As I have been teaching, I find that churches have two distinct “personalities.” The most easily recognized is the spiritual personality. The one most easily misunderstood and often overlooked is its civil personality. If we overlook the spiritual side of the church, you probably know what would result. Failure to attend to the civil side of the church can have different but equally disastrous results.
Non-profit corporations, such as your church, come under the auspices of the federal IRS and a few other agencies, as well as four main state agencies — the Secretary of State, Franchise Tax Board, Board of Equalization and Attorney General, in addition to county and city authorities.
Federal agencies typically have little contact with most churches. But in California, the Franchise Tax Board and the Board of Equalization have, in the past year or so, become much more aggressive in their scrutiny and treatment of churches. Many have been surprised to learn that they have been “suspended” by the FTB — and in at least two cases, were “administratively dissolved” as legal corporations. A suspended church is equivalent to a “dead person;” to be administratively dissolved means the body has been buried.
Either way, suspensions and dissolutions must be remedied immediately. FTB suspensions require payment of a $50 Secretary of State late-filing penalty, because it results from failure to file the SI-100 statement of information, and submission of Form 3500. FTB is now suspending corporations within four to six months of missing the filing deadline. Failure to respond to FTB notices following suspension results in dissolution, forcing the church to reincorporate.
The Board of Equalization issues the “Organizational Clearance Certificate” that permits the church to obtain a “welfare” exemption from property tax on portions of property used for non-religious purposes. Increasingly, BOE is rejecting applications as “incomplete” for a variety of reasons. In some instances, the rejections are petty and easily answered. But in other cases, the missing information is financial in nature.
Both the FTB and BOE require up to five years of financial data, in the form of balance sheets and revenue and expense statements. Too many of our smaller churches are not properly accounting for their money, and cannot provide this basic and essential information on demand. Regular financial reporting by the church treasurer is a critical function that cannot be overlooked, and requires good accounting practices.
CSBC has been promoting Aplos accounting software for more than two years. This is a “true fund accounting” program that is fairly easy to use, and provides the financial information the church needs. When church members have confidence in financial reports, giving goes up. Your church cannot afford to use inferior software, or to not use any software at all, for its basic accounting and donor management.
For more information on accounting or compliance matters, contact me at email@example.com or 559-256-0858.