6 Deadly Legal Sins Pastors Commit

By Raul Rivera

Finding out early that he had committed some very big mistakes was good for him because it gave him the opportunity fix them before they got too big.  But, did he?  In 2008, pastor Ned and his wife, Regina, started a church in northern California.  They had a goal of reaching into the community using the fine arts and athletic programs.  At first, when their church had only a few members, they did not have qualified individuals to assist them in the bookkeeping and IRS compliance.  However, their hearts were sincere and pure.  They did the best they could with the limited knowledge they had.  Shortly after incorporating and getting a Tax ID number for the church, they opened a checking account and started to write checks and pay bills as necessary. 

How most churches do it

This is how most churches get started these days.  Pastor Ned's efforts are heroic.  He started a church right out of his own house with nothing more than just a word from the Lord and a lot of faith.  The problem is that he made mistakes early and they are beginning to hold him hostage because he now feels concerned about the IRS finding out about his mistakes because he know he did not start right.  Here is a short list of some of the mistakes he has made.

1. He assumed he would always be the leader of the church he founded:  Pastor Ned assumed that by virtue of his office, he would always be the leader of the church and corporation.  However, that is not true.  A church founder, like anyone else that would succeed only have the authority to perform the duties assigned to him/her in the articles of incorporation, the church bylaws or the employment contract.  Pastor Ned incorporated his church on his own and did not know that the phraseology in the articles of incorporation and church bylaws are of absolute importance.  He would soon find out when a member challenged his authority in court.
    
2. He signs on the checking account with no real accountability: From day one, Pastor Ned has had a hard time separating himself from his ministry. Therefore, he and his wife are the only signers of the church checking acct, and they also make the decisions as to when to spend and when not to spend. 
    
3. He helped a relative with benevolence: They recently helped their grandson with some college tuition and called it benevolence, though the church did not have a benevolence program or policy. Moreover, because their grandson is family to them, he is classified by Section 4958 as disqualified, and the penalties for this mistake are very big. 
    
4. The church paid his cell phone: Most pastors assume that the church can pay his cell phone bill just because he uses it for church purposes. Every month the church paid his cell phone bill without regard to any reimbursement policies, or Section 280. The Small Business Jobs Act of 2010 that was passed on September 27, 2010, makes it much easier to pay the pastor's cell phone if the church owns the account. Yet, his lack of that useful knowledge would keep him on the wrong side of the law.
5. The church incorrectly pays his utilities and mortgage: In the middle of 2009, Pastor Ned's board decided to start paying his light bill and mortgage without creating a compensation agreement. The board called it housing allowance. They never required him to keep any records and neither did they ever report it on line 14 of his W-2. He was not aware that he had to report this on his tax return and pay self-employment tax. He is now concerned that he owes back taxes. 
    
6. Mishandled donated property: In 2010, a member of the church bought Pastor Ned a Mac Book Pro laptop. The donor stated to him that he wanted to donate the laptop to Pastor Ned personally, but the donor also wanted a receipt from the church for his taxes. So, what did Pastor Ned do? He wrote him a tax-deductible contribution receipt for $2,000.00. The laptop sits in his home office and it has served him well, but now he is bothered because he just found out that this transaction was illegal because it violated section 170.

Fight the "As We Grow" Mentality

For many leaders the "as we grow" mentality is a detriment instead of a help.  I hear so many ministers say to me, "We know we do not have it "RIGHT", but as we grow, the Lord will provide for us people to fill in the gaps."  The problem with that mentality is that one believes that growth will cause things to fall into their places.  The exact opposite is true.  Growth will not come unless things are already in their places.  Intentional and focused leadership creates a sustainable environment of growth.  Let me explain.

The Two areas of compliance

 Intentional leadership recognizes the two main areas of compliance that foster growth.  Understanding them will give you clarity.

1.     Compliance with God's government:  Compliance in this area means that you spend blocks of time each week knowing the Word and How God governs His Kingdom.  You can't have a kingdom without government and in order to operate in His government, you will have to be compliant with His laws and statutes.  In Jeremiah 31:31 (also referenced in Hebrews 8), the Lord promised to give us His laws and to write them on our hearts.  Many ministers today spend less time reading the Word and as a result lose the deep sense of conviction for truth required to lead a congregation.

2.     Compliance with man's government:  Compliance in this area requires that you become sufficiently knowledgeable of the laws that govern your ministry to be able to make wise decisions as to when to do something in house and when to seek professional help.  While ministers often emphasize compliance with God's word, they tend to disregard compliance with man's laws simply because they disagree with some of the laws passed by men.  The deception in that is that we think God is OK with it, when in fact, the degree that you are compliant with man's laws is the degree that God will entrust you to lead His sheep. It is also the degree to which men believe you to be legitimate.  It is tough following a pastor with financial and tax trouble. 

Pastor Ned Taking his chances

Pastor Ned became aware of his non-compliance issues about three months ago.  To date, he has sat on the information and has not acted on it.  He feels paralyzed by the fear that if he suddenly starts to properly report these items, it will draw a red flag and he may end up owing back taxes.  What should he do?  Should he correct the problems of the past three years?  Or should he just go on?  He is currently thinking about what to do.  Time has its way of soothing conviction and assigning it to the rear section of memories, making our present reality easier.  I have one question for you.  Will you be like the Pastor Ned of this story?