Faith-Based Discrimination in Hiring

Can a faith-based organization refuse to hire employees who do not share its faith?

Section 702 of the Civil Rights Act of 1964 (42 U.S.C.S. § 2000e) exempts religious organizations from the prohibition against discrimination in employment on the basis of religion. (Ohio has a similar statute.) Therefore, if an organization is religious for purposes of the statute, it can restrict employment to those of a certain religion in order to carry out its activities.

In order to qualify for the exemption, the organization must be primarily religious.  The definition is not included in the statute but has been explored by the courts.  For example, a 2010 federal case involving the relief and development organization World Vision examined if the organization is 1) organized for a self-identified religious purpose; 2) engaged in activity that is consistent with and furthers that purpose; and 3) holding itself out to the public as religious.

This exemption also extends to permit a religious organization to discriminate in hiring for its nonprofit secular activities, even if the employment is not primarily religious.  For example, in 1987, the Supreme Court ruled that the Church of Jesus Christ of Latter-Day Saints were permitted to terminate a non-Mormon employee of a nonprofit gymnasium which it controlled.

Religious organizations should be sure that all documents (from employment agreements to corporate articles) consistently reflect the organization's nature as religious and emphasize that all its activities are designed to further the organization's purpose.

More information regarding religious discrimination in the workplace is available from the U.S. Equal Employment Opportunity Commission.

Ohio Real Estate Tax Exemptions For Places Of Worship

Article XII Sec. 2 of the Ohio Constitution permits the enactment of general laws exempting from taxation public school houses, houses used exclusively for public worship, institutions used exclusively for charitable purposes, and public property used exclusively for any public purpose. Pursuant to this authority, the Ohio Legislature enacted Ohio Revised Code (the “ORC”) §5709, “Taxable Property – Exemptions.”

Church tax exemptions are found in ORC §5709.07. The ORC defines “Church” to mean a fellowship of believers, congregation, society, corporation, convention, or association that is formed primarily or exclusively for religious purposes and that is not formed for the private profit of any person. R.C. §5709.07(D)(1). A church can be exempt from taxation under ORC §5709.07(A)(3) if the real property owned and operated by the church is “used ordinarily for public worship.” Beth Hamidrosh Hagodol v. Kinney, 16 Ohio App. 3d, 474 N.E.2d 658 (1984).

There are a few important mentionables: (1) A church that is both a religious institution and a charitable institution cannot receive both tax exemptions under ORC §5709.12 and §5709.121. Mt. Calvary Evangelical Lutheran Church v. Kinney, 19 Ohio App. 3d 267, 483 N.E.2d 1199, 1984 Ohio App. LEXIS 11301 (Ohio Ct. App., Montgomery County 1984); (2) Property which is owned by a church and leased to another church for church purposes is exempt from taxation. New Jerusalem Soc. v. Richardson, 10 Ohio N.P. 214 (1910); (3) Partial exemptions are allowed - that is, ORC §5713.04 permits real property to be split into “exempt” and “nonexempt” if those parts can be precisely delineated (i.e., first floor and second floor). Faith Fellowship Ministries, Inc. v. Limbach, 32 Ohio St. 3d 432, 513 N.E.2d 1340, 1987 Ohio LEXIS 403 (Ohio 1987); (4) Where a church is being reconstructed (i.e., torn down and rebuilt) and if within a reasonable period of time, the church does not lose its tax exemption. In re Ohave Scholem Congregation, 156 Ohio St. 183, 46 Ohio Op. 56, 101 N.E.2d 767 (1951); (5) Lastly, if a church purchases vacant land with the intent to use the property exclusively for public worship and there is evidence of prepared plans and available funds that establish this intent, then that land is entitled to a tax exemption. Peoples Faith Chapel, Inc. v. Limbach, 18 Ohio St. 3d 236, 480 N.E.2d 781, 1985 Ohio LEXIS 442 (Ohio 1985).

Traditionally, places of “public worship” are often thought of as churches, synagogues, and the like. In other words, they are physical, tangible places where people go to worship. However, the Ohio Supreme Court recently ruled that “public worship” can also extend to property owned to further gospel through music, preaching and teaching radio programs. Specifically, Christian Voice of Central Ohio, most famously known for their radio station, WCVO’s 104.9 “The River,” was granted a tax exemption for the property upon which their radio stations existed upon. In the opinion, Justice Sharon Kennedy wrote that Christian Voice functioned as a place of “public worship” because the non-profit dedicates all its land and buildings to charity and religion -- it has all the necessary attributes of a church, minus the physical presence of a traditional church. Ultimately, the Court interpreted ORC §5709.07 broadly and held that institutions can embody and perpetuate the meaning of “public worship” even though they may not have the physical presence of a church on their property.

The information presented is for information purposes only and is not intended to be legal advice, and it should not be acted upon as such. It also does not constitute advertising or solicitation.

This post was prepared with the assistance of Lauren Augostini, a student at Capital University Law School.

Ohio Real Estate Tax Exemptions For Charitable Uses

Article XII Sec. 2 of the Ohio Constitution permits the enactment of general laws exempting from taxation public school houses, houses used exclusively for public worship, institutions used exclusively for charitable purposes, and public property used exclusively for any public purpose. Pursuant to this authority the Ohio Legislature enacted Ohio Revised Code (the "ORC") §5709, "Taxable Property -- Exemptions."

The exemption for charitable uses is found in ORC §5709.12 and §5709.112. To be exempted from taxation under ORC §5709.12, the property must (1) belong to an institution and (2) be used exclusively for charitable purposes. True Christianity Evangelism v. Zaino, 91 Ohio St.3d 117, 118, 2001-Ohio-295, 742 N.E.2d 638, 639 (2001) Black's Law Dictionary (6 Ed.1990) 800, defines “institution” as: “An establishment, especially one of eleemosynary or public character or one affecting a community. An established or organized society or corporation. It may be private in its character, designed for profit to those composing the organization, or public and charitable in its purposes, or educational (e.g. college or university)." Any institution, irrespective of its charitable or non-charitable character, may take advantage of a tax exemption if it is making exclusive charitable use of its property. Wehrle Foundation v. Evatt (1943), 141 Ohio St. 467,[26 O.O. 29], 49 N.E.2d 52.

Statutes granting tax exemptions are interpreted strictly (Cincinnati Community Kollel v. Testa, 135 Ohio St.3d 219, 2013-Ohio-396, 985 N.E.2d 1236, ¶ 17.), so it is critical to ensure that the charitable use is both exclusive and charitable. If any part of the property is used for the purpose of profit making, that part of the property will be denied the exemption. Exemptions can be split if there is both an exempt and non-exempt use, and such splits will usually be made on a pro-rata basis based on the square footage or acreage used.

Sometimes the charitable use being made of the property is being made by an institution other than the title holder. This might be the case if a tenant is making an exempt use. Ohio Revised Code §5709.12(B) states that “[r]eal and tangible personal property belonging to institutions that is used exclusively for charitable purposes shall be exempt from taxation.” The words "property belonging to institutions" means ownership. Humphries v. Little Sisters of the Poor, 29 Ohio St. 201, 207 (1876). Possessing a leasehold interest, even under a long-term lease, is not ownership. See, e.g., Toledo v. Jenkins, 143 Ohio St. 141, 158–159, 54 N.E.2d 656 (1944); Evans Invest. Co. v. Limbach, 51 Ohio App.3d 104, 106, 554 N.E.2d 941 (10th Dist.1988). However, separating ownership and use is not be fatal to the exemption if the situation fits under ORC §5709.112. There, in certain cases exemptions can be granted for the use tenants make of the property if the property belongs to a charitable institution.

Reminder: The information presented is for informational purposes only and is not intended to be legal advice, and it should not be acted upon as such. It also does not constitute advertising or solicitation.

Our Tax Exemption Was Revoked - Now What?

We recently received an inquiry from a small nonprofit organization that learned that the Internal Revenue Service had revoked its tax exemption for failure to file required notices. Among other consequences, this meant that the organization would be liable for corporate income tax, could face additional tax penalties, and would be unable to provide donors with a tax deduction for their gifts.

If your organization has received similarly discouraging news, take heart. Organizations who have had their exemption revoked can regain their tax-exempt status by re-filing IRS Form 1023.

As part of this process, your organization can apply to have its exemption retroactively reinstated. In most cases, the organization must include a reasonable cause statement (as outlined in IRS procedures) to establish that it exercised ordinary business care in attempting to comply with the annual reporting requirements.

While your application is pending, the Council of Nonprofits advises that you should be transparent with donors, staff, and board members about the loss of tax exemption, keep good records, and be patient with the lengthy IRS process.

IRS Streamlines Tax-Exempt Application Process for Most Charities

The Internal Revenue Service has recently released a new tax form to help small charitable organizations apply for tax-exempt status. Form 1023-EZ, introduced in July 2014, provides an alternative to the longer Form 1023 and will allow the IRS to more efficiently process applications for 501(c)(3) tax-exempt status.

From the IRS news release:

The new Form 1023-EZ, available today on IRS.gov, is three pages long, compared with the standard 26-page Form 1023. Most small organizations, including as many as 70 percent of all applicants, qualify to use the new streamlined form. Most organizations with gross receipts of $50,000 or less and assets of $250,000 or less are eligible.

"Previously, all of these groups went through the same lengthy application process -- regardless of size," [IRS Commissioner John] Koskinen said. "It didn't matter if you were a small soccer or gardening club or a major research organization. This process created needlessly long delays for groups, which didn’t help the groups, the taxpaying public or the IRS.”

The change will allow the IRS to speed the approval process for smaller groups and free up resources to review applications from larger, more complex organizations while reducing the application backlog. Currently, the IRS has more than 60,000 501(c)(3) applications in its backlog, with many of them pending for nine months.

To determine if your organization qualifies to file the new form, review the Form 1023-EZ Instructions and Revenue Procedure 2014-40, as well as consult an attorney. Form 1023-EZ must be filed online and requires a user fee of $400.

Forming an Ohio Nonprofit: An Overview

The Ohio Attorney General reports more than 42,000 registered nonprofit organizations in Ohio. How do you add your great idea to the list?

The first decision you must make is what type of nonprofit organization to form. Probably the most common is the nonprofit corporation, because it enables the founder(s) to limit liability. Under Ohio law governing nonprofit corporations, the founder must file articles of incorporation with the Ohio Secretary of State. In addition to an initial filing fee of $125, you will need, among other things, a distinctive name and a well-defined purpose for the organization.

Once your nonprofit corporation is formed, you must still meet additional requirements to continue operating. Ohio law requires you to regularly make filings. For example, every five years nonprofits must file a statement of continued existence. Additionally, the Ohio Attorney General requires an annual charitable registration filing.

In order for your organization to be tax-exempt, you must apply for tax-exempt status with the Internal Revenue Service, not the state of Ohio. The IRS lists a variety of different tax-exempt organizations  – each with slightly different rules – so it may be helpful to consult an attorney to ensure that your corporation meets the correct guidelines. Annually, you will have to file Form 990 with the IRS; if you do not, your tax-exempt status could be revoked.

More helpful nonprofit resources are available from the Ohio Secretary of State or the Ohio Attorney General.

Detroit's Bankruptcy and Your Charitable Donations

Last month, federal proceedings began to determine whether the city of Detroit is eligible to file for bankruptcy. As part of the city’s process to review its assets, Detroit hired the renowned auction house Christie’s to appraise the priceless works of art by Picasso, Monet, Rembrandt, and others housed at the Detroit Institute of Arts.

This action is controversial because it could lead to an art sale and a potential violation of ethical guidelines prohibiting a museum from deaccessioning – selling art from its collection - for any purpose other than acquiring more art. Institutions who violate these guidelines risk losing accreditation and creating controversy in the art world.

Aside from affecting a museum’s collection, Detroit’s move is also extremely relevant to clients or donors. Clients often donate art to museums to meet their tax or estate planning goals, or simply to improve their community. Detroit’s bankruptcy filing is another warning that it is essential to have a carefully drafted agreement before donating property to a museum.

Most art is donated without strings or explicit constraints on sales, so a clearly written document ensures that the donor’s wishes are known and that the museum will abide by those wishes. For example, agreements may explicitly say that a particular piece may never be sold or may never be sold for operating expenses of the institution.

Attorneys and donors should also inquire about a museum’s deaccessioning policies. Since Detroit’s bankruptcy filing, the DIA has amended its deed of gifts to clearly state that the donated work can only be sold to buy more art. But most institutions are not so clear, relying only on ethical guidelines.

As museums face financial difficulties and courts may be more likely to allow the sale of donated artifacts, traditional ethical guidelines may no longer be enough to prohibit a sale. Attorneys and donors would be wise to seek additional protections.