Over the last several years a number of our church clients have received inquiries from their County Assessor’s office regarding their real estate tax exemption, only to find later that their church property was back on the tax rolls. As they learned the hard way, questions from the County regarding exempt property must be taken very seriously. The County’s criteria for evaluating exemptions for both churches and their parsonages is very specific and can be a trap for the unwary. Unresponsive or inaccurate answers may result in the County challenging the exemption or simply putting the property back on the tax rolls.
By way of a little background, in Illinois, property tax exemption is not a blanket immunity for church-owned property. Instead, the current owner must apply for its own exemption and cannot rely on a previous church’s exemption, even though the property continues to be used as a church. To qualify for exemption, the property generally must be church-owned and used for qualified tax exempt religious purposes such as houses of worship or parsonages.
After receiving exemption, most real estate tax exempt owners including community centers, charities, schools, etc. are required to file an annual affidavit. In it the charity must affirm, in essence, that since acquiring the exemption, nothing has changed. Churches are the exception. Once they have applied for and obtained real estate tax exemption, most Counties in Illinois have not required churches to file an annual affidavit of exempt use with the County Assessor’s office. However, many Counties in Illinois have adopted policies to more closely scrutinizing exempt church-owned properties to confirm that they continue to be owned and used for qualified religious purposes. Under this new policy, after review and with little forewarning, the Assessor is placing some church properties back on the County tax rolls for the current year and up to 3 prior years.
Here are some of the situations that our church clients have encountered with regard to maintaining their real estate tax exempt status.
1. Any change of use in the property can trigger questions and result in loss of the property tax exemption. Such a change in use can include:
- Renting space or parking lots to or allowing for-profit organizations to use the property for non-exempt activities. Space sharing with other not for profit organizations that do not further the religious ministry of the church.
- Space that has become vacant so that is not currently being used for tax exempt religious activities .
- Engaging in new activities since the exemption was granted, such as a church-run Christian pre-school or grade school. Any new activities should be evaluated beforehand to ensure that such activities will not jeopardize the exemption.
- Church mergers or change of the corporate name.
2. Many churches purchase exempt property from another church and are unaware that they, as new church owners, must obtain their own property tax exemption. Failing to obtain a new property tax exemption after acquiring a church will eventually result in the property being returned to the tax rolls when the Assessor’s Office figures out that the current church using the property is not the one listed on its tax rolls.
3. Some churches that were organized many years ago, often incorporated under the Illinois Religious Corporation Act, are unable to produce evidence of corporate status due to an inability to find the formation documents in their records. This may raise questions concerning the “exempt ownership” of the property and may affect not only tax exemption but may also affect their ability to sell or encumber the property in the future.
Other problems facing churches may concern the parsonage. While Illinois allows exemption for a parsonage, there are certain requirements for a parsonage exemption that the State will look for. These include:
- As with houses of worship, a vacant parsonage is not qualified for property tax exemption. To maintain tax exemption, a parsonage must be church owned, actively occupied by an ordained minister or licensed church worker, and its use essential to the minister’s religious duties.
- Documents supporting religious licensing or ordination of the person occupying the parsonage.
- The minster or church worker must be required as a condition of employment to live in the parsonage. This condition should be clearly set forth in the minister’s written employment agreement.
In short, when the Assessor comes knocking, it should not be treated as a simple matter. Again, the wisdom of the Proverbs proves true regarding the need for careful attention to maintaining a church’s real estate tax exemption. “The simple believeth every word; but the prudent man looketh well to his going.” Prov 14:15 KJV. Given the increased attention to property tax exemption by the Assessor’s Office, if your church receives correspondence from the County regarding your exempt property, we recommend that you first contact our office before disclosing any information to the County. Also, suppose your church is considering any change in use to its exempt property. In that case, again, we strongly advise contacting our office in order to evaluate the potential tax consequences and what will need to be done in compliance with the law prior to moving forward. For property, we recommend that you first contact our office before disclosing any information to the county. Also, suppose your church is considering any change in use to its exempt property. In that case, again, we strongly advise contacting our office in order to evaluate the potential tax consequences and what will need to be done in compliance with the law prior to moving forward.
Written by attorney Richard C. Baker and paralegal Susan Thomas.
