Your church cannot afford to lose its tax-exempt status under any circumstances. It could affect your ability to raise donations. When your church fundraises, several considerations come into play. You must have an agenda and policies ahead of time so there are no mistakes. Otherwise, donors would be unable to take a tax deduction for money they donate to your church. Then, they would be less likely to give money. Here are some things that churches should be careful about when raising money.
Donations Usually Present Fewer Legal Issues
Donations are always the safest way for a church to raise money. When a donor relinquishes control of money or property to a church, it will count as a tax-exempt donation. If the donor itemizes their deductions, they can take the value of the donation off their income, giving an incentive for charitable donations.
However, churches often have large budgets and many employees on the staff. The money from tithes and donations may not be enough to cover the church’s budget. The church may need to resort to other means to raise money. At the same time, the church needs to keep its tax-exempt status. The church needs to be careful about how it raises money and how much it raises through business-like activities.
Raffles and Gaming Could Present Legal Issues
One of the most important considerations is to make sure that the church is complying with state law. There could be prohibitions on certain activities of a church. One common way a church can raise money is through a raffle of gaming nights. However, that fundraiser could run afoul of state laws. Each state has its laws and requirements about church gaming activities.
Virginia law generally allows charitable organizations to conduct raffles and offer certain gaming activities to raise money. However, a detailed law dictates what churches must do to raise money in this way. If the raffle or gross receipts from gaming are high enough, the church may even need to register with the state and notify them of the intention to hold a raffle. The church may require a permit for its gaming activities.
If the church does not follow Virginia law regulating gaming at qualified organizations, it could risk its tax-exempt status entirely. Then, trying to make up for a budget shortfall using creative measures could backfire on the church by making it harder for people to donate money.
Be Careful About Earning Too Much Unrelated Business Income
Churches must always be on guard to protect their tax-exempt status. For example, a church could end up in trouble if it realizes too much business income from activities unrelated to its purpose. For example, churches may hold bake sales to raise money. They may also charge money for services provided, such as tuition for an education. All of these sources of income would not be subject to taxes.
However, if the church begins to make money from unrelated activities, it could start paying taxes on what they earn. For example, if the church was a large real estate owner and made money from rent and property sales, it may need to pay taxes. The IRS may even revoke the church’s tax-exempt status altogether if it finds that it earns substantial amounts of money from unrelated business activities. When that happens, the church becomes more like a business than a religious institution.
Our Virginia Beach Church Lawyers at Anchor Legal Group, PLLC Can Keep You in Compliance With Laws and Regulations
Contact our Virginia Beach church lawyers at Anchor Legal Group, PLLC to learn more about potential legal issues involved in fundraising. Sometimes, churches end up in trouble when they do not know anything could be wrong. Do not let that happen to your church. Call us at 757-LAW-0000 or contact us online to schedule a consultation. Located in Virginia Beach, we serve clients in Chesapeake, Norfolk, Suffolk, Portsmouth, Newport News, Hampton, and Eastern Shore, Virginia.