501c3 part 1 501c3 part 2 501c3 part 3

***Disclaimer: I’m not a lawyer.  This post doesn’t constitute legal advice our counsel.  I’m simply sharing with you my past experience.  It is always advisable to consult a lawyer when working on legal paperwork for a church.

Part 9 of form 1023 covers financial data.  For a new church, this is much easier and based more on your budget projections than anything else.  In the first column you will provide data for the current year.  The vast majority of plants will base their fiscal year on the calendar year.  Therefore the dates in the first row are entered as from 1/1/current year to 12/31/current year.  As a new organization in existence less than a year, you are required to provide financial information for your first year and projections for the next two years.  If you haven’t officially started holding public services yet, this can be difficult to project.  Don’t worry.  Do your best.  The form itself says to make a good faith estimate.

The first thirteen rows have to do with your income.  Row 1 asks for gifts, grants and contributions.  This should include all of your local congregation’s offering as well as any fundraising for the church plant.  Typically rows 2 through 7 will not apply.  Read them over carefully and if you have questions, read the definitions in the instructions for the form.  Row 8 then is a simple addition of rows 1 – 7.  Row 9 is also typically not applicable to a church.  If that is the case, enter zero.  Row 10 then is a simple addition of rows 8 and 9.  Rows 11 and 12 are also typically not applicable to a church.  Row 13 again is a simple addition of rows 11 and 12.  So for many of you, you will calculate your total income on line 1 (local offerings + outside support/fundraising).  You will then enter that same number in rows 8, 10 and 13.  Complete this for the current year and the projected amounts for the next two years.

Line 14 begins the expenses.  It asks for fundraising expenses.  Include any travel you have made for fundraising, postage and supplies for letters, etc.  Line 15 asks for the contributions, gifts and grants you pay out.  So any benevolence gifts, support of missionaries, money you give back to supporting church planting organizations, etc. go in line 15.  You will need to itemize these disbursements on the continuation sheets (the document you create to answer all the questions that don’t fit on the form).  Line 16 will typically be zero.  If you have made disbursements for the benefit of members, do not include them in line 15.  You will need to include these disbursement on the continuation sheets.  For each disbursement you will need to list the name of the member who received it, why they received it and how much they received.

Line 17 is for the compensation of officers, directors and trustees.  If you as the church planter fill one of these roles, your salary goes on this row.  Line 18 then is for all other salaries.  Line 19 is for interest expenses.  If you have taken out a loan to fund the start of the church, the interest would go here.  This would not include mortgage interest if by some chance you purchased a building for the church.  Line 20 is all expenses related to occupancy.  Line 21 will mostly likely be zero.  If you don’t understand what its referring to, you aren’t doing it.  Line 22 are fees for professional services.  Those that a church planter might incur are fees for (accounting services, professional fundraisers, coach, consultant, project manager, etc.)

Line 23 is the catch all.  Any other expense that you haven’t yet recorded goes here.  On the continuation sheet, you will need to break those expenses down into a simple spreadsheet form.  List broad categories such as:  Marketing, Outreach, Worship, Office/Admin, Ministries.  Line 24 prompts you to add lines 14 through 23 for your grant total in expenses.

Double check to ensure that your income is greater than your expenses.  I don’t think it would look to financially responsible to the IRS for an organization to report that they were planning to go in the red.

Part B. is a balance sheet.  You complete it for the most recently completed tax year.  For many of you, you won’t have a most recently completed tax year and the answers will all be zero.  For instance if you incorporated in January 2010 and you are filing in August 2010, the most recently completed tax year is 2009.  You weren’t in existence yet, so just enter zeros.  But if you were incorporated in December 2009 and you are filing in August 2010, you will need to answers these questions as you were in existence in the most recently completed tax year of 2009.  If you have to fill it out, don’t fret.  It’s pretty straight forward.  Line 19 in part B asks if there have been substantial changes in your assets or liabilities since the end of the period shown above.  The instructions are rather vague on this question.  I always answer no.

Hope this helps.  Next time we’ll look at Schedule A for churches.