Church Support of Non-501(c)(3) Organization

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Question:

A church has supported a children's ministry for several years which has recentlylost its 501(c)(3) exemption. The leaders of the ministry are not employees ofthe church, and the ministry provides no services directly to the church. Isthere any reason why the church cannot continue to give financial support to the children's ministry?

Answer: 

This issue is tricky. A church may support other 501(c)(3) organizations; however, churches must becareful when they attempt to support non-501(c)(3) organizations. 

Since the organization has lost its exempt status, thedisbursements are no longer from one 501(c)(3) to another 501(c)(3); disbursementsof this type are not subject to Form 1099-MISC or other reporting. 
Nowthat the disbursements are made to a taxable entity, they will likely be viewedas payments for services rendered. The supporting church therefore may berequired to issue Form 1099-MISC. The church should research whether filing Form 1099-MISC would be required. For example, payments to non-employee individuals for services rendered are subject to Form 1099-MISC reporting.
For more information read the following previous blog posting:
Church Worker Employee or Independent Contractor