February 18, 2010

Sabbatical Trip Paid by a Church

Question:

A pastor at a church is taking a 3-month sabbatical trip for "rest and renewal." The expenses for the trip are being paid by the church. Does the IRS require that these expenses be considered income to the pastor for Form W-2 purposes?

Answer:

IRS Publication 463 is helpful here. The taxation issue relates substantially to whether the trip is for "bona fide business (ministry) purposes" or for personal purposes. For example, a trip to visit ministries supported by a church for purposes of encouragement and accountability in the work of its people, and for the purpose of reporting back to the church are clearly business purposes.

Another question implied by the Publication relates to whether a pastor "would otherwise be allowed to deduct the travel expenses" had he paid for the trip himself (as an employee of the church).

More...
"You can deduct all of your travel expenses if your trip was entirely business related. If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct your business-related travel expenses. These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination.

"If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. However, you can deduct any expenses you have while at your destination that are directly related to your business."

Travel outside the U.S. is also addressed in the Publication, requiring careful consideration of matters not addressed in this posting.

Accordingly, if a church pays for an entire trip that has both business and personal components, an accurate allocation will be required before Form W-2 can be prepared. The personal costs must be reported as taxable income.

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