Question:
If a minister receives a ‘gift’ from another church (not his home church), is it taxable compensation?
Example:
A church gives ‘gifts’ to a minister on his birthday, anniversary etc. Can it be treated as a nontaxable gift if that church writes a letter stating its intention to give?
Answer:
Internal Revenue Code section 102(c) clearly states that gifts given to employees by their employers are taxable compensation. The IRS has consistently applied this provision to self-employed (non-employee) individuals who provide services for an organization as well. Only the facts and circumstances surrounding a gift can determine whether IRC section 102(c) does or does not apply; a letter stating that a payment is a gift will not override the substance of a transaction.
Often churches will support a minister of another congregation that is unable to provide full support to its own minister. Similar to foreign missionaries supported by congregations, the IRS will imply that services were provided in exchange for the compensation. That support is taxable to the minister; a gift to that minister will have the same taxable character as the standard support.
Exception:
If the gift is benevolent in nature, then it will not be taxable since no services were provided for it. If the church has a benevolent fund for emergency needs of others and disburses funds to aid the minister of another church with his medical costs or to help his family recover from a sudden financial loss, then it will not be taxable just as it would not be taxable to a non-employee member of the congregation receiving similar funds. The facts and circumstances of each situation must be weighed to determine whether the "gift" is related to compensation for services or truly related to benevolent activity. A search of court cases related to the taxation of gifts to employees may produce the most fruitful examples to apply to specific situations.
If a minister receives a ‘gift’ from another church (not his home church), is it taxable compensation?
Example:
A church gives ‘gifts’ to a minister on his birthday, anniversary etc. Can it be treated as a nontaxable gift if that church writes a letter stating its intention to give?
Answer:
Internal Revenue Code section 102(c) clearly states that gifts given to employees by their employers are taxable compensation. The IRS has consistently applied this provision to self-employed (non-employee) individuals who provide services for an organization as well. Only the facts and circumstances surrounding a gift can determine whether IRC section 102(c) does or does not apply; a letter stating that a payment is a gift will not override the substance of a transaction.
Often churches will support a minister of another congregation that is unable to provide full support to its own minister. Similar to foreign missionaries supported by congregations, the IRS will imply that services were provided in exchange for the compensation. That support is taxable to the minister; a gift to that minister will have the same taxable character as the standard support.
Exception:
If the gift is benevolent in nature, then it will not be taxable since no services were provided for it. If the church has a benevolent fund for emergency needs of others and disburses funds to aid the minister of another church with his medical costs or to help his family recover from a sudden financial loss, then it will not be taxable just as it would not be taxable to a non-employee member of the congregation receiving similar funds. The facts and circumstances of each situation must be weighed to determine whether the "gift" is related to compensation for services or truly related to benevolent activity. A search of court cases related to the taxation of gifts to employees may produce the most fruitful examples to apply to specific situations.
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