Discussion:Church Accounting?

Like most everything else I have encountered thus far, this guy's situation (what little I know thus far) resides in the grey lines. He formed say, Lester Holt ministries as his business organization. Beyond that, I know very little. He mentioned that he wanted to form a 501c3 so he could get more consistent donations via the IRS official designation, but I am not sure if that would even be necessary.

I have been researching all night and find plenty of information regarding churches but since this guy is a traveling evangelist that goes elsewhere to preach and likely doesn't have a congregation or church building, I am not sure if the automatic 501c3 designation applies to him.

Does anyone work with Churches/Evangelists that could provide me some good resources and some information on what the Accountant's typical fee for filing a 1023 form would be?

Thanks, Michael

I do not work specifically with churches or evangelists, but I've prepared quite a few 1023's, including two for religious organizations (not churches). I've done a number of 990's for "ministries" that basically consisted of one or two people that traveled around the country preaching. They did not fit the definition of a church.

If your client does not fit the definition of a church, then 501(c)(3) is not automatic.

Fees for preparing Form 1023 vary tremendously. There are organizations on the internet that will prepare a 1023 for $1,200. They assume the client can prepare a convincing narrative description of their activities and can prepare the required budget information. I find that this is rarely the case. The most difficult part of the 1023 is preparing the narrative description of activities and preparing the budgeted financial information. I also provide a sample conflict of interest policy for the client to adopt, should they choose. When I charge $1,500 I rarely feel like I got paid properly for my time. When I charge $3,000 I feel a lot better. It just depends on the organization. A one-man ministry would probably be a fairly simple 1023 and I would think $2,000 would be in the ballpark.

A big help in preparing Form 1023 is Sandy Deja's book which you can buy from her site http://www.501c3book.com/. She now offers a supplement for churches and "similar" religious organizations that might help you. You could always send her an email. She's ex-IRS exempt org specialist.

My strategy is to find IRS revenue rulings that support my clients argument for exempt status. I use Bruce Hopkins' "The Law of Tax Exempt Organizations" a great deal to help me discover the rulings and court cases that relate to my clients activities.

Another note: I just did a 990 for a new nonprofit that had one of those specialized companies do their 1023 for $1,500. He said it took 5 months to get it approved because the IRS sent back a long list of questions that had to be addressed and sent back to the IRS for processing. He said the company told him that 70% of applications are delayed because additional info is needed. I found that strange because I've NEVER had the IRS ask for additional information on any 1023 I've ever submitted. They've all been approved. I say this only so you can see the quality of work that is being done at the $1,500 level. Be sure to charge enough for your time. My experience is that some clients say that they will send me a narrative and a budget, but they rarely send anything that is complete enough to use without considerable further development on my end.

It is a very satisfying experience to complete a 1023 and help a client get their tax exempt status.

Just one follow up question....for the fees you quoted, does that include the IRS filing fees for the 1023?

I am going to invest in that book, thank you for the resource. I have several good publication from the IRS but just about everyone and everything lies in the grey area between IRS rules.

Thanks again, you have been a tremendous help.

Michael

Glad to help. The fees I quoted do not include fees to the IRS or to the State or States if a the client is required to register to solicit charitable contributions in a particular state. You should check to see if your client will be required to register to solicit charitable contributions in the states he/she evangelizes in. If multiple state registrations are required, you should know that many states will accept a uniform registration statement. Find out more here: http://www.multistatefiling.org/

I always include a separate paragraph in my engagement letter emphasizing that the fee I am quoting does not cover fees to the IRS, to any state, or other party. I also include a paragraph that says the client agrees to provide me with information necessary to complete the application, just to be sure they understand that they will be involved in the process.

"just about everyone and everything lies in the grey area between IRS rules."

Yes! Job security!

Remember to bill extra for additional state charitable solicitation registrations. Also consider that states may require a different presentation of financial information than the IRS does. Florida, for instance, requires a statement of functional expenses.

I always add a $100 line item to my fee estimate to cover certified mailing, copying, and driving the 1023 to the post office. I rarely trust the client to mail anything to the IRS.

Have fun!

I contacted Sandy and she was very accommodating and gave me a similarly well thought out answer as yours above. Unfortunately, nothing she has nor any of her references that she uses say much of anything about evangelists who travel to other churches to evangelize. They seem to be the red-headed step children the IRS likes to call the exception. You know, "Church accounting is fairly straight forward, as long as you aren't an evangelist!" :D If I get the gig, I am going to buy Sandy's book anyway (for helping me and to get the sample answers to use as a template).

It appears--Sandy concurred--that this guy will probably have to file an exemption as he doesn't pass enough of the 14 smell tests to be called a church. The only possible saving grace for him might be if he is part of some evangelism counsel or group that would give him the group exemption. Of course, that would take away my fees to file his 1023.

Fortunately for him, I have never filed a 1023 so I will have to learn everything about it and will therefore be a subject matter expert when I am done. I am, however, a very effective writer having penned many a board report while in public Accounting and I have an extensive background in the planning and budgeting arenas.

Time will tell. He didn't call back last evening as he said he would so all of this may have been an exercise in frustration. But I am learning and that will help going forward.

Thanks again for the excellent help. I assume he will be soliciting funds from multiple states so I made a mental note already to look at the multistate, but thank you for reminding me!

Michael