July 15, 2010

Donation of Vehicle to Church, Used by Minister

Question:

A donor in a church donates a vehicle to the pastor for his personal use. The donors state that it is "his" van and want the van to stay with him in case he leaves. Church minutes record that the van was a gift and that the van would be gifted to the pastor after his employment ceases (as a benevolent gift). What are the tax effects of this transaction?

Answer:

There are several potential unanticipated pitfalls apparent in the above inquiry.

First, in order for the donor to receive a write-off as a charitable gift of the van it must be donated to the church. The van should have been titled in the church's name upon title transfer. The church and donor should be careful to follow instructions provided in IRS Publication 526. Publications 4302 and 4303 may also be helpful.

As an employee of the church, any personal use of the van will be subject to taxation. Publication 463 should be consulted by the church in preparation of the minister's Form W-2 to assure that the proper amount of income is reported.

Second, if at any time the vehicle is transferred by the church to its pastor, the value of the vehicle as of that date will be considered taxable income. The use of the word "benevolent" will not overcome the substance of the transaction that an employee of the church has been compensation with non-cash property.

A search of this blog will reveal additional information regarding "gifts" to church, including ministerial, employees.

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