Skip to main content

Church Support of Non-501(c)(3) Organization


A church has supported a children's ministry for several years which has recently lost its 501(c)(3) exemption. The leaders of the ministry are not employees of the church, and the ministry provides no services directly to the church. Is there any reason why the church cannot continue to give financial support to the children's ministry?


This issue is tricky. A church may support other 501(c)(3) organizations; however, churches must be careful when they attempt to support non-501(c)(3) organizations. 

Since the organization has lost its exempt status, the disbursements are no longer from one 501(c)(3) to another 501(c)(3); disbursements of this type are not subject to Form 1099-MISC or other reporting. 

Now that the disbursements are made to a taxable entity, they will likely be viewed as payments for services rendered. The supporting church therefore may be required to issue Form 1099-MISC. The church should research whether filing Form 1099-MISC would be required. For example, payments to non-employee individuals for services rendered are subject to Form 1099-MISC reporting.

For more information read the following previous blog posting:
Church Worker Employee or Independent Contractor


Popular posts from this blog

Review: Form 1099 Payments to 501(c)(3) Organizations

Question: A church rented space from another church last year. Should it request a completed Form W-9 and issue Form 1099-MISC? Answer: Payments from one 501(c)(3) organization to another 501(c)(3) organization are not subject to Form 1099-MISC reporting. The IRS Instructions for Form 1099-MISC state that "payments to a tax-exempt organization" are exempt from reporting a Form 1099-MISC.  The following are typical examples of payments of $600 or more by a church which are subject to reporting a Form 1099-MISC: Rent paid to an individual (non-corporation) Payments for services rendered by individuals who are not employees (e.g. janitorial service, facilities, snow removal, guest speakers) Support sent directly to missionaries

Debits and Credits for Designated Gifts

Question: A church is setting up QuickBooks for its accounting, but its personnel have little experience with fund accounting. What are the entries for the receipt and disbursement of designated gifts and the opening balances? Answer: We recommend that most churches that do not need to present financial statements in accordance with Generally Accepted Accounting Principles (GAAP) observe the following steps. Even those churches that do report using GAAP can employ these methods but must make some adjustments when preparing their financial statements. What we will demonstrate relates to what most churches call "designated gifts" (CPAs call these  Temporarily Restricted  gifts). These are gifts that donors contribute with the intention that the church will spend the funds as they direct. Most churches do not receive "endowment gifts" in which donors prohibit the expenditure of the core gift (CPAs call these  Permanently Restricted  gifts). Only earnings on the subsequ

Rental of a Church Parsonage to a Non-Minister

Question: A church owns a parsonage, but the pastor does not use it as he owns his own home. The church rents the parsonage to a tenant other than a minister or employee of the church. Will the church be responsible for paying income tax on these monies as Unrelated Business Income (filing a Form 990-T) even if the money is used to carry on the business of the church? Answer: Whether the money is used for church purposes is irrelevant.  IRS Publication 598  states: "If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business." Fortunately, in the case of rental income from real property, such income is "excluded in computing unrelated business taxable income" (Publication 598). Caution: see content below regarding debt-financed property.  However, a second concern not a