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Preschool Existing Under Church's Umbrella

Business Law discussions

Preschool Existing Under Church's Umbrella

Postby Martyn » Fri Aug 19, 2016 12:05 pm

Hello, and thank you in advance.

We have a preschool in our church that is part of us. It is considered a ministry of our church.

*Should it not pay rent - Should we call it a housing donation?

*It shares our EIN. That is okay?

*It doesn't report any earnings on its own. We are part of the UMC. We take its numbers and report it to the charge conference of the UMC. That alone is okay?

*We are split with what can be done with the surplus - we will have about $12000 left over @ the end of the school year. Are we allowed to save this toward self-preservation(emergency fund) and toward our mission(furniture purchases, manipulatives, etc - spending in the next school year)?

THANK YOU so much!
Martyn
 
Posts: 51
Joined: Sat Jan 11, 2014 2:36 am

Preschool Existing Under Church's Umbrella

Postby Pol » Sat Aug 20, 2016 7:43 pm

Hello, and thank you in advance.

We have a preschool in our church that is part of us. It is considered a ministry of our church.

*Should it not pay rent - Should we call it a housing donation?

*It shares our EIN. That is okay?

*It doesn't report any earnings on its own. We are part of the UMC. We take its numbers and report it to the charge conference of the UMC. That alone is okay?

*We are split with what can be done with the surplus - we will have about $12000 left over @ the end of the school year. Are we allowed to save this toward self-preservation(emergency fund) and toward our mission(furniture purchases, manipulatives, etc - spending in the next school year)?

THANK YOU so much!
Pol
 
Posts: 37
Joined: Wed Jan 15, 2014 11:55 pm

Preschool Existing Under Church's Umbrella

Postby Bruce » Sun Aug 21, 2016 3:40 am

It appears that the preschool is not separately incorporated as it is using the church's EIN. The first issue is whether the pre-school activity is what the IRS calls unrelated business.  IRS Publication 598 "Tax on Unrelated Business Income of Exempt

Organizations" at

www.irs.gov/pub/irs-pdf/p598.pdf

explains that,  if products or services are not directly related to

the charitable, educational, religious or other purpose or function

constituting the basis for its exemption(other than for production

of income), then the activities are generally taxable.

Simply that the church considers the preschool as part of its ministry is not binding upon the IRS. If an activity serves a substantial nonexempt purpose, the organization does not qualify for exemption even if the activity

also furthers an exempt purpose. See Schoger Foundation v. Commissioner, 76 T.C. 380(1981).

Everything will depend upon the facts and circumstances of the

services and financial arrangments for income and expenses. I would

need to spend a substantial amount of time on that issue and that

would be beyond the scope of this free forum. If you want to hire

me for such work, please contact me directly to the email address

below.

The IRS has a good summary of the law in a 1982 publication at:

ftp.irs.gov/pub/irs-tege/eotopicc81.pdf

starting on page 3 at "3. Day Care and Education" If the activity is not, in fact, unrelated business, then the answers to your other questions would be "no problem". Harvey Mechanic, Attorney at Law - [email protected]

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.
Bruce
 
Posts: 43
Joined: Fri Jan 10, 2014 3:43 am


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