Jury Awards Punitive damages for broken gift restrictions

This week a jury awarded $1 million in damages ($500k in actual damages and $500k in punitive damages) to Garth Brooks from a hospital that Brooks claimed reneged on its gift agreement. Mr. Brooks gave the hospital a $500,000 gift and asked that the Women's Center be named after his mother. The hospital claimed that it made no promises at the time of the gift, but that Mr. Brooks later mentioned the request. The jury decided that the hospital should repay the donation, plus it punished the hospital so that they would not deny a similar deal in the future.

The lesson for charities is to require that all restricted gifts be documented with a written gift agreement. Further, if the charity later changes its mind about the restrictions, it should return the gift.

Political Speech for Pastors?

The new US Supreme Court decision in Hosanna Tabor Evangelical Lutheran Church and School v. EEOC makes a strong argument that the Internal Revenue Code restriction on political speech is unconstitutional as applied to churches. While the EEOC argued that the Americans with Disabilities Act was neutral law and should be enforced against church, the Court observed that the government has NO role in the internal affairs of a church. If the government involved itself in the internal affairs of a church, it would violate the First Amendment Establishment clause. It follows that the government has NO ability to govern what a minister says from the pulpit because that would amount to government interference with the internal affairs of the church. This analysis may explain why the IRS has no projects or plans to police political activity by churches this election year.

Church operated coffee house NOT exempt!

In PLR 201150034, the IRS denied tax exempt status for a separate corporation formed by a church to operate its community outreach, a coffee house. The coffee house was operated every morning and only evenings when an event was held at the shop. The church and it's various groups would use the house for their meetings. The coffee house sold coffee from $2 to $4. The coffee house would rent the facility to anyone at for an hourly rate. They will allow outside caterers as long as they get to sell coffee to the attendees.

The biggest problem arises because the coffee house operates in a commercial like manner. It expects that less than 15% of its income would come frm donations.

The lesson for churches is that if you operate a bookstore, coffee house or other community outreach in a business like manner, it will create unrelated business income, at best, and cost the church it's tax exemption.

Penalties Double for 2012

For the Form 1099s that are due on February 28, 2012, the failure to timely file Form 1099s penalty is doubling from $50 per Form 1099 to $100 per Form 1099. If you do not have all the information needed to complete a Form 1099 (such as the Social Security number), you can still file it incomplete by February 28. As long as you secure the missing information and file the amended Form 1099 before August 1, 2012, then no penalties will apply.

By the way, if you file the Form 1099 within 30 days after February 28, the $100 penalty is reduced to $30. If you file Form 1099 more than 30 days after February 28 but before August 1, 2012, the penalty is reduced to $60 per Form 1099.

The IRS is projecting to collect big bucks from these penalties over the next few years. You should be checking and double checking that you are issuing a Form 1099 to all businesses providing services to you that is not incorporated and you paid them at least $600 during 2011. This would include sole proprietorships, partnerships and LLCs. You can verify the business information via Form W-9.

Criminal backgroud checks result in $3 million fine!

Pepsi paid $3.1 million in financial relief and agreed to change its policy regarding criminal background checks. More than 300 black applicants were denied job opportunities because something appeared in the criminal background check that caused the applicant to be denied a job. According to the EEOC, excluding applicants based on the results of a criminal background check can create an adverse impact based on race in violation of Title VII.

If background checks are conducted, the EEOC recommends that employers take into consideration the nature and gravity of the offense, the time that has passed since the conviction and/or completion of the sentence, and the nature of the job sought in order to be sure that the exclusion is important for the particular position.

Church Musicians are Employees?

This past year we have had several clients question whether musicians are properly classified as employees of the church, including musicians engaged only for a special events. Two separate organizations have also reached the conclusion that musicians are employees of the organizations engaging them.

In December 2011, the National Labor Relations Board ruled that musicians engaged by the Lancaster Symphony Orchestra and the Plano Symphony Orchestra are employees. In both cases, the Board reversed lower rulings holding that musicians were independent contractors. While musicians were free to decline performing in any program, the symphonies selected the music, dictated the dress, set performance and rehearsal times. In sum, the symphonies exercise sufficient control over the details of the musicians' performance to make them employees. See http://www.foxnews.com/politics/2011/12/30/labor-board-rules-local-symphony-musicians-can-join-union/.

Recently, the American Guild of Organists published a salary survey of organists performing in religious institutions. At the bottom of the salary survey, the Guild observed that according to IRS guidelines the majority of organists working for religious institutions were properly classified as employees. See http://www.agohq.org/profession/salary.htm.

These two decisions reaffirm our position that most musicians engaged by churches are employees, even if they are engaged for only one program.