What you should know before you share your facilities with outside groups

It’s not uncommon for churches to let other, outside groups use the church’s facilities for meetings, banquets, sporting events, etc. In fact, most churches encourage such usage as a way to further their reach into the community. However, there are certain federal tax issues of which to be aware when allowing someone to use your facilities.

You can let any approved 501c(3) organization use your facility for no charge. It is recommended that you confirm that they have approved tax exempt status from the IRS (getting a copy of their determination letter is one such way to document this), and that this status is current.

In addition to approved 501c(3) organizations using your facilities, you are also permitted to let others use your facilities if it furthers your exempt purpose. For example, if a group that went on a mission trip wants to hold a wrap-up meeting at your church (and presumably a mission trip is part of what your church does and therefore within the church’s exempt function), then this would be an allowable use of the facilities.

If you charge others for the use of your facilities and you have outstanding debt on the property being used, then you will have taxable, unrelated business income (UBI). And if you have more than $1,000 of annual UBI, then you are required to file Form 990-T. This threshold is for gross revenues so even if you have costs that bring the net below $1,000, you still must file. (The tax that’s calculated is based on the net income, but the filing threshold is based on the gross amount of revenue.) There are some
di minimus rules that might apply; check with your tax advisor.

Lastly, one side note: please be aware of private benefit and inurement issues. In the context of others using the church’s facilities, if an insider is allowed to use the church at terms better than terms that are given to others (i.e. less than fair value), then this usage could be considered preferential to them (e.g. inurement) and thereby possibly subjecting them to intermediate sanctions and in extreme cases, the church’s exempt status could be jeopardized and even at risk.