February 27, 2010

Departing Pastor Gift (or is it Compensation?)

Question:

I have a question concerning the taxability of a “love gift” given to a departing pastor after he has left the church. We have been told by our convention that if the church follows certain steps, a gift made after the minister’s final day of payment for services will not be taxable to the minister.

The requirements include being voted on by the church, given after the minister’s final day of payment and completely voluntary on the part of the membership and including information in the churches minutes.

Answer:

The IRS "Minister Audit Technique Guide" available at the following link is particularly helpful in answering questions such as these:

Minister Audit Technique Guide

I cite here a few sections from the guide, but more information is available there--particularly in the section with the heading, "Gift or Compensation for Services."

"There are numerous court cases that ruled the organized authorization of funds to be paid to a retired minister at or near the time of retirement were gifts and not compensation for past services. Rev. Rul. 55-422, 1955-1 C.B. 14, discusses the fact pattern of those cases which would render the payments as gifts and not compensation.

"The Tax Court had ruled in Potito v. Commissioner, T.C. Memo 1975-187, aff'd 534 F2d 49 (5th Cir. 1976), that the value of a boat, motor and boat trailer was included in gross income as payment for services. The taxpayer, a minister, had not produced any evidence regarding the intention of the donors that the transfer of the property was out of 'detached and disinterested generosity.'"

In the contemplation of these issues, I encourage reference to my October 28, 2009, blog post as well:

Retired Minister Continued Support from His Congregation

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