Video Transcript: Seven USA Church Planting Administration Issues

My name is Brian DeCook and I am an attorney. I've been practicing law in  Illinois for 15 years. And this session is on the legal issues involved in planting a  church. The purpose of this discussion is not to educate you as to the intricacies of the law and those laws impacting churches, pastors and their congregations.  The purpose of our conversation today is to lay out for you those areas where  you may want to explore in more detail, or at least getting counsel from those  who may know that detail legal issues that impact the church's ministry, from its  formation, through the carrying out of that ministry and during the life of that  ministry. So today will be a broad brushstroke to legal issues. And those areas  that are of interest to you or that as these areas come up in the life of your  church plant or in your ministry, I encourage you to seek appropriate competent  legal counsel to help walk you through these issues. The areas that we're going  to cover today, the first will be church organization. The second will be drafting  of the seminal church documents. The third is the relationship between the  pastor and the church. The fourth is pastoral compensation and tax issues. The  fifth, confidentiality and the clergy penitent privilege, the seventh, the reporting  of abuse, the eighth financial affairs, and the final area handling of church  conflicts. The organizational form of a church is governed by state law. Each  state has statutes that recognize church and religious organizations and how  they are formed. And there are several options and ways to form a church. Each state has their specific options and they are not all the same. So depending on  what state your church is located in, those laws will govern the options that you  have available to form your church. The most popular form in America today is  the not for profit corporation. It's not that this form is any better than any of the  others it is simply the one that has been used most frequently. Not for profit  corporations are governed by state not for profit corporation statutes, and those  statutes will specify how many people are needed to form the corporation. In  Illinois, for example, a not for profit corporation must have a minimum of three  people on its board of trustees or board of directors or whatever appropriate  name is given to that group. Those people are responsible to govern the affairs  of the corporation. In the context of a church. This will most typically be the  board of elders or trustees, or whatever the leading body is called. Forming a  not for profit corporation typically requires filing certain documents with the State Secretary of State's office, and then identifying how the group will function in the drafting of a constitution or bylaws, or other document that we will speak to in  the second section of this discussion. A second form that a church may use is  the unincorporated association. Typically, an unincorporated association is a  group of people who gather together for a common purpose, and they do not file any documents as a corporation to form a legal entity. The law still recognizes  them as a separate entity, and allows them to own property and to function as a  corporation would, without the legal restrictions and requirements of the not for  profit corporation statute. A third option, at least in the state of Illinois is a 

religious organization. This formation requires a filing of an affidavit with the  county recorders office, in rather than filing articles of incorporation with the  Secretary of State. A religious organization is not bound by the state's not for  profit corporation act, nor is an unincorporated association bound by that  statute. These organizations still however, need to have rules and procedures as to how they will operate. If they do not have written rules as to how they will  operate and function. The common practice of the association or the  organization will govern as to the appropriate and applicable rules in the event a dispute arises. One of the reasons that churches form corporations or choose  the manner of formation in which they decide to function is sometimes  influenced by the Internal Revenue Service and the tax codes, treatment of  churches as tax exempt organizations, or churches tax exempt entity as a  matter of law under the current tax code. Hence, there is no filing or type of  formation that is required for a church to obtain the status. However, a church  that does not obtain formal status under some applicable state guideline, it  cannot apply for a tax exempt letter from the IRS unless it does make itself an  association of some kind, not saying that they have to incorporate or have to file  an affidavit with their county recorders. But if they're meeting as a church, they  can apply for tax exempt status through the IRS. And the IRS will then ask for  information to see if that entity qualifies for tax exempt status, they will then  issue a letter upon completion of their examination. And the church will typically  receive a letter from the IRS stating that it is a tax exempt organization. And that letter is often used by the church to present to entities that the church deals with in order to obtain property in the tax exempt. Status. So if a church is going to  purchase new chairs for its sanctuary, it can go to the merchant from whom and  is going to purchase the chairs, present them with that a copy of that letter, and  that merchant will not charge sales tax to the church. Now, many churches are  opposed. I shouldn't say many, some churches are opposed to forming a  corporate form entity or doing anything that involves the government. For those  entities, they automatically qualify as a church for tax exempt status. And they  can of course, go to that same merchant and say we are a church, and we don't  pay sales tax. If that merchant asks for a copy of their IRS letter, that entity of  course at church will not have a letter to give them and so that merchant may or  may not give them the tax break, but it's not obligated to if they don't have the  letter. And so, there are some advantages to obtaining that letter. But it is not the sole criteria that is required in order to have status as a not as a tax exempt  entity, is churches are automatically tax exempt. We'll talk a little bit more about  taxes and property taxes in particular, in a later section of this discussion. as to  which organizational form is appropriate for your congregation. This is a matter  for you to discuss with your own leadership, team and legal counsel and most  important of all, to seek the wisdom of the Lord in prayer. The second area of  our discussion is drafting of the church governing instrument, the seminal 

documents that will control the formation, the order, and the governance of the  church. This document is often referred to as a constitution, or sometimes  Articles of Organization or articles of incorporation or bylaws. But this document  will set out who will lead the congregation who will be vested with decision  making power. How much decision making power is and is vested in those  individuals, how important policy and procedure decisions are made and carried  out within the congregation, and also how disputes are resolved within the  congregation. Some church constitutions are more extensive than others. Some  are very brief, some are very extensive. What I would encourage any new  church plant to do is to review some constitutions of other churches and see the  form of the document options that are out there. And then again to seek the  Lord's guidance is to what form and how extensive this document will be for that  particular church. Why is it important to have a written document of this nature?  It is important because the rules and policies that are set up within that  document will be used and called upon by that leadership group and making  decisions. And the leadership group is bound by those policies and rules and  procedures. When that leadership team violates those rules and procedures, the members of the congregation have recourse through that document to either  undo those decisions, or at least address the inappropriate way in which they  were passed and then revisit the issue and address the matter in a proper,  proper way. The document is important also in setting out what polity the church  will have examples of varying church polity forms. The first is congregational.  Another is hierarchical, and I'll discuss both of these there are others. But a  congregational model is one in which the church congregation will vote on most  important issues and will then decide how the church will will move in response  to those issues. A congregational model may vest certain decision making  issues with a board of elders, or deacons, or trustees, or whomever the  Constitution or seminal document may provide. In a hierarchical church model, a local church may report to a higher body whether that be in the form of a  denomination or a relationship between churches and another entity or  governing body. In those hierarchical models, the local church will have certain  levels of autonomy, that will be controlled by another document that governs the  relationship between the higher authority entity and the local church. The  importance of following these bylaws or the constitution of the church is  essential to establishing acceptable practices within the congregation, that the  congregation can rely and follow its leadership as they follow the agreement that has been set out in founding the church. And of course, this is not a document  that is drafted and written in stone, but can be amended. As a church  congregation grows and needs change and the need to change policies may  arise. It is also important. And I would encourage any of you who are planting a  new church to prepare your documents before you plant the church. And as you  get started, when your leadership team is formed, draft these documents get 

them in place. What I have seen happen in many instances is that a church  planter or a young pastor who is planting his first church starting his first church  will go out in the zeal of the Lord and not give any thought to these formational  issues. And hence, when those problems eventually arise is growth will occur  and the need for some type of form and governance for this group exists. They  are now addressing their the foundational documents of that congregation  based upon a conflict that has arose or a need that has arose in there  responding, building these documents out of a response to an issue rather than  seeking the Lord's wisdom as they start the work to lay this foundation in this  document that will set the course for the formal relations and leadership  functions of the church. The third area I'd like to address is the relationship  between the pastor and the church. These are the following questions that need  to be addressed in in defining this relationship. Some churches will address  these issues in a formal contract. Others will have certain aspects of this  relationship in writing and in certain documents and letters. Some may be in the  contract, but they are issues that should be addressed in some form or another.  How much authority will the pastor have in terms of decision making, in terms of  spending in terms of acting on behalf of the corporation? Because the pastor is  the pastor does not entitle that individual to act on behalf of the organization. It's  not saying that the pastor cannot act on behalf of the organization but does is  the pastor authorized to act on behalf of the organization and that is an issue  that is set out in that Constitution olr in the bylaws or in some other seminal  document in the church. If the pastor is not given explicit authority to act on  behalf of the church, he does not by matter of law have that authority in any  document that the pastor signs may or may not be legally binding on the church, but it will it may be personally binding on the pastor if he assigned it without the  authority to do so. Another issue to talk about and discuss as a leadership team  is under what circumstances can a pastor be terminated? Under what  circumstances can a pastor leave? Is it open ended? Is his term of employment  one that is for a certain number of years? Is it at the pleasure of the leadership  team or of the congregation as a whole? And again, this is something that would be set out within the terms of the bylaws or the Constitution? What is the  mechanism for the removal of a pastor? Do we want that in our bylaws? Is it  something that is a congregational decision or a decision of a vote of the elders? And if it's a vote of the elders? Will that be a majority vote or will that be plurality  or unanimous? All of these things vary from congregation to congregation, there  is no one way to address these issues. And so as you in planting your church,  work through these matters again, seek the Lord's wisdom is what He wants for  your congregation and for your specific situation that matters, not what every  church down the street is doing. The next issue we'd like to discuss his pastoral  compensation and taxation issues. A pastor has a unique role as an employee  of a church that is different from almost every other type of employee in our 

country. For purposes of Social Security taxes, pastors are treated as being self  employed. That means they have options how their Social Security taxes are  paid. But the pastor pays those social security taxes as a self employed person  and this discussion today is not intended to get into the details of Social Security withholding. But know that and be aware of that as a pastor. You are treated as  a self employed individual for purposes of Social Security taxes. In terms of  income tax withholding, pastors have an option to be treated as a self employed  individual or as an employee of the church, depending on the circumstances in  which they are providing services to the church. If the pastor qualifies as an  employee, which most pastors will, the tax withholding should be taken as an  employee and not as a self employed person. Again, you will need to consult  with a local attorney or tax advisor concerning whether or not you qualify as an  employee or as an independent contractor. Typically, most pastors will be  employees. Even though a church is a tax exempt organization, the church will  still pay many types of taxes. Payroll taxes is one of those taxes. Anytime a  church has an employee and pays that employee compensation, tax withholding income tax withholding and Social Security tax withholding and Medicare tax  withholding is required of the church. And so as you progress in planting your  church and the Lord blesses your work with funding, realize that there are taxes  that need to be paid that a church is not tax exempt from all taxes, but only from  certain types of taxes. One type of tax that churches can be exempt from is  property taxes for a church to own real estate and build a church or to purchase  an existing building and conduct services there may qualify it for tax exemption.  This is a matter of state law. Each state has its own requirements for the  payment and the rate of property tax and the exemption from property tax.  Again, I'm an Illinois attorney. So in Illinois, each county has a form that a tax  exempt entity would complete and submit to the county for consideration of  granting it a tax exemption. Once the county grants that exemption, there will be no property tax assessed against that property from that date. forward until such time as the property is no longer used for tax exempt purposes in this case,  conducting church in church related services. The simple owning of vacant land  may not necessarily qualify as a tax exempt property, even though a church  owns it unless the property is being used for some tax exempt purpose. So  simply because the church owns real estate does not mean that it will qualify for  a property tax exemption. And going through the application process is  necessary in those circumstances in any circumstance. Another tax that a  church may be liable for is what is known as the unrelated business income tax.  unrelated business income tax is a tax that a church pays for income it receives  through activities that are not tax exempt activities. For example, if a church  owned a building, and conducted religious services in part of that building, but  another part of that building it rented out to corporate tenants who run their  businesses Monday through Friday, that income would be considered as rental 

income that would not be associated with the operation of any tax exempt  purpose, and so that income would typically be taxed as unrelated business  income. Again, the purpose of this discussion is not to discuss the intricacies of  unrelated business income tax law. However, be aware that if a church is raising funds through some activities that are not related to its tax exempt purpose,  which in this case would be church and church related functions, that income  may be subject to unrelated business income tax. The next area of discussion is the confidentiality of the clergy and penitent privilege, the nature of  communications between a clergyman and a member of the church, are  confidential in nature. There are two types of confidentiality I'd like to address  one is legal confidentiality, and the other is non legal confidentiality, the  confidentiality that a member anticipates and expects from a conversation with  their pastor. The legal type of confidentiality is at play when congregant or  church member comes to a clergyman and says something to them that they  are providing a communication during this during this meeting, where no one  else is present. And there's an expectation that this is a confidential  conversation. And anything said during that conversation between the member  and the pastor will be protected by a legal privilege. That means if the pastor  has ever called upon to testify about that conversation, if this was a meeting  between the pastor and the member of the congregation, and it was consulting a spiritual advisor on behalf of the member, and the pastor is called upon to testify to the content of that conversation the pastor can invoke and the church  member can invoke that the conversation is privileged and therefore not subject  to disclosure, it's protected by law and the pastor cannot be compelled to testify.  Not every communication with the pastor qualifies for this privilege. The  requirements are that it be a communication which means it is something that is  said or written confidentially made to the minister acting in his or her  professional capacity as a spiritual advisor. Having other people present during  a conversation that one anticipates to be confidential can destroy the protected  privilege. There was a recent case in which a woman a member of a  congregation had just learned from her nephew that he had committed a crime,  a serious crime. This member called her pastor invited the pastor to come. They  met at a hotel room, the nephew confessed to the pastor his crime, and later  was the individual the the nephew was charged with the crime. And the pastor  was called upon to testify. The nephew invoked the pastor penitent privilege.  And the court denied the motion for the privilege and require the pastor to testify because the aunt was present in the room when the confession was made to  the pastor. And so it was not made in a confidential setting. The aunt does not  qualify for any privilege on her own. Even though she's related to the nephew,  there is no general familial privilege. And therefore, the pastor was, was able or  compelled to testify as to his conversation with the nephew and any  acknowledgment or confession that he made during that meeting the type of 

confidentiality that a member often anticipates and expects of a pastor is that  any concert, any conversation that they have that will remain confidential  between them. And it is important as a pastor, to recognize the importance of  that confidentiality and the credibility that is at risk. When confidential.  Communications are not recognized and not observed. You will be tempted as a pastor, you will obtain information that might be helpful for others to know you  might think others are interested in knowing, even for purposes of praying about  a situation. It's like that temptation, I encourage you in the name of Jesus to  remain a trustworthy pastor, that when people come to you and say, Pastor, I  need this conversation to be confidential that they know that you will honor that  request. And that you will have the integrity of a pastor whose word is his bond  and his trust. Invariably, sometimes confidences will be broken. And I encourage you in those circumstances, when that happens, to go to that person  immediately. And let them know that a confidence has been broken, ask their  forgiveness, and do whatever is necessary to make things right. The next issue  I'd like to discuss is the reporting of abuse. Most states have statutes that  require certain types of abuse to be reported by certain types of individuals.  Predominantly, these statutes focus on children, but they're not solely about  children. Some may relate to spousal abuse, physical abuse, sexual abuse,  whether they be of minors, or adults. Each state again has its specific  requirements. But each state has a statute that will set out who is required to  report information of abuse when they become aware of it. In some states,  pastors are listed as those who have a duty to report abuse to the appropriate  authorities, typically with children if, if sexual abuse is alleged, you become  aware that sexual abuse has occurred, it is your duty under the law to report that abuse to Illinois again, the Department of Child and Family Services. Each state  has its own system for as to who is required to report what is to be required in in that reporting, and how that reporting takes place. This is an area that at this  point in time, in some states, it is a criminal offense to fail to report the abuse. In  some cases, it may be a misdemeanor and others it may be something more  serious. Some states have enacted civil statutes that create a civil liability for the failure of a pastor to report child abuse. Again, it is essential that you be familiar  with your state's rules and regulations and laws concerning the reporting of  abuse. You may think it appropriate in your situation not to report information for  fear of causing undue harm or complicating a situation that exists in your  congregation or on people that you know. However, you need to know also and  be wise as to when does your failure to report create a breach of the law that will have consequences for you and expose you to damages in a civil context when  the minor reaches an adult age or sooner. So I encourage you to seek legal  counsel or review the state statutes and then seek legal counsel as to your  duties and obligations in the state in which you reside. And as you move from  time to time, maybe planting a new church in another state, that you will consult 

the laws in that jurisdiction so that you are aware of the requirements that are  imposed upon you by law, so that you may comply with them or if you are so led to not comply with them that you have full knowledge when doing so. The next  issue I'd like to discuss, finance relates to financial affairs of the church in  planting a church you are starting an entity that the funding of that venture may  be by donation of those within the congregation or you may be supported by  those who are behind your ministry and supporting you from the outside.  Whatever the case may be, it is my considered opinion and advice to young  pastors or to young church planters. And I don't mean young in terms of age,  young in terms of the church's age, to set up parameters early on, at the same  time that you create your seminal documents to safeguard you from the  temptation of mishandling funds. It is one temptation that has brought down  many pastors and it need not take you down. My first recommendation is that  you set up whatever safeguards you need to do so that you do not touch the  money. If it's possible, I encourage you to set up a framework in which you don't  even know who gives what, during any weekly offering. If a pastor knows how  much a particular member is giving to the congregation, giving to the church. It  creates potential issues for that Pastor When, when, let's say someone who is a  high donor to the ministry has a conflict with someone who is a nominal donor to the ministry. And I speak only in terms of amounts is that high end donor may be giving a lower percentage of his or her income than the nominal donor. But in  any event, the temptation will arise during this conflict. And in helping these  brothers and sisters to resolve their conflict. You may be more concerned with  keeping a high end donor in the congregation if one of them or both of them are  threatening to leave the church. If you don't know what they give, you may you  will be able to resolve that conflict or be involved in the resolution of that conflict  and encouraging those parties to resolve their conflict in a way that will not be  influenced by how much they give to the church. It's unnecessary for you to  know that information. And so as soon as you can in the formation of your once  you start taking offerings at your church, if you can set up a mechanism to  where you have people that you trust to handle the money for you. If you work  with a bookkeeper or accountant who can do all of the paperwork in handle that  side of the Ministry for you. You will insulate yourself from much temptation in  regards to those individuals who assist you, in the taking of offerings in the  counting of money in the depositing of money. There are cases where people  who have been attending a church for many years and taking the offering up for  many years had been found to have been taking money systematically over the  years, a little bit here a little bit there, but doing it in a way that they thought they  would never be discovered. And so be aware that there are there are guidelines, there are many resources available as to how to set up an appropriate financial  system where the offerings are taken, and accounted for and monitored to  where no one person has undue influence or control over that situation. Whether

that's accomplished through rotating of staff, or of having multiple people  working on the same task. There are many options available. Again, this is just  an area that you need to be aware of, and to seek the Lord's guidance as to how to best handle the financial matters of your your church. The final area of our  conversation is that in involving conflicts, conflict is part of life and conflict is  certainly a part of church life. Some conflicts may be about decisions that have  been made by the leadership of the church. conflicts may arise between  members of the congregation. conflicts may arise over the time and the service  or the color of the carpet, or the types of music that is sung. As a shepherd of  the flock, you have a unique opportunity to minister to your congregation. That  conflict is a tool that the Lord uses to transform and to change his people and  therefore it is an opportunity when conflict arises. I encourage you as a pastor to encourage your leadership team to go through training on conflict resolution  biblical conflict resolution so that you are equipped and ready to help the  members in your congregation see conflict as an opportunity to glorify God, to  grow to be like Jesus Christ, to serve others, and to lay hold of that next  transformation. Step that the Lord has for them that he will use that conflict to  establish in their life is a great treasure in conflict. And you are uniquely  positioned to encourage people to seek the Lord in the midst of conflict, rather  than to focus on winning the battle, or being right. With the Lord is always at  work in the formation of your church, Lord is at work in the writing of those  documents. The Lord is at work in your taxes, and your relationship with  governing authorities. The Lord is at work in the confidential relationships that  you maintain with your people. The Lord is at work in the reporting of abuse, and how those situations are handled. The Lord is at work in the financial affairs of  your church. And the Lord is at work in conflict. In every area of influence that  you have as a pastor, every area of life that your ministry touches in the lives of  your members, and every life of the influence. The Lord is at work. And I  encourage you to look at legal issues, not as impediments or roadblocks to  furthering your ministry. But as opportunities to be dealt with and to be  addressed appropriately, and that they are there to safeguard the ministry,  protect the ministry and to be a witness and testimony to those with whom you  must do that. God bless you. And please consult the local council on questions  of these nature or you're welcome to contact me through Christian leaders  Institute. Thank you