New DOL Background Check Rules

Department of Labor issued new rules regarding employers' use of background checks on applicants on April 26, 2012.  These new rules make it clear that employers may not ask applicants about arrests in their application and cannot use arrests that appear on background checks in making their hiring decision.  Further, every employer must justify the need for the type of background check used for each position.  Every employer must develop a process of targeted screening of applicants that includes a detailed examination of the nature of the crime, the time elapsed, and the nature of the job for every applicant with adverse entries in the background check.  Every employer must also adopt a policy that provides an opportunity for an individualized assessment for those individuals identified with adverse entries in the background check, to determine if the screening policy as applied is job related and consistent with business necessity.

Facebook and Employer Access

The general counsel for Facebook has warned employers (and potential employers) not to ask for Facebook passwords because that inquiry constitutes an invasion of privacy. According to the general counsel, this inquiry opens up the employer to liability, though it is unclear how a liability is created. Facebook's chief privacy officer claims that such an inquiry could create a claim for unlawful discrimination if the employee or applicant is a member of a protected class of individuals. Again, I am not clear how unlawful discrimination occurs if the employer asked for all applicants for this information. Finally, Facebook is threatening employers with a lawsuit if they ask for the applicant's passwords but does not say what cause of action could apply.

This controversy arises out of the social media world where few laws clearly delineate the rules of the employment relationship. It should remind nonprofit employers that they should proceed with caution if they intend to monitor an employee's social media. If your nonprofit secures password, you should check with you attorney.

Airline miles are taxable?

Recently, Citibank started issuing Form 1099s to customers who opened accounts at the bank and received airline miles as a prize. The bank valued the miles at 2.5 cents per mile. According to Citibank, the airline miles are considered a prize and, therefore, taxable under Internal Revenue Code Section 74.

Citibank claims that miles earned by using their credit cards is different and not taxable. The bank considers airline miles like a discount or rebate and pricing discounts are clearly not taxable. The discount in price or rebate is simply a reduction in the price paid by the consumer.

IRS is processing Citibank's filing and trying to come up with a straight forward answer. Unfortunately, a straight forward answer is not associated with the IRS.

No More Multiple Parsonages for Ministers

Yesterday the 11th Circuit Court of Appeals in Atlanta reversed the Tax Court (Driscoll v. Commissioner) decision that granted ministers the right to claim expenses on more than home as part of their housing allowance. In a concise, strong opinion the court affirmed the historical understanding that a minister may not claim housing expenses on more than one home as part of their housing allowance.

If a minister claimed expenses on more than one home in reliance on the Tax Court decision, the minister should amend their return to remove those expenses.

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.