and complete compilation of all candidates’ positions. The following are examples of situations where churches distribute voter guides. EXAMPLE 1 Church R, a Section 501(c)(3) organization, distributes a voter guide prior to elections. The voter guide 15 consists of a brief statement from the candidates on each issue made in response to a questionnaire sent to all candidates for governor of State I. The issues on the questionnaire cover a wide variety of topics and were selected by Church R based solely on their importance and interest to the electorate as a whole. Neither the questionnaire nor the voter guide, through their content or structure, indicate a bias or preference for any candidate or group of candidates. Church R is not participating or intervening in a political campaign. EXAMPLE 2 Church S, a Section 501(c)(3) organization, distributes a voter guide during an election campaign. The voter guide is prepared using the responses of candidates to a questionnaire sent to candidates for major public offices. Although the questionnaire covers a wide range of topics, the wording of the ques- tions evidences a bias on certain issues. By using a questionnaire structured in this way, Church S is participating or intervening in a political campaign. EXAMPLE 3 Church T, a Section 501(c)(3) organization, sets up a booth at the state fair where citizens can register to vote. The signs and banners in and around the booth give only the name of the church, the date of the next upcoming statewide election and notice of the opportunity to register. No reference to any candi- date or political party is made by volunteers staffing the booth or in the materials available in the booth, other than the official voter registration forms which allow registrants to select a party affiliation. Church T is not engaged in political campaign intervention when it operates this voter registration booth. EXAMPLE 4 Church C is a Section 501(c)(3) organization. Church C’s activities include educating its members on family issues involving moral values. Candidate G is running for state legislature and an important ele- |
| ment of her platform is challenging the incumbent’s position on family issues. Shortly before the elec- tion, Church C sets up a telephone bank to call registered voters in the district in which Candidate G is seeking election. In the phone conversations, Church C’s representative tells the voter about the moral importance of family issues and asks questions about the voter’s views on these issues. If the voter appears to agree with the incumbent’s position, Church C’s representative thanks the voter and ends the call. If the voter appears to agree with Candidate G’s position, Church C’s representative reminds the voter about the upcoming election, stresses the importance of voting in the election and offers to pro- vide transportation to the polls. Church C is engaged in political campaign intervention when it conducts this get-out-the-vote drive. Business Activity The question of whether an activity constitutes participation or intervention in a political campaign may also arise in the context of a business activity of the church or religious organization, such as the selling or renting of mailing lists, the leasing of office space or the acceptance of paid political advertising. (The tax treatment of income from unrelated business activities follows.) In this context, some of the factors to be considered in determining whether the church or religious organiza- tion has engaged in prohibited political campaign activity include: n whether the good, service or facility is available to the candidates equally; n whether the good, service or facility is available only to candidates and not to the general public; n whether the fees charged are at the organization’s customary and usual rates; 16 and n whether the activity is an ongoing activity of the organization or is conducted only for the candidate. EXAMPLE 1 Church K is a Section 501(c)(3) organization. It owns a building that has a large basement hall suitable for hosting dinners and receptions. For several years, Church K has made the hall available for rent to the public. It has standard fees for renting the hall based on the number of people in attendance. A num- ber of different organizations have rented the hall. Church K rents the hall on a first come, first served basis. Candidate P’s campaign pays the standard fee for the dinner. Church K isn’t involved in political campaign intervention as a result of renting the hall to Candidate P for use as the site of a campaign fundraising dinner. EXAMPLE 2 Church L is a Section 501(c)(3) organization. It maintains a mailing list of all its members. Church L has never rented the mailing list to a third party. The campaign committee of Candidate A, who supports funding for faith-based programs, approaches Church L and offers to rent Church L’s mailing list for a fee that is comparable to fees charged by similar organizations. Church L rents the list to Candidate A’s campaign committee, but declines similar requests from campaign committees of other candidates. Church L has intervened in a political campaign. |
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Websites. The Internet has become a widely used communications tool. Section
501(c)(3) organizations use their own websites to disseminate statements and
information. They also routinely link their websites to websites maintained by other
organizations as a way of providing additional information that the organizations
believe is relevant to the public.
A website is a form of communication. If an organization posts something on its
website that favors or opposes a candidate for public office, the organization will
be treated the same as if it distributed printed material, oral statements or broad-
casts that favored or opposed a candidate.
An organization has control over whether it establishes a link to another site. When
an organization establishes a link to another website, the organization is respon-
sible for the consequences of establishing and maintaining that link, even if the
organization doesn’t have control over the content of the linked site. Because the
linked content may change over time, an organization may reduce the risk of polit-
ical campaign intervention by monitoring the linked content and adjusting the links
accordingly.
Links to candidate-related material, by themselves, do not necessarily constitute
political campaign intervention. All the facts and circumstances must be taken into
account when assessing whether a link produces that result. The facts and circum-
stances to be considered include, but are not limited to, the context for the link on
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the organization’s website, whether all candidates are represented, any exempt
purpose served by offering the link and the directness of the links between the
organization’s website and the Web page that contains material favoring or oppos-
ing a candidate for public office.
EXAMPLE 1
Church P, a Section 501(c)(3) organization, maintains a website that includes biographies of its ministers,
times of services, details of community outreach programs and activities of members of its congrega-
tion. B, a member of Church P’s congregation, is running for a seat on the town council. Shortly before
the election, Church P posts the following message on its website, “Lend your support to B, your fellow
parishioner, in Tuesday’s election for town council.” Church P has intervened in a political campaign.
EXAMPLE 2
Church N, a Section 501(c)(3) organization, maintains a website that includes staff listings, directions
to the church and descriptions of its community outreach programs, schedules of services and school
activities. On one page of the website, Church N describes a particular type of treatment program for
homeless veterans. This section includes a link to an article on the website of O, a major national news-
paper, praising Church N’s treatment program for homeless veterans. The page containing the article
on O’s website doesn’t refer to any candidate or election and has no direct links to candidate or elec-
tion information. Elsewhere on O’s website, there is a page displaying editorials that O has published.
Several of the editorials endorse candidates in an election that hasn’t yet occurred. Church N has not
intervened in a political campaign by maintaining a link on O’s website because the link is provided for
the exempt purpose of educating the public about its programs; the context for the link, the relation-
ship between Church N and O and the arrangement of the links going from Church N’s website to the
endorsement on O’s website don’t indicate that Church N was favoring or opposing any candidate.
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| EXAMPLE 3 Church M, a Section 501(c)(3) organization, maintains a website and posts an unbiased, nonpartisan voter guide. For each candidate covered in the voter guide, Church M includes a link to that candidate’s official campaign website. The links to the candidate websites are presented on a consistent neutral basis for each candidate, with text saying “For more information on Candidate X, you may consult [URL].” Church M has not intervened in a political campaign because the links are provided for the exempt purpose of educating voters and are presented in a neutral, unbiased manner that includes all candidates for a particular office. Consequences of Political Campaign Activity When it participates in political campaign activity, a church or religious organi- zation jeopardizes both its tax-exempt status under IRC Section 501(c)(3) and its eligibility to receive tax-deductible contributions. In addition, it may become sub- ject to an excise tax on its political expenditures. This excise tax may be imposed in addition to revocation, or it may be imposed instead of revocation. Also, the church or religious organization should correct the violation. Excise tax. An initial tax is imposed on an organization at the rate of 10 percent of the political expenditures. Also, a tax at the rate of 2.5 percent of the expenditures is imposed against the organization managers (jointly and severally) who, without reasonable cause, agreed to the expenditures knowing they were political expen- ditures. The tax on management may not exceed $5,000 with respect to any one expenditure. 18 In any case in which an initial tax is imposed against an organization, and the expenditures are not corrected within the period allowed by law, an additional tax equal to 100 percent of the expenditures is imposed against the organization. In that case, an additional tax is also imposed against the organization managers (jointly and severally) who refused to agree to make the correction. The addi- tional tax on management is equal to 50 percent of the expenditures and may not exceed $10,000 with respect to any one expenditure. Correction. Correction of a political expenditure requires the recovery of the expenditure, to the extent possible, and establishment of safeguards to prevent future political expenditures. Please note that a church or religious organization that engages in any political campaign activity also needs to determine whether it complies with the appropri- ate federal, state or local election laws, as these may differ from the requirements under IRC Section 501(c)(3). |
| Unrelated Business Income Tax (UBIT) Net Income Subject to the UBIT Churches and religious organizations, like other tax-exempt organizations, may engage in income-producing activities unrelated to their tax-exempt purposes, as long as the unrelated activities aren’t a substantial part of the organization’s activi- ties. However, the net income from these activities will be subject to the UBIT if the following three conditions are met: n the activity constitutes a trade or business, n the trade or business is regularly carried on, and n the trade or business is not substantially related to the organization’s exempt purpose. (The fact that the organization uses the income to further its charitable or religious purposes does not make the activity substantially related to its exempt purposes.) Exceptions to UBIT Even if an activity meets the above criteria, the income may not be subject to tax if it meets one of the following exceptions: (a) substantially all the work in operat- ing the trade or business is performed by volunteers, (b) the activity is conducted 19 by the organization primarily for the convenience of its members or (c) the trade or business involves the selling of merchandise substantially all of which was donated. In general, rents from real property, royalties, capital gains, and interest and div- idends aren’t subject to the unrelated business income tax unless financed with borrowed money. Examples of Unrelated Trade or Business Activities Unrelated trade or business activities vary depending on types of activities. Advertising Many tax-exempt organizations sell advertising in their publications or other forms of public communication. Generally, income from the sale of advertising is unre- lated trade or business income. This may include the sale of advertising space in weekly bulletins, magazines or journals, or on church or religious organization websites. Gaming Most forms of gaming, if regularly carried on, may be considered the conduct of an unrelated trade or business. This can include the sale of pull-tabs and raffles. Income derived from bingo games may be eligible for a special tax exception (in addition to the exception regarding uncompensated volunteer labor), if: (a) the |
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bingo game is the traditional type of bingo (as opposed to instant bingo, a varia-
tion of pull-tabs), (b) the conduct of the bingo game is not an activity carried out
by for-profit organizations in the local area and (c) the operation of the bingo game
does not violate any state or local law.
Sale of merchandise and publications
The sale of merchandise and publications (including the actual publication of
materials) can be considered the conduct of an unrelated trade or business if the
items involved do not have a substantial relationship to the exempt purposes of the
organization.
Rental income
Generally, income derived from the rental of real property and incidental personal
property is excluded from unrelated business income. However, there are certain
situations in which rental income may be unrelated business taxable income:
n if a church rents out property on which there is debt outstanding (for example, a
mortgage note), the rental income may constitute unrelated debt-financed income
subject to UBIT. (However, if a church or convention or association of churches
acquires debt-financed land and intends to use it for exempt purposes within 15
years of the time of acquisition, then income from the rental of the land may not
constitute unrelated business income.)
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n if personal services are rendered in connection with the rental, then the income
may be unrelated business taxable income.
Parking lots
If a church owns a parking lot that is used by church members and visitors while
attending church services, any parking fee paid to the church would not be sub-
ject to UBIT. However, if a church operates a parking lot that is used by members
of the general public, parking fees would be taxable, as this activity would not be
substantially related to the church’s exempt purpose, and parking fees are not
treated as rent from real property. If the church enters into a lease with a third
party who operates the church’s parking lot and pays rent to the church, these
payments would not be subject to tax, as they would constitute rent from real
property.
Whether an income-producing activity is an unrelated trade or business activ-
ity depends on all the facts and circumstances. For more information, see IRS
Publication 598, Tax on Unrelated Business Income of Exempt Organizations.
Tax on Income-Producing Activities
If a church, or other exempt organization, has gross income of $1,000 or more
for any taxable year from the conduct of any unrelated trade or business, it must
file IRS Form 990-T, Exempt Organization Business Income Tax Return, for that year.
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If the church is part of a larger entity (such as a diocese), it must file a separate
Form 990-T if it has a separate EIN. Form 990-T is due the l5th day of the 5th
month following the end of the church’s tax year. (IRC Section 512(b)(12) provides
a special rule for parishes and similar local units of a church. A specific deduction
is provided, which is equal to the lower of $1,000 or the gross income derived from
any unrelated trade or business regularly carried on by the parish or local unit of a
church.) See Filing Requirements.
Employment Tax
Generally, churches and religious organizations are required to withhold, report
and pay income and Federal Insurance Contributions Act (FICA) taxes for their
employees. Employment tax includes income tax and FICA taxes withheld and
paid for an employee. Substantial penalties may be imposed against an organiza-
tion that fails to withhold and pay the proper employment tax. Whether a church
or religious organization must withhold and pay employment tax depends upon
whether the church’s workers are employees. Determination of worker status
is important. Several facts determine whether a worker is an employee. For an
in-depth explanation and examples of the common law employer-employee rela-
tionship, see IRS Publication 15-A, Employer’s Supplemental Tax Guide. If a church
or a worker wants the IRS to determine whether the worker is an employee, the
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church or worker should file IRS Form SS-8, Determination of Worker Status for
Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.
Social Security and Medicare Taxes — Federal Insurance
Contributions Act (FICA)
FICA taxes consist of Social Security and Medicare taxes. Wages paid to employ-
ees of churches or religious organizations are subject to FICA taxes unless one of
the following applies:
n wages are paid for services performed by a duly ordained, commissioned or
licensed minister of a church in the exercise of his or her ministry, or by a member
of a religious order in the exercise of duties required by such order; or
n a church that is opposed to the payment of Social Security and Medicare taxes
for religious reasons files IRS Form 8274, Certification by Churches and Qualified
Church-Controlled Organizations Electing Exemption From Employer Social Security
and Medicare Taxes. Very specific timing rules apply to filing Form 8274. It must
be filed before the first date on which the electing entity is required to file its first
quarterly employment tax return. This election does not relieve the organization of
its obligation to withhold income tax on wages paid to its employees. In addition, if
an employee makes such an election and earns more than $108.28 in wages in a
calendar year, he or she must pay Self-Employment Contributions Act (SECA) tax.
For more information, see Publication 517, Social Security and Other Information for
Members of the Clergy and Religious Workers.
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Withheld employee income tax and FICA taxes are reported on IRS Form 941,
Employer’s Quarterly Federal Tax Return. Some small employers are eligible to file an
annual Form 944 instead of quarterly returns. For more information about employ-
ment tax, see;
n Publication 15, Circular E, Employer’s Tax Guide
n Publication 15-A, Employer’s Supplemental Tax Guide
n Publication 517, Social Security and Other Information for Members of the Clergy and
Religious Workers
n Form 944 Instructions
Federal Unemployment Tax Act (FUTA)
Churches and religious organizations are not liable for FUTA tax. For further
information on FUTA, see IRS Publication 15, Circular E, Employer’s Tax Guide,
IRS Publication 15-A, Employer’s Supplemental Tax Guide, and IRS Publication
517, Social Security and Other Information for Members of the Clergy and Religious
Workers.
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Special Rules for Compensation of Ministers
Withholding Income Tax for Ministers
Unlike other exempt organizations or businesses, a church isn’t required to with-
hold income tax from the compensation it pays to its duly ordained, commissioned
or licensed ministers for performing services in the exercise of their ministry. An
employee minister may, however, enter into a voluntary withholding agreement
with the church by completing IRS Form W-4, Employee’s Withholding Allowance
Certificate. A church should report compensation paid to a minister on Form W-2,
Wage and Tax Statement, if the minister is an employee, or on IRS Form 1099-MISC,
Miscellaneous Income, if the minister is an independent contractor.
Parsonage or Housing Allowances
Generally, a minister’s gross income does not include the fair rental value of a
home (parsonage) provided, or a housing allowance paid, as part of the minister’s
compensation for services performed that are ordinarily the duties of a minister.
A minister who is furnished a parsonage may exclude from income the fair rental
value of the parsonage, including utilities. However, the amount excluded can’t be
more than the reasonable pay for the minister’s services.
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| A minister who receives a housing allowance may exclude the allowance from gross income to the extent it’s used to pay expenses in providing a home. Generally, those expenses include rent, mortgage payments, utilities, repairs and other expenses directly relating to providing a home. If a minister owns a home, the amount excluded from the minister’s gross income as a housing allowance is limited to the least of: (a) the amount actually used to provide a home, (b) the amount officially designated as a housing allowance or (c) the fair rental value of the home. The minister’s church or other qualified organization must designate the housing allowance by official action taken in advance of the payment. If a minister is employed and paid by a local congregation, a designation by a national church agency won’t be effective. The local congregation must make the designation. A national church agency may make an effective designation for ministers it directly employs. If none of the minister’s salary has been officially designated as a hous- ing allowance, the full salary must be included in gross income. The fair rental value of a parsonage or housing allowance is excludable from income only for income tax purposes. These amounts are not excluded in deter- mining the minister’s net earnings from self-employment for Self-Employment Contributions Act (SECA) tax purposes. Retired ministers who receive either a par- sonage or housing allowance aren’t required to include the amounts for SECA tax purposes. As mentioned above, a minister who receives a parsonage or rental allowance 23 excludes that amount from his income. The portion of expenses allocable to the excludable amount is not deductible. This limitation, however, does not apply to interest on a home mortgage or real estate taxes, nor to the calculation of net earnings from self-employment for SECA tax purposes. IRS Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers, has a detailed example of the tax treatment for a housing allowance and the related limitations on deductions. IRS Publication 525, Taxable and Nontaxable Income, has information on particular types of income for ministers. Social Security and Medicare Taxes — Federal Insurance Contributions Act (FICA) vs. Self-Employment Contributions Act (SECA) The compensation that a church or religious organization pays to its ministers for performing services in the exercise of ministry is not subject to FICA taxes. However, income that a minister earns in performing services in the exercise of his ministry is subject to SECA tax, unless the minister has timely applied for and received an exemption from SECA tax. |
| Payment of Employee Business Expenses A church or religious organization is treated like any other employer as far as the tax rules on employee business expenses. The rules differ depending upon whether the expenses are paid through an accountable or non-accountable plan, and these plans determine whether the payment for these expenses is included in the employee’s income. Accountable Reimbursement Plan An arrangement that an employer establishes to reimburse or advance employee business expenses will be an accountable plan if it: (1) involves a business con- nection, (2) requires the employee to substantiate expenses incurred and (3) requires the employee to return any excess amounts. Employees must provide the organization with sufficient information to identify the specific business nature of each expense and to substantiate each element of an expenditure. It isn’t sufficient for an employee to aggregate expenses into broad categories such as travel or to report expenses through the use of non-descriptive terms such as miscellaneous business expenses. Both the substantiation and the return of excess amounts must occur within a reasonable time. Employee business expenses reimbursed under an accountable plan are: (a) excluded from an employee’s gross income, (b) not required to be reported on the 24 employee’s IRS Form W-2, Wage and Tax Statement, and (c) exempt from the with- holding and payment of wages subject to FICA taxes and income tax withholdings. Non-accountable Reimbursement Plan If the church or religious organization reimburses or advances the employee for business expenses, but the arrangement does not satisfy the three requirements of an accountable plan, the amounts paid to the employees are considered wages subject to FICA taxes and income tax withholding, if applicable, and are reportable on Form W-2. (Amounts paid to employee ministers are treated as wages reportable on Form W-2, but are not subject to FICA taxes or income tax withholding.) For example, if a church or religious organization pays its secretary a $200 per month allowance to reimburse monthly business expenses the secretary incurs while conducting church or religious organization business, and the secretary is not required to substantiate the expenses or return any excess, then the entire $200 must be reported on Form W-2 as wages subject to FICA taxes and income tax withholding. In the same situation involving an employee-minister, the allow- ance must be reported on the minister’s Form W-2, but no FICA or income tax withholding is required. For further information see IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses. |
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One common business expense reimbursement is for automobile mileage. If a
church or religious organization pays a mileage allowance at a rate that is less
than or equal to the federal standard rate, the amount of the expense is deemed
substantiated. (Each year, the federal government establishes a standard mileage
reimbursement rate.) There are no income or employment tax consequences to
the reimbursed individual provided that the employee substantiates the time, place
and business purposes of the automobile mileage for which reimbursement is
sought. Of course, reimbursement for automobile mileage incurred for personal
purposes is includible in the individual’s income.
If a church or religious organization reimburses automobile mileage at a rate
exceeding the standard mileage rate, the excess is treated as paid under a non-
accountable plan. This means that the excess is includible in the individual’s
income and is subject to the withholding and payment of income and employment
taxes, if applicable.
In addition, any mileage reimbursement that is paid without requiring the individual
to substantiate the time, place and business purposes of each trip is included in
the individual’s income, regardless of the rate of reimbursement.
No income is attributed to an employee or a volunteer who uses an automobile
owned by the church or religious organization to perform church-related work.
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Recordkeeping Requirements
Books of Accounting and Other Types of Records
All tax-exempt organizations, including churches and religious organizations
(regardless of whether tax-exempt status has been officially recognized by the
IRS), are required to maintain books of accounting and other records necessary to
justify their claim for exemption in the event of an audit. See Special Rules Limiting
IRS Authority to Audit a Church. Tax-exempt organizations are also required to
maintain books and records that are necessary to accurately file any federal tax
and information returns that may be required.
There is no specific format for keeping records. However, the types of required
records frequently include organizing documents (charter, constitution, articles
of incorporation) and bylaws, minute books, property records, general ledgers,
receipts and disbursements journals, payroll records, banking records and
invoices. The extent of the records necessary generally varies according to the
type, size and complexity of the organization’s activities.
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Length of Time to Retain Records
The law does not specify a length of time that records must be retained; however,
the following guidelines should be applied in the event that the records may be
material to the administration of any federal tax law.
TYPE OF RECORD LENGTH OF TIME TO RETAIN
Records of revenue Retain for at least four
and expenses, years after filing the
including payroll returns to which they
records. relate.
Records relating to Retain for at least four
acquisition and years after the filing of
disposition of property the return for the year
(real and personal, in which disposition
including investments). occurs.
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Filing Requirements
Information and Tax Returns — Forms to File and Due Dates
Churches or religious organizations may be required to report certain payments
or information to the IRS. The following is a list of the most frequently required
returns, who should use them, how they are used and when they should be filed.
Forms Who Should Use Them How They are Used When to File
Form W-2 Organizations with employees. Use Form W-2 to report employee Furnish each employee with a
Wage and Tax Statement wages and the taxes withheld from completed Form W-2 by January 31;
them. Use Form W-3 to transmit and file all Forms W-2 and Form W-3
Form W-3 Forms W-2 to the Social Security with the Social Security Administration
Transmittal of Wage Administration. (SSA) by the last day of February.
and Tax Statement
Form W-2G Any charitable or religious orga- The requirements for reporting and For each winner meeting the
Certain Gaming Winnings nization, including a church, that withholding depend on the type of filing requirement, the church
For more information on reporting sponsors a gaming event (raffles, gaming, the amount of winnings and or religious organization must furnish
requirements for gaming activities, bingo) must file Form W-2G when the ratio of winnings to the wager. Form W-2G by January 31; and file
see IRS Publication 3079, Tax- a participant wins a prize over a Copy A of Form W-2G with the IRS
Exempt Organizations and Gaming. specific value amount. by February 28.
Form 941 Small employers that have been Use Form 941 or 944 to report Social See form instructions for due dates.
Employer’s Quarterly notified by the IRS to file Form Security and Medicare taxes and income
Federal Tax Return 944 (see form instructions) may taxes withheld by the organization, and
or use that form; other employers Social Security and Medicare taxes paid 27
required to file must use Form 941. by the organization.
Form 944
Employer’s Annual
Federal Tax Return
Form 945 If a church or religious organization File Form 945 by January 31. This
Annual Return of withholds income tax, including backup form is not required for those years
Withheld Federal withholding, from non-payroll payments, in which there is no non-payroll tax
Income Tax it must file Form 945. liability.
Form 990 Generally, all religious organiza- The thresholds for determining which Form 990, 990-EZ or 990-N must be
Return of Organization tions (see exceptions to file Form form to file, Form 990. 990-EZ or 990-N filed on or before the 15th day of the
Exempt From Income Tax 990 below) must file Form 990, are found at www.irs.gov/charities. 5th month following the end of the
Form 990-EZ or Form 990-N. organization’s tax year.
Form 990-EZ
Short Form Return of For 990-N must be electronically filed.
Organization Exempt
From Income Tax Exceptions to file Form 990, 990-EZ and 990-N
The following is a list of some of the organizations that are not required to file
Form 990-N (e-Postcard) Form 990, 990-EZ, or 990-N.
Electronic Notice for n Churches (as opposed to “religious organizations,” defined earlier)
Tax-Exempt Organizations n Inter-church organizations of local units of a church
Not Required to File n Mission societies sponsored by or affiliated with one or more churches or church
Form 990 or 990-EZ denomination, if more than half of the activities are conducted in, or directed at,
persons in foreign countries
n An exclusively religious activity of any religious order
See the form instructions for a list of other organizations that are not required to file.
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Forms Who Should Use Them How They are Used When to File
Form 990-T Churches and religious organizations. Churches and religious organizations Form 990-T must be filed by the 15th
Exempt Organization must file Form 990-T if they generate day of the 5th month after the organiza-
Business Income Tax Return gross income from an unrelated busi- tion’s accounting period ends (May 15
For more information on unrelated ness of $1,000 or more for a taxable for a calendar year accounting period).
business income, see Unrelated year.
Business Income Tax (UBIT).
Form 990-W Churches and religious organizations. If the tax on unrelated business income Form 990-W is for computation
Estimated Tax on Unrelated is expected to be $500 or more, the purposes only and does not need
Business Taxable Income for church or religious organization must to be filed.
Tax-Exempt Organizations make estimated tax payments.
Use Form 990-W to compute the
estimated tax liability.
Form 1096 Churches and religious organizations. Use Form 1096 to transmit Forms Form 1096 must be filed by February
Annual Summary and 1099-MISC, W-2G and certain other 28 in the year following the calendar
Transmittal of U.S. forms to the IRS. year in which the payments were
Information Returns made.
Form 1099-MISC Churches and religious organizations. A church or religious organization Churches or religious organizations
Miscellaneous Income must use Form 1099-MISC if it pays an must furnish each payee with a copy
See the Instructions for unincorporated individual or an entity of Form 1099-MISC by January 31;
Form 1099-MISC for details. $600 or more in any calendar year for and file Copy A of Form 1099-MISC
gross rents; commissions, fees or other with the IRS by February 28.
compensation paid to non-employees;
prizes and awards; or other fixed and
determinable income.
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Form 5578 A church or religious organization File Form 5578 to certify that the Form 5578 must be filed on or
Annual Certification of that operates a private school, whether school does not discriminate based before the 15th day of the 5th month
Racial Nondiscrimination separately incorporated or operated on race or ethnic origin. following the end of the organization’s
for a Private School Exempt as part of its overall operations, that taxable year (May 15 for a calendar
from Federal Income Tax teaches secular subjects and generally year).
For information on racial and ethnic complies with state law requirements If an organization files Form 990 or
nondiscriminatory policies, see for public education. Form 990-EZ, the certification must
Revenue Procedure 75-50, 1975-2 be made on Schedule A (Form 990
C.B. 587 at www.irs.gov. Note: It is not considered racially discriminatory for a parochial school to select students on or Form 990-EZ).
the basis of membership in a religious denomination if membership in the denomination is open
to all on a racially nondiscriminatory basis. Further, a seminary, or other purely religious school,
that primarily teaches religious subjects usually with the purpose of training students for the
ministry, is not subject to the racially nondiscriminatory requirements because it is considered
to be a religious rather than an educational organization.
Form 8282 Churches and religious organizations. A church or religious organization must The church or religious organization
Donee Information Return file Form 8282 if it sells, exchanges, must file Form 8282 with the IRS within
transfers or otherwise disposes of cer- 125 days of date of disposition of
tain non-cash donated property within the property; and furnish the original
three years of the date it originally donor with a copy of the form.
received the donation. This applies
to non-cash property that had an
appraised value of more than $5,000
at time of donation.
Treasury Form 90.22.1, See form instructions See form instructions See form instructions
Report of Foreign Bank
and Financial Accounts
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| Charitable Contributions— Substantiation and Disclosure Rules Recordkeeping A church or religious organization should be aware of the recordkeeping and sub- stantiation rules imposed on donors of charities that receive certain quid pro quo contributions. Recordkeeping Rules A donor cannot claim a tax deduction for any contribution of cash, a check or other monetary gift made on or after January 1, 2007, unless the donor maintains a record of the contribution in the form of either a bank record (such as a cancelled check) or a written communication from the charity (such as a receipt or a letter) showing the name of the charity, the date of the contribution and the amount of the contribution. Substantiation Rules A donor can’t claim a tax deduction for any single contribution of $250 or more unless the donor obtains a contemporaneous, written acknowledgment of the con- tribution from the recipient church or religious organization. A church or religious organization that doesn’t acknowledge a contribution incurs no penalty; but with- 29 out a written acknowledgment, the donor can’t claim a tax deduction. Although it’s a donor’s responsibility to obtain a written acknowledgment, a church or religious organization can assist the donor by providing a timely, written statement contain- ing: n name of the church or religious organization, n date of the contribution, n amount of any cash contribution, and n description (but not the value) of non-cash contributions. In addition, the timely, written statement must contain one of the following: n statement that no goods or services were provided by the church or religious organization in return for the contribution, n statement that goods or services that a church or religious organization provided in return for the contribution consisted entirely of intangible religious benefits, or n description and good-faith estimate of the value of goods or services other than intangible religious benefits that the church or religious organization provided in return for the contribution. |
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The church or religious organization may either provide separate acknowledg-
ments for each single contribution of $250 or more or one acknowledgment to
substantiate several single contributions of $250 or more. Separate contributions
aren’t aggregated for purposes of measuring the $250 threshold.
Disclosure Rules that Apply to Quid Pro Quo Contributions
A contribution made by a donor in exchange for goods or services is known as a
quid pro quo contribution. A donor may only take a contribution deduction to the
extent that his or her contribution exceeds the fair market value of the goods and
services the donor receives in return for the contribution. Therefore, donors need
to know the value of the goods or services. A church or religious organization must
provide a written statement to a donor who makes a payment exceeding $75 partly
as a contribution and partly for goods and services provided by the organization.
EXAMPLE 1
If a donor gives a church a payment of $100 and, in return, receives a ticket to an event valued at $40,
this is a contribution, and only $60 is deductible by the donor ($100 - $40 = $60). Even though the
deductible amount does not exceed $75, since the contribution the church received is in excess of $75,
the church must provide the donor with a written disclosure statement. The statement must: (1) inform
the donor that the amount of the contribution that is deductible for federal income tax purposes is limited
to the excess of money (and the fair market value of any property other than money) contributed by the
donor over the value of goods or services provided by the church or religious organization; and (2) pro-
vide the donor with a good-faith estimate of the value of the goods or services.
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The church or religious organization must provide the written disclosure statement
with either the solicitation or the receipt of the contribution and in a manner that is
likely to come to the attention of the donor. For example, a disclosure in small print
within a larger document may not meet this requirement.
Exceptions to Disclosure Statement
A church or religious organization isn’t required to provide a disclosure statement
for quid pro quo contributions when: (a) the goods or services meet the standards
for insubstantial value or (b) the only benefit received by the donor is an intangi-
ble religious benefit .Additionally, if the goods or services the church or religious
organization provides are intangible religious benefits (examples follow), the
acknowledgment for contributions of $250 or more doesn’t need to describe those
benefits.
Generally, intangible religious benefits are benefits provided by a church or reli-
gious organization that are not usually sold in commercial transactions outside a
donative (gift) context.
Intangible religious benefits include:
n admission to a religious ceremony
n de minimis tangible benefits, such as wine used in religious ceremony
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| Benefits that are not intangible religious benefits include: n tuition for education leading to a recognized degree n travel services n consumer goods IRS Publication 1771, Charitable Contributions: Substantiation and Disclosure Requirements, provides more information on substantiation and disclosure rules. Special Rules Limiting IRS Authority to Audit a Church Tax Inquiries and Examinations of Churches Congress has imposed special limitations, found in IRC Section 7611, on how and when the IRS may conduct civil tax inquiries and examinations of churches. The IRS may only initiate a hurchctax inquiry if an appropriate high-level Treasury Department official reasonably believes, based on a written statement of the facts and circumstances, that the organization: (a) may not qualify for the exemption or (b) may not be paying tax on an unrelated business or other taxable activity. Restrictions on Church Inquiries and Examinations 31 Restrictions on church inquiries and examinations apply only to churches (includ- ing organizations claiming to be churches if such status has not been recog- nized by the IRS) and conventions or associations of churches. They don’t apply to related persons or organizations. Thus, for example, the rules don’t apply to schools that, although operated by a church, are organized as separate legal enti- ties. Similarly, the rules don’t apply to integrated auxiliaries of a church. Restrictions on church inquiries and examinations do not apply to all church inqui- ries by the IRS. The most common exception relates to routine requests for infor- mation. For example, IRS requests for information from churches about filing of returns, compliance with income or Social Security and Medicare tax withholding requirements, supplemental information needed to process returns or applications and other similar inquiries are not covered by the special church audit rules. Restrictions on church inquiries and examinations don’t apply to criminal inves- tigations or to investigations of the tax liability of any person connected with the church, such as a contributor or minister. The procedures of IRC Section 7611 will be used in initiating and conducting any inquiry or examination into whether an excess benefit transaction (as that term is used in IRC Section 4958) has occurred between a church and an insider. |
| Audit Process The sequence of the audit process is: 1 . If the reasonable belief requirement is met, the IRS must begin an inquiry by providing a church with written notice containing an explanation of its concerns. 2 . The church is allowed a reasonable period in which to respond by furnishing a written explanation to alleviate IRS concerns. 3 . If the church fails to respond within the required time, or if its response is not sufficient to alleviate IRS concerns, the IRS may, generally within 90 days, issue a second notice, informing the church of the need to examine its books and records. 4 . After issuance of a second notice, but before commencement of an examination of its books and records, the church may request a conference with an IRS official to discuss IRS concerns. The second notice will contain a copy of all documents collected or prepared by the IRS for use in the examination and subject to disclo- sure under the Freedom of Information Act, as supplemented by IRC Section 6103 relating to disclosure and confidentiality of tax return information. 5 . Generally, examination of a church’s books and records must be completed within two years from the date of the second notice from the IRS. If at any time during the inquiry process the church supplies information sufficient 32 to alleviate the concerns of the IRS, the matter will be closed without examination of the church’s books and records. There are additional safeguards for the protec- tion of churches under IRC Section 7611. For example, the IRS can’t begin a sub- sequent examination of a church for a five-year period unless the previous exami- nation resulted in a revocation, notice of deficiency or assessment or a request for a significant change in church operations, including a significant change in accounting practices. |
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Glossary
Church. Certain characteristics are generally attributed to churches. These attrib-
utes of a church have been developed by the IRS and by court decisions. They
include:
n distinct legal existence;
n recognized creed and form of worship;
n definite and distinct ecclesiastical government;
n formal code of doctrine and discipline;
n distinct religious history;
n membership not associated with any other church or denomination;
n organization of ordained ministers;
n ordained ministers selected after completing prescribed courses of study;
n literature of its own;
n established places of worship;
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n regular congregations;
n regular religious services;
n Sunday schools for the religious instruction of the young; and
n schools for the preparation of its ministers.
The IRS generally uses a combination of these characteristics, together with other
facts and circumstances, to determine whether an organization is considered a
church for federal tax purposes.
The IRS makes no attempt to evaluate the content of whatever doctrine a particular
organization claims is religious, provided the particular beliefs of the organization
are truly and sincerely held by those professing them and the practices and rites
associated with the organization’s belief or creed are not illegal or contrary to
clearly defined public policy.
Integrated Auxiliary of a Church. The term integrated auxiliary of a church refers
to a class of organizations that are related to a church or convention or association
of churches, but are not such organizations themselves. In general, the IRS will
treat an organization that meets the following three requirements as an integrated
auxiliary of a church. The organization must:
n be described both as an IRC Section 501(c)(3) charitable organization and as a
public charity under IRC Sections 509(a)(1), (2) or (3);
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| n be affiliated with a church or convention or association of churches; and n receive financial support primarily from internal church sources as opposed to public or governmental sources. Men’s and women’s organizations, seminaries, mission societies and youth groups that satisfy the first two requirements above are considered integrated auxiliaries whether or not they meet the internal support requirements. More guidance as to the types of organizations the IRS will treat as integrated auxiliaries can be found in the Code of Regulations, 26 CFR Section 1.6033-2(h). The same rules that apply to a church apply to the integrated auxiliary of a church, with the exception of those rules that apply to the audit of a church. See Special Rules Limiting IRS Authority to Audit a Church. Minister. The term minister is not used by all faiths; however, as used in this book- let, the term minister denotes members of clergy of all religions and denominations and includes priests, rabbis, imams and similar members of the clergy. IRC Section 501(c)(3). IRC section 501(c)(3) describes charitable organizations, including churches and religious organizations, which qualify for exemption from federal income tax and generally are eligible to receive tax-deductible contribu- tions. This section provides that: n an organization must be organized and operated exclusively for religious or other 34 charitable purposes, n net earnings may not inure to the benefit of any private individual or shareholder, n no substantial part of its activity may be attempting to influence legislation, n the organization may not intervene in political campaigns, and n the organization’s purposes and activities may not be illegal or violate fundamen- tal public policy. |
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Help From The IRS
IRS Tax Publications
The IRS provides free tax publications and forms. Download publications and
forms from the IRS website at www.irs.gov. The following publications may provide
further information for churches and other religious organizations:
Publication 1 Your Rights as a Taxpayer
Publication 15 Circular E, Employer’s Tax Guide
Publication 15-A Employer’s Supplemental Tax Guide
Publication 334 Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ)
Publication 463 Travel, Entertainment, Gift, and Car Expenses
Publication 517 Social Security and Other Information for Members of the Clergy and
Religious Workers
Publication 525 Taxable and Nontaxable Income 35
Publication 526 Charitable Contributions
Publication 557 Tax-Exempt Status for Your Organization
Publication 561 Determining the Value of Donated Property
Publication 571 Tax-Sheltered Annuity Plans (403(b) Plans) for Employees of Public Schools
and Certain Tax-Exempt Organizations
Publication 598 Tax on Unrelated Business Income of Exempt Organizations
Publication 910 Guide to Free Tax Services
Publication 1771 Charitable Contributions: Substantiation and Disclosure Requirements
Publication 3079 Tax-Exempt Organizations and Gaming
Publication 4221-PC Compliance Guide for 501(c)(3) Public Charities
Publication 4573 Group Exemptions
Publication 4630 The Exempt Organizations Product and Services Catalog
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IRS Customer Service
Telephone assistance for general tax information is available by calling:
IRS Customer Service toll-free at 800-829-1040.
EO Customer Service
Telephone assistance specific to exempt organizations is available by calling:
IRS Exempt Organizations Customer Account Services toll-free at 877-829-5500.
EO Website
Visit the IRS Exempt Organizations website at www.irs.gov/eo.
StayExempt —Tax Basics for Exempt Organizations — online courses available at
www.stayexempt.irs.gov.
EO Update
To receive IRS EO Update, a periodic newsletter with information for tax-exempt
organizations and tax practitioners who represent them, visit www.irs.gov/eo and
click on “Free e-Newsletter.”
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