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Resources Does a third party use your church building? Check out this webinar.

Does a third party use your church building? Check out this webinar.

Does a private business owner house his daycare business in your church’s education wing? Do you allow a church member to use your community room for a private golden anniversary party? Does a neighborhood association host home ownership seminars in your church library? Is another congregation nesting in your building?

Many congregations are finding ways to make their buildings available for third-party use, often generating needed revenue to help pay the bills. However, that use can trigger several liability and tax (federal and state) risks that can surprise your church if you are not fully aware of your legal obligations.

You might be surprised to know:
• Most churches’ general liability policies do not cover third-party renters.
• Many third parties do not have their own insurance, which can leave your church liable.
• Without a written lease, the question of who will be responsible if X happens might leave your church open to risk.
• The Internal Revenue Code states that if your church finances an asset in the capital markets (otherwise known as debt), any rent you receive is taxable as Unrelated Business Taxable Income (UBTI).
• Rent is rent, even if it’s called something else, like a love offering, cleanup fee or something else.
• If a charitable organization finances its property with debt and makes it available to third parties, the IRC requires the charitable organization to charge fair rental value. In other words, there is no option not to charge rent.
• Different states have different tax codes, which if not followed may affect property tax exemptions. In other words, churches should check state as well as federal taxation requirements.

The good news is that there are ways to structure third party arrangements that allocate risk, assign liability and mitigate the tax impact of UBTI, which in most instances, should not be substantial.

Disciples Church Extension Fund recently participated in a webinar about third-party use offered by the National Association of Church Business Administration and is encouraging church leaders to take advantage of this enlightening resource, available as an archived webinar for a nominal fee at Third-party use of church facilities.

The bottom line: Before you grant a third party use of your facility, check with your tax and insurance advisors!

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