Skip to main content

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.

Comments

Popular posts from this blog

Church Car Purchase for Pastor

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...

Rental of a Church Parsonage to a Non-Minister

Question: A church owns a parsonage, but the pastor does not use it as he owns his own home. The church rents the parsonage to a tenant other than a minister or employee of the church. Will the church be responsible for paying income tax on these monies as Unrelated Business Income (filing a Form 990-T) even if the money is used to carry on the business of the church? Answer: Whether the money is used for church purposes is irrelevant.  IRS Publication 598  states: "If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business." Fortunately, in the case of rental income from real property, such income is "excluded in computing unrelated business taxable income" (Publication 598). Caution: see content below regarding debt-financed property.  However, a second concern not a...

Can Form 4361 be filed after the deadline?

Question:   Is it possible to opt out of Social Security after the 2-year deadline? Answer:  Unlike other employees, a licensed or ordained minister has the option to opt out of Social Security and Medicare (FICA). If a minister wants to opt out they must file Form 4361 by the tax deadline including extension, in the second year in which they have received ministerial income of $400 or more. This election is final, and the minister cannot opt back into FICA taxes.  At MinistryCPA, we have received questions from ministers who have exceeded the two year deadline and desire to opt-out. There have been several court cases which provide guidance in answering this question. Some have argued that the minister was unaware of the deadline, had mistakenly believed they had filed a timely election, were given incorrect advice by an IRS employee, or their opposition to participate in Social Security and Medicare did not arise until after the 2-year deadline had passed. In each of th...