APPENDIX

A church is considered a nonprofit organization by the IRS and some state governments. Nevertheless you should file for recognition as a nonprofit under Section 501(c)(3) of the Federal Tax Code. You should also request exemption from state sales taxes and the removal of taxes from various bills if it is appropriate in your state.

"Request Acknowledgement of 501(c)(3) Status from the IRS As a church you are tax exempt, but if you are required to prove it the best way is to provide a copy of your Letter of Determination under Section 501(c)(3). The term 501(c)(3) is derived from the location in the tax code dealing with nonprofits. Form 1023 and Schedule A, which are the IRS forms that must be filed to receive your Letter of Determination. This is recognition of your church's 501(c)(3) tax exempt status. You will also need a form 8718 which is a fee schedule for your application.

Request State Sales Tax Exemption (If Applicable) Contact the Department of Revenue for the state in which your church operates and request the necessary forms for exemption from State Sales Tax. Most states provide an exemption in one form or another.

Make copies of your State Sales Tax Exemption Certificate for anyone that does any purchasing for the church. It is a good idea to make copies, reduced to the size of a credit card, and laminated, so that they will fit into your wallet. That way they will always be available when you need proof of your exemption.

Request Exemption from Taxes on Utility Bills We are all called to be good stewards of that which God has given us. We also read in Matthew 22:21b, "And He said to them, 'Render therefore to Caesar the things that are Caesar's, and to God the things that are God's'". All of your utility bills (electricity, water, gas, pager and local and long distance telephone) will contain various taxes from which, as a church, you may be exempt. Inquire with each utility concerning the procedure for having the taxes removed. Some may require your Letter of Determination under Section 501(c)(3) and your Sales Tax Exemption. In some states churches are not exempt from all taxes. In that situation you must do some research to determine from which, if any, taxes you are exempt.

Since your 501(c)(3) Letter of Determination acknowledges the tax free status you have always had as a church, the removal of taxes from your utility bills should be retroactive. This may require a lot of follow-up, but be persistent. Over time these taxes represent a significant amount of money.

Preparing for Tax Time When tax time comes you should be aware of the following items that need to be filed.

• Your Board of Directors needs to issue a letter to the pastor stating how much housing allowance he was paid for the prior year.
• Statements should be issued to your congregation listing their contributions for the year.
• Form 1099 should be issued to any individual whom you paid over $600 total during the previous tax year. You are also required to report these amounts to the IRS via Form 1096.
• Form W-2 should be issued to each employee for all wages paid to the individual throughout the year. You will also report this information to the IRS via Form W-3.

Ignoring any of these items will show lack of stewardship and integrity. We recommend that you contact a local accountant who is aware of church filing requirements to assist you in these areas.

So that you have all the information that your accountant needs when tax time comes, you should request the necessary information from those who will require a Form 1099. This includes contractors who had the check made payable to themselves personally as well as people hired for "temporary labor". The best way to keep this under control is to require them to fill out a 1099 Information Form before you issue the first check. This information is required to complete the IRS Form 1099. Your accountant will probably handle the Form 1099, but he/she will need this information from you.