John: It appears that a partnership has been formed. Therefore, the partnership must file an information return reporting all transaction for the year and apportioning each partners reportable information
The IRS has regulations as to documents to verify expenses and those apply equally to for-profit and exempt organizations. A church is generally considered an exempt organization and, therefore, the IRS
See IRS Publication 557 "Tax Exempt Status for Your Organization" which is available at: http://www.irs.gov/pub/irs-pdf/p557.pdf on page 69 (footnote 2)that applies (from the page before for 501(c)(5)
The IRS has written --- Start of Excerpt --- A stipend is defined as a fixed sum of money paid periodically for services or to defray expenses. The fact that remuneration is termed a "fee" or "stipend"
Ta: Contact the Texas department that sent the notice and plead your stupidity and lack of knowledge. That is you only hope. Its not the sales but the failure to file the reporting forms as required