Tuesday, October 16, 2018
Hey Fletch … A licensed professional marriage counselor who attends our church wants to rent a room so he can see clients in a location that is on the opposite side of town from his office. Is this an acceptable practice for us as church? He would be getting office space for a token room rental charge far below the going rate for office space in our city. Also, thanks for your excellent organization!
DRF—It’s great to hear from you. I love your church so what a delight to interact with you! Your question has a great heart in wanting to help the marriage counselor. There are some issues.
The first issue is liability. You will want to protect your church against any potential liability, so get a copy of the counselor’s insurance coverage for professional misconduct. Also, if the counselor or patient falls due to ice in the doorway or a broken step, will the church be at risk? The church is becoming a landlord, so you will need to inform your insurance carrier as well. They may have some views or adjustments to your liability coverage.
There are also issues about the income that you receive. This is what the IRS calls Unrelated Business Income Tax. As the IRS says “unrelated business income is income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis of the organization’s exemption. An exempt organization that has $1,000 or more of gross income from an unrelated business must file Form 990-T.”
While offering free counseling may be a part of your church’s mission, paid counseling most likely qualifies as UBIT. Talk to your church’s CPA about paying UBIT. Like any tax, the more that you take in as income, the more that you will need to pay in tax!
Another issue is offering a rate below fair market value for the office. I’m not an attorney or CPA, but I’m seeing some yellow warning lights going on here. Talk to an attorney to see if this will have any implications for your church. Will you offer the same deal to other counselors?
Finally, get a simple but descriptive contract in place. You are now a landlord and accepting rent. You may have state or local issues in your new role. Define the term of use, how to renew the contract and how you can cancel the contract.
These issues can be worked out but take some time. While the initial concept looks simple, you are getting into new territory here.