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“Today’s Sermon Is Brought to You by…” – Intellectual Property and Ownership

A church recently updated its website.  The webmaster has recommended to the leadership to record and upload the weekly worship service, including the sermon, onto the website.  The outstanding majority of the deacons agree with the recommendation as it would allow members who are unable to attend services to watch remotely and allow those interesting in the church to “get a flavor” of the church’s services.  However, the senior pastor is against having his sermons recorded.  After several heated discussions, the deacons decide against the webmaster’s recommendation to avoid further discord.  Did the senior pastor have the right to demand that his sermons not be put on the website?

Without a written agreement between the parties saying otherwise, the church is the owner of the pastor’s sermons.

      I.         SERMONS ARE COPYRIGHT PROTECTED

The creation and presentation of a sermon is a form of Intellectual Property (“IP”) known and protected under the laws regarding copyright.

The Copyright Act of 1976

Copyright protection, as defined by Title 17 of the U.S. Code (the Copyright Act of 1976 or the “Act”), provides protection to the authors of “original works of authorship,” including literary, dramatic, musical, artistic, and certain other intellectual works, regardless of whether such work is published.  Copyright protection covers those types of work that have been placed into a tangible format such as pen and paper, a word processing computer program, or an audiovisual recording.  It does not include your or others’ ideas, concepts, or methods prior to being put in a tangible format.  Additionally, copyright protection covers not only the actual created work, but also copies and any derivative work created from the original copyrighted work.

At this point, you are probably thinking, “Wow, I had no idea that I have a lot of sway in when, how, and who is allowed to use my sermons.”  Unfortunately in most cases, it is the exact opposite.

Work for Hire

Ownership of a copyrighted work initially vests in the individual author(s) of that work.  However, if the individual created the copyrighted work as an employee, then the creation of the copyrighted work is considered “work for hire,” and the individual’s employer is presumed to be the owner and has all the above rights in the work.  This presumption of employer ownership in the copyrighted work can only be overridden by a written agreement signed by both parties clearly reserving copyright ownership rights to the employee.  17 U.S.C. § 201.

To establish a claim of “work for hire,” an employer must demonstrate that 1) the work was created by an employee and 2) the employee was acting within the scope of his or her employment relationship.

The Courts have consistently ruled that ministers are employees of their church.  The copyrighted work was created within the scope of his or her employment if 1) the work is of the type for which the employee was hired to perform; 2) the creation of the work occurred “substantially within the authorized time and space limits” of the employment; and 3) it is wholly or partially motivated to benefit the employer.

As you know, pastors are expected to fill a number of roles within the church: supervisor; caretaker of the sick; receptionist (occasionally); janitor (more than occasionally).  However, the most important of a pastor’s duties is that of teacher and minister of the gospel to the believers and unbelievers.  The ability to create and deliver a sermon is one of the primary attributes a church looks for when it is calling a pastor.  The skill and ability of a pastor to deliver a sermon which inspires those individuals in attendance goes directly to the goal of all Christian churches:  to spread the good news of the gospel to those who do not believe so that they can be saved and that they can save others.  Thus, the creation of a sermon would be at least partially motivated to benefit the church, as it would draw new attendees to the church, which would in turn increase membership, community involvement, and revenue.

Additionally, due to the importance of creating and delivering sermons as part of the pastor’s employment and for the mutual benefit of both the pastor and the church, the creation of any sermons, regardless of the time and place they were created, would very likely be ruled to be “work for hire” and owned by the church.  The “work for hire” rule also applies to any written or electronic drafts as well as digital recordings and broadcasts or re-broadcasts of the sermons over television, radio, or the internet.

    II.         PUBLISHING RIGHTS AND ROYALTIES

Under the Act, the owner of copyrighted work has the exclusive right to reproduce copies of the work, to prepare derivative works based on the copyrighted works, and to distribute copies of the work to the public for sale or lease.  If the church is the owner and decides along with the pastor to publish the work for sale, it must also consider additional tax-exempt implications such as unrelated business income and private inurement.

Unrelated Business Income

Under federal law, net income received by a church from one or more unrelated business activities is taxable income.  The primary intent for taxing the unrelated business income (“UBI”) was to eliminate the potential unfair advantage a nonprofit, tax-exempt organization, like a church, would have over a for-profit organization.

To be considered an unrelated business activity, it must be a revenue-generating activity that:

  • Constitutes a trade or business;
  • Is regularly carried on by the organization; and
  • Is not substantially related to the nonprofit organization’s exempt purpose(s).

A Trade or Business

It is generally rather easy for an activity to be a “Trade or business.”  Any activity that is unrelated to the exempt purposes and is conducted to produce income from the sale of goods or performance of services with a reasonable expectation of a profit, can qualify as a trade or business for purposes of UBIT.

Regularly Carried On

To determine whether an activity is being “regularly carried on,” the frequency and continuity of the activity must be examined.  If the activity engaged in by the church is similar to the regularly conducted activities of a for-profit company, then these factors are compared to the frequency and continuity of the standard for that industry.  The more similar the activity of the church is to the activity of the industry, the more likely the IRS will consider the activity “regularly carried on” for UBI purposes.

Substantially Related

A revenue-generating activity is considered substantially related if the conduct of the activity itself, not the revenue received from it, contributes importantly to the accomplishment of the organization’s tax-exempt purposes.  An organization’s tax-exempt purposes are generally outlined in the articles of incorporation (if incorporated) and/or the constitution and bylaws.  Thus, a church should, among other things, have as broadly defined purposes as legally possible so as to encompass and defend various income-generating activities.

Taxation of Unrelated Business Income

The IRS recognizes that tax-exempt organizations will engage in some income-producing activities, including those activities which would result in unrelated business income and the organization will be required to pay tax on that income if it is above a certain threshold. However, the federal law has made it clear that such activities must be insubstantial compared to the other activities of the organization that are related to its tax-exempt purposes.  If an organization’s activities/efforts become substantially devoted to that unrelated business, including by the amount of time and resources allocated to it, the IRS may revoke its tax-exempt status.

Unfortunately, the IRS did not provide a clear line of when unrelated business activities change from insubstantial to substantial.  The Courts have also provided a variety of decisions, all based on the facts and circumstances in each case, as to what is deemed to be “substantial.”  Thus, a church must be aware of its activities and the resulting revenue it brings in from them and should regularly consult with its tax exemption professionals to determine whether these activities may jeopardize its tax-exempt status.

Additionally, most states will require a church to submit a report similar to what it submits to the IRS and to pay appropriate state taxes on any nets gains and may require it to collect and remit sales tax on purchases of goods, unless it has been granted an exemption from state sales tax. 

Private Inurement

In order to avoid having to pay income tax on this revenue, the church may agree to split or provide all profit from sales to the authoring pastor.  Unfortunately such an agreement, unless crafted properly, could result in greater harm to the church.  Because the church is a 501c3 tax-exempt organization, the assets and net earnings of the church cannot be distributed to the benefit of a private individual, especially an individual who is involved within the organization.  Such a distribution would be in direct violation of federal law and would very likely result in the church’s tax-exempt status being revoked.

  III.         CONCLUSION

As discussed, a church should be aware and make its employees aware of its rights as a copyright owner.  By making this known up front, the church avoids a lot of miscommunication and potential legal costs in defending itself against employees and former employees.  Additionally, the church, as a 501c3 tax-exempt organization, needs to be aware of the legal and tax implications of its activities in relation to these works and the use of the copyrighted works by others.  The church should always consult competent legal counsel familiar with tax exemption issues before entering into any agreement that transfers ownership, possession, or otherwise impacts these works, so that it is best protected from any later legal claims as well as a potential violation of its 501c3 tax-exempt status.

WANT TO READ MORE?  The full-length article provides options for potentially reducing legal liability and protecting your church or organization’s 501c3 tax exempt status.  If you would like further advice, please email the author or call the office at 703-771-4671 to purchase the full article and discuss how we can help address your specific concerns.

Disclaimer: This memorandum is provided for general information purposes only and is not a substitute for legal advice particular to your situation. No recipients of this memo should act or refrain from acting solely on the basis of this memorandum without seeking professional legal counsel. Simms Showers LLP expressly disclaims all liability relating to actions taken or not taken based solely on the content of this memorandum.  Please contact Robert Showers at hrs@simmsshowerslaw.com, Daniel Hebda at djh@simmsshowerslaw.com or Justin Coleman at jrc@simmsshowerslaw.com  for specific legal advice on this issue for your needs. Simms Showers LLP © 2014

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