Our Church is a 501(c) (3) which has a Camp with about 30 cabins where we spend about 10 days a year for Church services. Many parties are interested in renting our facilities. Would such rentals affect our status with the IRS and cause us to be subject to local real estate taxes? In addition, a Pastor has left the ministry and has asked to place a trailer on our property, for which we are charging a $75 fee to cover expenses. Can this pastor donate each month to cover his expenses to the Camp? Can he work the fee off in labor and would this make him an employee?
Although churches are not required to file the Form 990 tax information returns, they can be subject to unrelated business income tax if they engage in unrelated business income activities. Although rental income is usually not taxable, short-term summer rentals on a regular basis for unrelated purposes could generate unrelated business income, which could be taxable, and which, if a substantial activity, could ultimately cost the church its charitable exempt status. (See Ready Reference Pages: “Charities Often Worry About UBIT.”)
Non-charitable business activity for profit could also disqualify the property from local real estate exemption, depending on the specific requirements of your local state law.
The Pastor could give the church the $75 per month for expenses, but it would not be a charitable contribution deduction because of the occupancy rights received in return. He could work off the fee by labor, but it would probably be taxable income to him. Whether he would be an employee or an independent contractor would depend on the character of the relationship with the church. (See Ready Reference Page: “Classify: Employee or Independent Contractor.”)
It sounds as though you have enough fact-based questions – and enough flexibility in what you decide to do -- that you ought to consult a local lawyer for advice on the most advantageous way to accomplish what you want to do.
Wednesday, February 13, 2008
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