In accordance with Internal Revenue Code Section 105, amounts received by employees under employer accident and health plans are excluded from Gross Income. This rule is also communicated by the IRS in its Publication 15-B (2008), Employer's Tax Guide to Fringe Benefits. Relative to churches and Christian ministries, the typical lone exception to this rule applies when the employer has established a "self-insured medical reimbursement plan that favors highly compensated employees." These plans typically reimburse employees for medical expenses not covered by insurance. For a church with a pastor as its sole employee, these rules are not applicable. Publication 15-B provides concise, understandable explanations of these rules.
Question: A church would like to purchase a car for the pastor's use. What is the best method to accomplish this goal? Should the car be titled in the pastor's name? What will be the tax consequences of this arrangement? Answer: The church has two main alternatives for this purchase: Title the car in the pastor's name and reimburse him for business expenses Title it in the church's name and treat personal use as taxable compensation There are fewer immediate tax consequences for the latter. Since both are viable options, we will discuss both situations in this post. If the church chooses to give the car to the pastor and register it in his name, he is free to use it for whatever personal use he desires with no tax consequences. However, the fair value of the car is taxable as compensation at the time it is given to the pastor. Internal Revenue Code section 102(c) clearly states that gifts given to employees by their employers are taxable compensation. The...
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