83% of Churches Aren't Ready for Next Level

By Raul Rivera

It was an interesting conversation.  The pastor on the other line was telling me how his church had grown since the time he and his wife started it in their living room.  Two and one half years ago, he preached during his first service...to his wife, three kids, mother, sister, brother in-law, and two other people.  Now he was preaching to 180 people consistently.  For him and his wife, it has been a great run and now they feel ready to take it to the next level. 

Getting right is the next level

Our conversation lasted one hour.  During the coarse of our conversation, he shared with me how they wanted to expand the ministry by starting new outreach programs, community development, and even adding a for profit arm.  His vision was clear; his passion was abundant and plans were coordinated.  Yet, something was missing; something big enough that without it, his ministry would likely never get to the next level, and at worst, would turn their joy into grief and number the days of his ministry.  When he started the church, he dedicated himself to work in the ministry, but he never considered working ON his ministry. 

1.     His board was unbalanced:  When he and his wife started the church, the board members he chose were all relatives.  It was he, his wife, sister, and brother-in-law.  He later added two other unrelated people, but that was not enough.  His board was unbalanced because a majority of the board members were related.

2.    His salary was approved by family members:  After the first 18 months, the church started to pay him a salary.  The board, consisting 100% of his family members, decided the salary. Though the salary amount would normally be considered reasonable in amount, it was still declared unreasonable by the IRS because they did not meet the written documentation requirements Reg. 53.4958-4(c)(1).

3.    Majority of the board received compensation:  His wife, sister, and brother-in-law were paid for various services they provided the church.  His sister and brother-in-law each received $50.00 a week for faithfully leading the worship team.  His wife received $100.00 per week for keeping the church books and co-pastoring with her husband.   Though they had pure hearts, they were in serious violation of regulation 1.501(c)(3)-1(d)(ii), which makes it necessary for an organization to establish that it is not organized or operated for the benefit of private interests such as designated individuals, the creator, or his family.  The IRS interprets this to mean that a majority of the board must be unrelated and uncompensated.

4.     They called his compensation housing allowance, but with no documented proof:  At the time his family voted to pay him a salary, they did not call it a salary; they said it would be housing allowance.  Yet, they had no documentation to prove it, thus making it all taxable as regular income tax.  Additionally, regulation 53.4958-1-(b)(2) imposes an additional tax of 200%.

5.     None of his salary was ever reported to the IRS:  They did not know they were supposed to report the pastor's salary on a W-2 form.  He thought that he did not have to report on his income tax return. 

Why many churches never make it

My conversation with the pastor was very fruitful.  Instead of getting down on himself, he acted with vigorous enthusiasm.  He recognized that the next level for his church was to get right.  All of the plans he had for his church would never succeed unless he knew his internal structures could sustain his growth.  It was God's mercy that led him to realize that the growth of his church could be the very thing that would cause it to collapse unless he strengthened the foundation.  His zeal was not moved.  He understood that day, God required him to faithfully steward what was entrusted to him.  How could he be entrusted to care for more souls if his testimony in regards to the laws of man was a mess? That day, he felt a renewed vigor to focus on the tax and legal side if his ministry as his next step to get him to the next level. 

Many churches need to get right

In all of the years I have been with the ministry of StartCHURCH, there is one thing I know every church needs but seldom realizes.  That is that they need to get right with the law.   Statistics from the U.S. Department of Labor and the IRS reveal that over 83% of churches have serious compliance issues.  This tells me a bigger story.  Before we can preach more souls into getting right with God, we must first get right with the law (1 Peter 2:13-17).

How to get right

Having consulted 1,000's of churches about their tax and legal compliance, it is clear that the overwhelming majority want to live above reproach in this vital area.  Often all they need in order to make this critical transition is a partner that will help guide and equip them to make the leap.  StartCHURCH exists to help pastors and ministry leaders do just that! Either on the phone or through our Church Compliance Conferences, StartCHURCH provides one-on-one time with pastors whereby they can privately share the state of their house and get the counseling and tools they need to move forward with confidence.  If you would like to get started on your road to real compliance, please call 770-638-3444 or register for one of our conferences coming up in your area.