Eventually, most churches find the need to build a new church, either to have more space or to replace an outdated or broken-down building. Raising the amount of funds needed can be daunting. In addition, churches must be sure they are operating their fundraising activities within established laws. First, of course, the activities must be legal. Beyond that, any type of fundraising must be backed by good recordkeeping, adequate disclosure and reasonable compensation to anyone paid to help.
Maintain Tax-Exempt Status
Churches and other religious organizations are considered tax-exempt as long as they continue to follow the laws that make them tax-exempt. This applies to every activity the church undertakes, not just soliciting donations for building a new church. For example, churches may not attempt to influence legislation, the campaign of a candidate or lobby to change public policy. The church's purpose and use must be primarily for charitable, educational, religious or other tax-exempt purposes.
Laws for church fundraising center on who benefits from the funds raised. Two situations are most likely to raise eyebrows. If the church hires an outside firm to conduct its fundraising, whether for building a church or other religious purpose, the amount paid to the outside firm should be reasonable and not excessive, though the IRS does not specify a percentage of funds that would be considered excessive. The other situation involves whether an "insider" benefits from the fundraising. If a member of the congregation is paid to raise funds, or receives compensation in any way for raising funds, he may have a conflict of interest if he is also involved in how the funds are spent.
Churches must notify donors of any portion of their donation that is not tax-deductible. According to IRS rules, donations are not tax-deductible if donors receive goods or services in return for the donation. If a donor pays $100 for a dinner in a church's silent auction, for example, the church must disclose in a written statement that the fair market value of the dinner is $60; therefore, the tax-deductible portion of the $100 is $40. The written disclosure must be given either with the solicitation or the receipt, and must be prominent enough to be noticed by the donor.
The IRS laws governing church recordkeeping are not highly specific; they state only that churches must keep accurate records demonstrating that any monies collected have been collected for reasons related to the church's primary activity of education or religion, and that it was done in agreement with laws pertaining to tax-exempt status. No specific format is required, nor does the IRS say how long these records must be kept.