Non-profit Legal Info

Advisory Board v. Board of Directors

Jackie Jones — Fri, 10 Jun 2011 23:53:56 GMT

Recently, several Christian Foundation Grant subscribers have expressed interest in developing advisory boards in addition to their board of directors. Although an advisory board can provide valuable assistance to an organization and its board of directors, it’s important to distinguish the differences between these boards. Here are some guidelines for advisory boards or advisory committees.

When starting a nonprofit corporation, an organization must file articles of incorporation with the state in which it resides. Filing requirements include officers of the corporation, a board of directors, bylaws, and annual meetings.
A nonprofit corporation is required by law to have a governing board, typically referred to as its board of directors. For a religious nonprofit organization, the board of directors is (or should be) the critical body that determines the entity’s programs and investments and provides management guidance.

States can vary among respective requirements of a board of directors but the general idea is there must be a board of directors that serves as the ultimate governing body of the corporation. In addition to being legally responsible for the overall management of the corporation, the governing board has the ultimate responsibility for the organization’s activities and can be a prime target when matters of liability arise. The members of the board are fiduciaries; they are legally required to treat the organization’s assets and other resources with the same degree of care that they would their own. The board also helps create the vision, mission, values, and policies for the organization and makes sure that they are properly respected. Also, financial oversight is one of the key responsibilities of a nonprofit board.

Sometimes, a board of directors will elect to set up an advisory board. An advisory board (or committee) usually functions like any committee of the board. An advisory board can provide valuable assistance to an organization and its board of directors. Distinguishing the differences between an advisory board and board of directors is important for nonprofits to help avoid problems which can occur when the lines between the two groups become blurred.

The following is a set of guidelines for developing an advisory board obtained from Best of the Board Café, Second Edition by Jan Masaoka.

1. Develop a written description of the responsibilities, activities, and limits on authority of the advisory board, and share this description with prospective members.

2. Distinguish between the role of the governing board of directors and the advisory board. For example, a board of directors hires the executive director of the organization; an advisory board may draw up a suggested list of qualifications for the person or people hiring the executive director. A board of directors can direct staff to take certain actions; an advisory board can suggest actions to staff and can be angry if its suggestions aren't taken, but an advisory board can't compel staff to act. An easy way to communicate this distinction is not to use the term "board" for the advisory group; instead use "committee" or "council."

3. Consider asking a community leader to chair the advisory committee and act as a spokesperson for the organization in the community. Alternatively, have a board member lead the advisory committee.

4. If the main purpose of the advisory board is fundraising, consider a different name such as "Friends of X" or "Community Leadership Council." If you don't have volunteer leaders who will take responsibility for organizing and driving this group, delay creating it until you have found such leaders.

5. Don't establish an advisory board if you cannot commit the time and thought to getting results from the group, and to making the experience meaningful and rewarding for members. Too many organizations have erred by creating advisory boards where members felt ignored, or as if they were being asked for donations in the disguise of being asked to advise.

6. Don't be afraid to disband an advisory board that isn't achieving what it was established to accomplish. Consider instead asking members to be "Advisors" or a "Council of Advisors," both terms that give a mutual sense of affiliation without implying group meetings.

--Jackie Jones is the Marketing and Communications Director of Christian Foundation Grants. She may be reached at jjones@christianfoundationgrants.com.

Four Emerging Trends for Non-Profits

Bill High — Sat, 09 Oct 2010 23:12:12 GMT

There’s much occurring in the non profit landscape. The astute observer should be and always willing to look behind the covers of what is happening. Here’s a few thoughts to help bring sense to what is happening:

1. 25% of non profits will lose their tax exempt status. Guidestar made this prediction as the result of non profits failing to file their annual 990. While many will seek reinstatement of their status, the implications behind this trend is a continued winnowing of the non profit field. The key trend is the push towards greater accountability and sophistication in how non profits are being run. No longer does or should non profit mean non performance. The message is being issued loud and clear. Some non profits will have to question if they are ready.

2. Because of the downturn, 8% of non profits will close their doors. The economic downturn has produced severe strain on many non profits. As many as 30-40% have reported decreased giving. Some have survived through budget cuts. Others are having to make the difficult decision of simply shutting their doors. The message? Unlike the 90s and the early part of the decade of 2000, non profits cannot open their doors and expect people will give. They must be intentional about developing clear and compelling messages and likewise be intentional about their fundraising.

3. The 40 million Boomers moving towards retirement means that more non profits will open their doors. As the Boomers retire, some will be well positioned to leave their jobs and turn to their altruistic nature. Some will start non profits. So even while many non profits will be closing their doors, there will more that will open. Competition for donor dollars will remain. It’s also important to note that some of these Boomers were funding ministries while they were working. But as they leave the work force and start their own non profits, they’ll become increasingly concerned about funding their own non profits.

4. Good news: the non profit sector will continue to experience a demand for services. In light of these troubled times, unemployment, financial stress, there will be an increased demand for non profit services. Mental health agencies are experiencing tremendous demands. Job location, networking, business oriented ministries are very much in vogue, but for different reasons. People need and want jobs. Homeless and rescue missions are straining at the seams. How is this good news in view of declining contributions? The demand for services allows the non profit to craft a compelling case statement for donor support.

It was Rockefeller who said that he made money when there was “blood in the streets.” While that adage may not sound particularly appropriate for the non profit sector, perhaps the mentality should be. Non profits who rise to the occasion in the midst of adversity will continue to excel and continue to carry out their mission.

--William F. High is the President/General Counsel of the Servant Foundation (www.servantchristian.com). Servant’s mission is to inspire, teach and facilitate revolutionary biblical generosity. He may be reached at whigh@servantchristian.com.

Restricted vs. Unrestricted

Bill High — Thu, 22 Apr 2010 14:35:06 GMT

By Tim Dykes

www.omniproconsulting.com

Imagine the day you receive a $1 million gift. Then imagine that you see that gift used to impact the healthcare of more than 10,000 patients per year. That day happened for me when I was working for one of the largest healthcare organizations in Kansas City in 2008.This unrestricted gift was immediately put to good use, helping purchase a cutting-edge CT scanner that exposed the patient to minimal radiation. At the time, it was the only such scanner in the country.

If the donor were to have restricted this gift, the law would have required the hospital to use it for the intended purpose of the donor, which might not have had close to the same impact on patient care. Always approach a restricted gift with much consideration and discussion prior to accepting and documenting the gift.

How to Make Sure the Right Charity Gets Your Gift After you Die

Bill High — Sun, 07 Feb 2010 22:27:24 GMT

By William F. High

Are you giving to charity after you die?

Many people would do so if they had confidence that there was someone who could carry out their wishes. In fact, I’ve seen it many times where a person was considering giving to charity but later backed out. Why?

For lots of reasons — perhaps they didn’t have confidence in the charity, or they believed that the charity would change their mission. In truth, all of these reasons can be solved with the right person administering the charitable gifts.

In the case of a person’s will or trust, that person would be the executor or the trustee. How do you make sure the executor or trustee follows through on your wishes? Give them specific instructions. Tell them the specific organizations they should support. If you are not sure about the specific organizations, then tell them the kinds of organizations they should support.

We’ve seen one family go so far as requiring a receiving organization to sign a statement of faith. If they don’t sign the statement of faith, they don’t get the gift.

In the case of a donor advised fund, the donor advised fund organization can serve in a similar role as trustee or executor. In other words, you can give the sponsoring organization the same kind of instructions that you would give a trustee or executor.

We often advise that a family leave their charitable gift to their donor advised fund instead of making their gift directly to a charity through their will or trust. The donor advised fund provides an added layer of protection. The sponsoring organization can investigate the ultimate charity before making the gift. On the other hand, if a gift is left directly to a charity, then by the terms of the will or trust, the gift must go. But if the gift is left to a donor advised fund with specifications to go to a charity, the sponsoring organization must still check out the charity to make sure that it is tax exempt and consistent with the charter of the sponsoring organization.

The point from these statements is that there are many ways a person can make a gift to charity and be assured that the gift will go to the right place. So don’t hold back—make that gift.

Charities in Crisis

Bill High — Sun, 07 Feb 2010 22:26:04 GMT

Mergers, Closings Plague Charities - that was the headline of a front page article in the The Wall Street Journal this week. The article indicates that poor performing charities may not event make it. I was intrigued by the comment of the charity leader who was surprised that "funders want to see outcomes." When givers invest in a charity they want know their giving is making a difference - they are interested in knowing the ROI. A charity's mission should be the driver but it is clear goals and measurable outcomes that help us know how we are doing in meeting that mission.

California Charity to Pay for Self-Dealing & Other Offenses

Bill High — Mon, 14 Dec 2009 21:27:16 GMT

By Michelle A. Adams

Attorney in Georgia

California’s Attorney General filed suit against the L.B. Research Foundation (“L.B.”) and its board members this past September, disclosing alleged areas of “gross mismanagement” and requesting involuntary dissolution of the organization.

The apparent deficiencies noted, as described below, could easily occur in charities that are not aware of pertinent legal requirements.

Failure to Maintain Adequate Books & Records

L.B. was unable to produce many of the many of the documents requested by the Attorney General, including adopted bylaws, grant applications, grant agreements, final grant reports, or meeting minutes for the first 7 years - all things required of private foundations under various US and California code sections.^{^[1]} Board members have a fiduciary duty of care to keep proper books.

Violation of Board Officer Rules

In California, a nonprofit public benefit corporation must have a chairman, a secretary, and a chief financial officer. The chairman cannot concurrently serve in either of the other two offices. In this case, Mr. Buckberg (the founder) was single-handedly selecting the officers – who purportedly did not even know of their appointments until the annual meeting. Board members were sometimes uninformed of the names of fellow board members. Grants were being fully distributed before the “officers” were aware of them.

The board was not operating as a board as it did not have control; all decision making was in the hands of Mr. Buckberg. This scenario may have an all too common resemblance to many nonprofit boards.

Self-Dealing

The prohibition of private inurement and self-dealing, though central to the definition of a nonprofit organization, are too often glossed over by nonprofit leadership. This apparently was true of the board of L.B. - which to all appearances was unaware that the charity could not award grants for the private benefit of board members.

Substantial contributors to a private foundation or those in management over it are considered “disqualified persons,” meaning that they are prohibited from using, receiving, or benefiting from the organization’s assets or income.^{^[2]}

Yet according to the Attorney General, L.B. reportedly made the following grants:

Over $60,000 to UCLA Foundation to support Mr. Buckberg's research and laboratory
Over $120,000 to produce an educational DVD, all rights being owned by Mr. Buckberg and his cousin, and which also supported a patent owned by Mr. Buckberg and another board member
Over $15,000 to a for-profit company owned by Mr. Buckberg and his cousin for the production of the Helical Heart Model, which was also patented by these individuals
Over $140,000 for research which would be overseen by Mr. Buckberg
Over $50,000 for expenses related to conferences to promote a medical device patented by Mr. Buckberg and another board member
Over $40,000 for statistical analysis related to the same medical device
Over $8,000 to a board member for research and a conference
Funneling $25,000 to a board member’s friend as quid pro quo for the member’s donation
Over $1,000,000 to UCLA to create an endowed faculty chair that Mr. Buckberg applied for, which he did not get, and then spent over $400,000 in legal fees suing UCLA for the position

Members of a nonprofit board have a fiduciary duty of loyalty, which prohibits the kind of self-dealing that was seemingly pervasive among this board, and primarily by its founder.

Expenditure Responsibility

When a private foundation makes a grant to a non-tax-exempt entity, it is required to exercise expenditure responsibility, whereby it must 1) make pre-grant inquiries, 2) enter into grant agreements, 3) obtain full and complete reports and final reports from the grantees, 4) base grants to individuals on procedures preapproved by the IRS, 5) award grants on an objective, nondiscriminatory basis from a pool large enough to constitute a charitable class, and 6) keep all records related to grants made to individuals.

L.B. adhered to virtually none of these requirements when doling out grants, which consequently should have been considered taxable expenditures.

Settlement

A settlement agreement was reached by all on December 4, requiring the organization and several of its officers to pay hefty sums, including all the Attorney General’s legal fees. The organization is required to undergo board member training and hire consultants to rework its policies and develop proper granting procedures. The board must also increase the number of independent members. Mr. Buckberg was stripped of financial control, including the checkbook. He even has to turn over his keys to L.B.’s post office box.

Although L.B. was not forced to dissolve as the Attorney General originally sought, this resolution has left the organization unrecognizable in terms of its management, and probably its reputation.

Organizations should not be lulled into apathy because past corner-cutting has yet to be exposed. L.B. Research Foundation “got away with it” for ten years before paying a big price.

Lastly, the ignorance of L.B.’s board not only didn’t serve as a defense – it was in fact counted against them.

This case and settlement can be located at the following links, respectively:

http://ag.ca.gov/cms_attachments/press/pdfs/n1799_lbresearch.pdf

http://ag.ca.gov/cms_attachments/press/pdfs/n1840_document.pdf

[1] 26 U.S.C. § 4945; California Corporations Code §§ 6620, 6321, and 6322.

[2] 26 U.S.C. § 4946(a) and (b).

Clergy Malpractice Insurance?

Bill High — Mon, 30 Nov 2009 14:11:11 GMT

Michelle A. Adams

Attorney in Georgia

Does your organization need “clergy malpractice” insurance? Insurance companies have been offering this since the late 1970’s when clergy malpractice claims first were filed. But courts have yet to recognize claims for “clergy malpractice.”[1] Thus why do insurance carriers offer such coverage?

The term “malpractice” means an instance of incompetence or negligence on the part of a professional responsible for damages.[2] This has been applied successfully in the medical, legal, and advisement fields, but has never been successfully applied to a church. The most common scenario prompting clergy malpractice claims occurs when the clergyperson serves as a counselor. Most commonly litigated situations include improper sexual relationships arising from the intimacy of counseling sessions, failure to refer potential suicide victims for help, or simply poorly given advice. As stated above, however, none of these scenarios has resulted in a successful malpractice claim against the clergy (nor can a church be held liable when no negligence is proven against the clergy).

Besides the courts’ hesitation to get into sticky First Amendment issues, a more immediate barrier is that of practicability. Courts will not apply malpractice to churches because of the lack of a uniform standard. In negligence cases it is imperative to show that there was a duty owed by the defendant to the plaintiff. If that duty was breached resulting in harm the plaintiff will recover damages. In the fields of medicine and law those duties appear as a uniform standards of care. There, the questions are “what procedure is customarily performed in this medical scenario?” or “how would a competent attorney advise his client in this situation?” But how would a court define the duty normally expected of a clergyman?

The major difficulty is that churches are so diverse in beliefs, protocol, and requirements of their clergy. In fact, the term “church” itself is nowhere defined in law, and the term is commonly used for many different religious organization (such as temples and mosques). A judge from the most famous clergy malpractice case (Nally v. Grace Community Church) stated:

“[B]ecause of the differing theological views espoused by the myriad of religions in our state and practiced by church members, it would certainly be impractical, and quite possibly unconstitutional, to impose a duty of care on pastoral counselors. Such a duty would necessarily be intertwined with the religious philosophy of the particular denomination or ecclesiastical teachings of the religious entity.”[3]

The Nally case was brought against John MacArthur’s Grace Community Church of the Valley in the 1980’s after one counseled by the pastoral staff committed suicide. The parents claimed that the pastors should have done more to prevent the suicide. They also criticized the church doctrine of “once saved, always saved” on the assumption that it had the effect of encouraging rather than discouraging their son’s suicide.

But the court refused to cast judgment on what should or should not have occurred in the counseling sessions. Quoting an article of Sam Ericsson (formerly with Christian Legal Society, now President of Advocates International) the Nally court said "the secular state is not equipped to ascertain the competence of counseling when performed by those affiliated with religious organizations."[4] The most famous line arising from the case: “There is no compelling state interest to climb the wall of separation of church [and state] and plunge into the pit on the other side that certainly has no bottom.”[5]

The Nally case decision has been mimicked in other states and seen as persuasive, but it is not binding upon other states. The decision, although overwhelming, was not unanimous in stating that clergy have no duty to parishioners. These facts indicate that while clergy malpractice has yet to emerge as a viable basis for damages, it is not impossible that it will in the future. Religious freedom has been redefined in recent decades and undoubtedly we have not seen the end of reformation.

Bottom line: Although clergy malpractice is still unacknowledged by the courts, “counseling insurance” could be beneficial for your church as a precaution – not because litigants will necessarily be successful suing under a theory of clergy malpractice but because such suits may be attempted.[6] Lawsuits, even if successfully defended, can be very expensive because the American court system requires even winners to absorb their legal fees. This available insurance is generally inexpensive. (But make certain it provides adequate coverage.) With an increase in family discord, substance abuse, and economic stress resulting in parishioners increasingly turning to clergy for counseling, the importance of litigation protection grows as well.

[1] Scott C. Idleman, Tort Liability, Religious Entities, and the Decline of Constitutional Protection, 75 IND. L.J. 219, 221-23 (2000).

[2] Black’s Law Dictionary, (8^th ed., West 2004).

[3] Nally v. Grace Community Church of the Valley, 47 Cal.3d 278, 298 (1988).

[4] Sam Ericsson, Clergyman Malpractice: Ramifications of a New Theory (1981) 16 Val.U.L.Rev. 163, 176.

[5] Nally v. Grace Community Church of the Valley, 47 Cal.3d 278, 289 (1988).

[6] For more discussion of this recommendation, see Richard R. Hammar’s article Clergy Malpractice (available at: http://www.churchlawtoday.com/private/library/pcl/p04e.htm).

Changes in Campaign Finance Regulations

Bill High — Mon, 12 Oct 2009 21:01:52 GMT

Changes in Campaign Finance Regulations for § 527 Nonprofits

By Michelle A. Adams

Attorney in Augusta, GA

The US Court of Appeals, D.C. Circuit, recently made a significant ruling regarding § 527 organizations – those nonprofits existing primarily to influence the election or defeat of candidates for federal public office. In the case of Emily’s List v. Federal Election Commission (FEC), decided September 18, 2009, the court majority wrote a 44 page opinion striking down recent (2004) FEC campaign spending limitations applied to these groups.

After the 2004 elections there was significant pressure on the FEC to reform the campaign spending of certain nonprofit groups who had reportedly spent several hundred million dollars in election-related advertising and programming. There was a push to place restrictions on these groups similar to those on political parties.

This case dealt largely with the difference between hard and soft money. A § 527 organization must keep two separate accounts. Contributions in direct support of candidates and political parties is termed “hard money”, and such contributions may consist of no more than $5,000 from any one donor in any given year. “Soft money” may not be contributed directly but may go towards political expenditures the form of cause or candidate supporting efforts such as advertising, get-out-the-vote campaigns, etc.; a donor may give as much as desired for such support. Until this past Friday, FEC regulations restricted nonprofits in their activities by requiring that 50% (sometimes more) of certain expenditures come from the hard money account, rather than from the soft money account. Since hard money is more difficult to accumulate than soft, the activities of these organizations were being inhibited.

The court in Emily’s List traced a history lesson, examining the evolving campaign finance laws as apposed to the freedoms provided under the First Amendment. The Circuit court noted that the Supreme Court has generally approved statutory limitations on contributions to candidates and political parties – including contributions made by for-profit corporations. On the other hand it has rejected expenditure limits on individuals, groups, candidates, and parties.

The Emily’s List court, while affirming that an organization’s direct contributions to candidates and parties may be limited, further ruled that such contributions should not prevent the organization from also engaging in supporting expenditures. The court said, “A non-profit that makes expenditures to support federal candidates does not suddenly forfeit its First Amendment rights when it decides also to make direct contributions to parties or candidates.” The organization in question - Emily’s List - is a pro-choice organization that makes supporting expenditures as well as direct contributions in furtherance of its causes and endorsed candidates.

The court ultimately boiled the issue down to whether these independent nonprofit organizations should be treated like individual citizens (which are entitled to expend unlimited amounts to express their views through supporting expenditures), or like political parties (which may be restricted).

Through lengthy discourse the court explained that § 527 organizations like Emily’s List, being neither for-profit nor closely connected with a particular candidate or political party, do not represent a situation ripe for corruption, which was the situation of concern behind campaign finance restrictions in the first place. The court said, “Donations to and spending by a non-profit cannot corrupt a candidate or officeholder, at least in the absence of some [evidence] establishing such corruption or the appearance thereof.” The court concluded that these organizations should be treated as individuals for political expenditures purposes, and therefore are entitled to have 100% of such expenditures come from their soft money accounts – the accounts that do not limit donations by individuals.

While § 527 organizations should be aware of the new rules, it remains to be seen whether this ruling will hold fast.

The full text of this case can be found at http://pacer.cadc.uscourts.gov/common/opinions/200909/08-5422-1206889.pdf.

Adopting Robert’s Rules of Order

Bill High — Mon, 21 Sep 2009 13:15:44 GMT

In a recent article by nonprofit attorney Jack Siegel of Charity Governance Consulting entitled “Disorder From Robert’s Rules of Order” (http://www.charitygovernance.com/charity_governance/2009/08/disorder-from-roberts-rules-of-order.html), he reiterated his position that nonprofit boards should never assign blanket allegiance to the Robert’s Rules of Order in their bylaws. In an effort to adopt all the policies considered proper for governance, new boards may be tempted to throw in a line encapsulating the whole of Robert’s Rules – without realizing the full extent of the 600+ page document to which they are committing themselves.

Although many people are familiar with the Robert’s Rules of Order by name, the vast majority of board members are not familiar with the complete compilation. A board’s willingness to commit to an unknown document is often a hasty action to embrace standard practices for meetings that may not have been originally listed in the governing documents. Most organizations, however, will never adhere to the level of detail and formality spelled out in the Rules. Despite general impressions to the contrary, an adoption of these provisions can, if fully implemented, affect more than the efficiency of a meeting. The last provisions of the Rules, for example, address the punishment of members - giving instructions for trying members, right down to the details for ejecting members from a meeting place.

The article cited above reviews the case of an organization that, having adopted Robert’s Rules, regretfully learned in more detail of its requirements when one of the board members engaged in improper behavior, meriting his removal. The article explains:

What the organization apparently failed to recognize when they adopted Robert’s Rules of Rule is that Chapter XX (starting on page 624) outlines disciplinary proceedings. The rules are themselves ambiguous as to whether they need only be adhered to if specifically adopted by the organization, or whether a blanket adoption of Robert’s Rules of Order requires these rules to be followed. Whatever the intention, the rules provide the offender with the opportunity to argue that the specific disciplinary procedures must be followed if the organization adopted Robert’s Rules of Order. The outlined disciplinary procedures contemplate a confidential investigation, notice to the offender, a trial with specific procedures, the group’s review of the trial, a report, and the implementation of remedies.

The board in this case did not follow the procedure of the Rules, rather threatening a lawsuit instead. The offending member in turn was able to use the forgotten Robert’s Rules to gain an advantage in the situation.

The article concedes that most organizations adopting Robert’s Rules will usually manage to function without a mishap. But when circumstances arise, as in the example above, Robert’s Rules can work to the detriment of the organization. Unless board members have read, fully understand, and mean to practice the Rules, it is best not to adopt them in their entirety. One feasible approach may be to adopt only those sections of the Rules that are thought appropriate. Alternately, an organization's own bylaws may be sufficient for the purposes at hand.

Michelle Adams is an attorney from Georgia. For more questions about working with Michelle, send an email to info@christianfoundationgrants.com

IRS Denies Tax Exemption to Non-Traditional Church

Bill High — Mon, 24 Aug 2009 12:09:22 GMT

The term “church” is not actually defined in the Internal Revenue Code but when the IRS determines what a church is for tax exemption purposes, in more recent rulings it has exhibited a disturbing lack of predictability.

The ECFA recently reported on a non-traditional church that was denied church status by the IRS earlier this year. The organization applied for exemption as a church and religious organization (accounting for 60% of its activities) and as an educational organization by way of its seminary (40%). Every service, from sermons to seminary classes was offered online. There was no established physical meeting or teaching space.

In this case the IRS based its finding on several grounds in denying the organization tax exemption status; the primary basis in its adverse determination letter (found at http://www.irs.gov/pub/irs-wd/0912039.pdf) related to the characteristics needed to meet the definition of a church.

Since 1978, the IRS has typically relied upon its own fourteen-point criteria to define a church:

1. Distinct legal existence

2. Recognized creed and form of worship

3. Definite and distinct ecclesiastical government

4. Formal code of doctrine and discipline

5. Distinct religious history

6. Membership not associated with any other church or denomination

7. Organization of ordained ministers

8. Ordained ministers selected after completing prescribed courses of study

9. Literature of its own

10. Established places of worship

11. Regular congregations

12. Regular religious services

13. Sunday schools for the religious instruction of the young

14. Schools for the preparation of its members

This list was recognized in American Guidance Foundation v. U.S., 490 F. Supp. 304 (D.D.C. 1980). The court however chose to emphasize certain aspects from the list above, namely factors No.6 (Membership not associated with any other church or denomination), No.10 (Established places of worship), and No.12 (Regular religious services). Additionally, the court declared to be of central importance “the existence of an established congregation served by an ordained ministry, the provision of regular religious services and religious education of the young, and the dissemination of a doctrinal code.”

The 14 factors stated above were not accepted as a definitive test in Foundation for Human Understanding v. Commissioner, 88 T.C. 1341 (1987). Rather the court said that the IRS must consider all facts and circumstances.

But in analyzing the facts and circumstances of this case, the IRS appears to have actually narrowed the definition of a church. Some of its reasoning on what is considered the most important criteria is as follows:

Sunday School. “Your Sunday school classes exist entirely on the Internet . . . Because there are no tests or final examinations required of these students, there is no way to establish that the students are learning their religious lessons. Thus, as a practical matter, you have no Sunday schools for the religious instruction of the young.”

The IRS appears to expect characteristics that are present in only some American churches. Catholic churches, for example may have “tests and final examinations” for the children to assure that they have learned their “religious lessons,” but that is not typical of most Protestant churches – traditional or otherwise. Furthermore, not every gathering of believers has the necessary resources or teachers available to conduct Sunday school.

● Exclusive Membership. “You state that you do not require prospective members to renounce other religious beliefs or their membership in other churches or religious orders to become members of your church. . . .This membership is insufficient to be treated as a regular congregation.”

Certainly many churches today do not inquire into all memberships of past churches and require renunciation when the congregant is willing to accept the creed of the present church. This again may mark a line between highly organized Catholic churches and more informal Protestant ones.

● Size of Pastorate & Congregation. “You have one minister, [name], ministering to your ‘congregation,’ which is composed of only [number] people. Thus you do not have a complete organization of ordained ministers ministering to their congregations.”

Size is not listed as a factor on the 14-point list; however, this factor seems to play an important role in the IRS's consideration. Many churches in our country have only one pastor. We are not privy to the size of the congregation rejected here, but in our country small churches, including spin-offs, startups, and rural churches are perhaps more the rule than the exception.

● Internet. “Your services are held only on the Internet. This is not a building or a physical place. Thus you have no established places of worship.”

The internet has generated a plethora of never anticipated legal questions. Some examples include acceptable methods to serve process, unauthorized practice of law across state lines, and intellectual property issues. Simply because location is difficult to pin down does not mean it does not exist, as argued here. As the world becomes smaller through tools such as video conferencing, this issue will increase in relevance.

Regardless of whether the organization considered should have received church status recognition, if this is the analysis to be used in making future determinations, how many of our existing churches would survive this test?

Michelle Adams is an attorney in Georgia and writer for Christian Foundation Grants.