Corporation Sole Tax Considerations
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The law requires every taxpayer to maintain records that will enable
him to complete an accurate and complete return (see IRS
publications 334, 552 and 583) However, the church is a
mandatorily tax excepted organization by right and is not considered
to be a taxpayer even though it operates as a separate legal entity
which can buy, sell, rent, own real property and do any kinds of
business as well as sue and be sued just like a natural born person.
RELATED CHURCH BUSINESS The Church operates generally on a tax exempt basis: That is, exempt from property tax, although some states have a qualifying procedure, so you must check with your local county tax assessor; exempt from state sales tax and state income tax. In most cases, again, you should check with your individual state taxing authority, as this also varies from state to state; exempt from Federal Withholding., FICA and FUTA taxes for its ministers. See IRS publication 15 Circular E; exempt from Retail Federal Excise Tax and finally, exempt from Federal Income Tax on its exempt purposes (see IRS publications 598 and 1018) Generally once a Letter of determination is issued from the IRS Service Center and presented to the appropriate State agency, tax exceptions are recognized quite easily. Specific Exceptions to Unrelated Church Business Department of Treasury, IRS Pub. 1018(1-77) Certain Income producing activities are excepted from tax even though they may be from an on going, unrelated business, These exceptions are; (a) Activities in which substantially all the work is performed for the church by unpaid volunteers; (b) Activities carried on by the church primarily for the convenience of its members, students and employees; (c) Selling merchandise, substantially all of which has been received by the church as gifts or Contributions; (d) Generally, dividends, interest, annuities, royalties, and capital gains and losses; (e) Generally, rents from real property. Examples of Exceptions; 1) A church holds a monthly bingo game. If substantially all the work is done by unpaid volunteers, the income is not taxed. Similarly, it a church regularly holds fund-raising dinners, open to the public, the income is not taxed it substantially all the work is done by unpaid volunteers. The specific exceptions of dividends, interest, annuities, royalties and capital gains and losses are aimed at excluding passive income from the tax. and taxing income from the active business. For example: (a) If a church owns stock in a taxable business, dividends from the business are not subject to the tax under certain circumstances, however, property acquired by a church for its use for exempt purposes in the future is not treated as "debt-financed", An example of this is a church purchasing land by mortgage for a new church building and renting the land while collection funds through a building fund. As long as the exempt use of the property begins within 15 years, any rental income from the real property falls within the exemption within the exemption and is riot taxable RETURNS BY EXEMPT CHURCHES 26 USC 6033(a)(2)(A)(l) generally, the "church" is mandatory excepted from filing an annual Federal Tax return (that is Form 990-A), which all other 501(c)(3) organizations are required to file. This does not apply to the unrelated trade or business or a church however. This is brought to light in the Regulation, Section l.6033-1(i)(1), which states: "Certain organizations (i.e. churches) otherwise exempt tax under section 501(a) and described in 501-C (3) are required to file returns on Form 990T, on unrelated trade or business." THE IRS CODEWHERE ARE WE? (a) That churches may or may not keep permanent books and records; (b) These may include, records, and inventories sufficient to show specifically the items of; (c) Gross Income:; or, (d) Receipt (contributions, gifts, etc.): (e) Disbursements (expenses). If said church is involved in unrelated trade and business, it must keep permanent books and records relating specifically to the unrelated trade and business. 1. Section 6033(a)... Exempts religious organizations from the need for filing returns of any kind.§ 6033(a)(2)(i) provides for mandatory exceptions to filing requirements for religious organizations and states that filing requirements shall not apply to "churches, their related auxiliaries, and conventions or associations of churches:§ 6033 (a)(2)(A)(iii) exempts as well "the exclusively religious activities of any religious order". Explanation Under § 6033, your church or religious order has complete immunity to disclosure. It is not necessary for you to maintain records of any kind except for your own purposes and reasons. 2. Section 107.... In case of a minister of the gospel, gross income does not include: (1) the rental value of a home furnished to him as part of his compensation; or, (2) the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home. Explanation In order to qualify for the exclusion, the home or rental allowance must be provided as remuneration for services that are ordinarily the duties of a minister of the gospel. The rental allowances may be used for the rental of a home, the purchase of a home, and for expenses directly to providing a home. Expenses for food and servants are not considered for this purpose to be directly related to providing a home. 3. SECTION 3401 (A)(9) Provides that the definition of the term "wages" for tax withholding purposes does not include remuneration paid "for services performed by a duly ordained commissioned or licensed minister of a church in the exercise of duties required by such order; etc." Explanation Internal Revenue Service regulations provide guidelines for IRS employees to help them understand the Internal Revenue Code. IRS regulation 31.3401 (a)(9) - 1 states; "Service performed by a member of a religious order in the exercise of duties required by such order includes all duties required of the member by the order. The nature or extent of such service is IMMATERIAL, so long as it is a service that the minister is directed or required to perform by ecclesiastical superiors. For Example If Father Mclaughlin is directed by his order to work for the federal government in the Office of the President, then his employer (in this case the federal government) is not under any compulsion whatsoever to withhold either federal income taxes or social security taxes. A member of a religious order may be required by his order to be an Advisor to the President, a pilot, or a bank loan officer. The regulation states that the nature or extent of such service is IMMATERIAL 4. SECTION 170 Provides that up to 50% of an individual's Adjusted Gross Income (AGI) is deductible for contributions to religious and charitable organizations. The "General Rule" allows tax-deductible status for contributions to "a church or a convention or association of churches, etc." Explanation A person with an adjusted Gross Income of $30,000 may contribute up to $15,000 and claim such a deduction. Other subsections of Section 170 provide for donations of income-producing assets and also for the Unlimited Charitable Deduction sometimes known as the "Nun's Rule". 5. SECTION 1402 (c)(4) provides that: "the performance of service by a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry or by a member of a religious order in the exercise of duties required by such order" Is not considered a "trade or business" when used with reference to self-employment. Explanation An auto mechanic, gardener, or medical doctor may be self-employed. If the religious order of which one is a member directs one to undertake duties in one's field of training or experience, as a self-employed person, then any income received Is not taxable as Income from a "trade or business". IRS PUBLICATION 15, 1978 Circular E. Employer's Tax Guide is distributed free of charge by the IRS. On page 11, you will find that "Members of religious orders who have taken a vow of poverty performing duties required by the order "are exempt from income tax withholding" and from "social security". Section 1402 (e) exempts "a member of a religious order who has taken a vow of poverty as a member of such order" from taxes under the Federal Insurance Contributions (sic) Act, i.e. FICA or social security. There is no requirement that you file for this exemption from social security tax. The exemption is automatic when you are a member of a religious order, who has taken a vow of poverty as a member of your order. Under fundamental law, rights and privileges granted any church or religious order must on the same basis and to the same extent to be granted to all. If members of your church or religious order are being discriminated against or are being denied their rights under the U.S. Constitution then they have cause for prosecution. Any person, including any government official, within the jurisdiction of the U.S. Constitution who acts to prefer one religion to any other in an official capacity, is acting in the violation of the Constitution. At the very least a government employee may be dismissed for violating his oath of office to uphold the Constitution and he or she may be subject to civil and criminal penalties, with fines up to $10,000 or imprisonment up to five years, or both. <back--Corporation Sole Introduction--next>
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