I am being supported by a church to create Bible class materials. These materials will be produced and sold to churches everywhere. This arrangement is new, so we are still figuring some things out.
If my income is represented with a W-2, then as an employee the church would own the copyright
to what I produce. That being the case, would the sale of the materials create an unrelated business income for the church?
My concern with the church owning the copyright has to do with non-profit tax law. If the church owns the copyright, then only the church can sell the materials and/or the rights to distribute them. Would this create an unrelated business income for the church:
"unrelated business income is income from a trade or business, regularly carried on, that is not substantially related to the charitable, educational, or other purpose that is the basis of the organization's exemption."
Also, could the church reasonably and properly classify me as an independent contractor?
"What should churches consider when classifying ministers as employees or self-employed?
Tests used by the IRS and federal courts would classify most ministers as employees for income tax purposes. Remember that most ministers have a dual tax status. Generally, they are employees for income tax purposes but are always self-employed for Social Security purposes with respect to their ministerial income.
The United States Tax Court applied this seven-factor test to ministers in 1994 when deciding if they were employees or self-employed for income tax purposes:
The degree of control the employer has over the details of the work.
Which party invests in the facilities used for the work.
The opportunity the worker has for profit or loss.
Whether the employer has the right to discharge the worker.
Whether the work is part of the employer's regular business.
The permanency of the relationship.
The relationship the parties think they are creating."
How would you recommend this arrangement be structured in order to keep things in good standing with the IRS?