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Showing posts from July, 2011

IRS Statute of Limitations for Prior Year Return Errors

Question:

How many years can IRS chase after a minister who didn't report SE tax for the housing allowance?

Answer:

I'll let the IRS' own FAQ answer this one:

"Generally, the IRS can include returns filed within the last three years in an audit. Additional years can be added if a substantial error is identified. Generally, if a substantial error is identified, the IRS will not go back more than the last six years.
...
"More information related to extending a statute of limitations can be obtained in Publication 1035, Extending the Tax Assessment Period."

From Publication 1035:

"The statute of limitations for IRS to assess and collect any outstanding balances does not start until a return has been filed.In other words, there is no statute of limitations for assessing and collecting the tax if no return has been filed."

Love Gifts to Volunteer Pastor

Question:

A pastor is "volunteering" at a church. It's not ready to permanently hire him but wishes to "help him with his financial situation for $600 per month." Can the church classify the payments as "love gifts"? Will the church be subject to gift tax?

Answer:

Whether the pastor is an employee (receives Form W-2 from the church) or an independent contractor (receives Form 1099-MISC) is a matter of the facts and circumstances of his ministry at the church. The following link can be followed for a review of these factors as spelled out in a 2009 posting:

Church Worker: Employee or Independent Contractor

Love gifts are taxable income reportable on either Form W-2 or Form 1099-MISC depending on the minister's status. Gift tax is irrelevant since it relates to pre-inheritance distributions from an individual's taxable estate.

Whether he is treated as an employee or not may carry little difference in this temporary situation with a low amount of comp…

Educational Assistance by Churches for Their Missionaries

Question:

A church wishes to provide assistance/support for educational expenses of a member who is an international missionary. The missionary serves under a governing body ("mission agency") which raises support for its missionaries and provides all the proper tax documentation to the missionary.

The missionary already has his undergraduate degree, however, now is working on his master's. The church, through the advice of the governing body, has begun the initial stages of working on setting up a general educational assistance fund, along with proper documentation, oversight, and requirements for use of the fund.

Can this type of activity be structured in a way to where there would be no taxable income to the individual? Can the funds be used for educational expenses (tuition, books and fees) as well as travel expenses to the classes (lodging and air fare) as well as meals? Would a Form 1099-MISC need to be issued or can be this be looked at as some type of "accounta…

Mission Agency Basics--Getting Off on the Right Foot

Question 1:

A new nonprofit missions agency is being established and preparing to send its first missionary. Identical to established agencies, the missionaries will receive support from churches and individual donors who rely on the fiduciary and ministry accountability role of the agency. What is the responsibility of the nonprofit in withholding taxes for its missionaries?

Answer 1:

It's a delight to hear of the establishment of new mission agencies ready to contribute to the spread of the gospel. While there are many issues to tackle, let's review a couple that readers of this blog might expect to hear from a CPA.

1. Other than itinerant ministers, virtually all licensed or ordained ministers are classified as dual status. This means that they're employees in every respect, except for purposes of social security and Medicare tax obligations. For purposes of these two taxes, they are considered self-employed and responsible for their own tax determined on IRS Form 1040, Sch…

Unrelated Business Income Tax on Gift of Corporate Stock

Question 1:

Corporate stock was donated to a church. How are the gains on these stocks for a not-for-profit organization reported to the IRS?

Answer 1:

Section 511 of the Internal Revenue Code (IRC) imposes tax on tax-exempt organizations, including churches, that earn unrelated business income. Section 512 defines income and exclusions related to the unrelated business income tax (UBIT).

IRC Section 512(a)(1) General rule. "Except as otherwise provided in this subsection, the term 'unrelated business taxable income' means the gross income derived by any organization from any unrelated trade or business (as defined in section 513) regularly carried on by it, less the deductions allowed by this chapter which are directly connected with the carrying on of such trade or business."

According to IRC Section 512(b)(5) "stock [Commentary: this does not refer to corporate stock] in trade or other property of a kind which would properly be includible in inventory if on hand a…

Bookkeeping Entries for Roofing Bid Received

Question:

Help! My bookkeeping knowledge is limited to a semester of accounting at a local community college in the mid 1970's.

We contracted with a local roofer to make repairs to the church's roof. We have his estimate of how much it will cost and he's started working on it. My question is how do I enter the estimate into our financial software, Church Windows.

I imagine I need to create some sort of liability to show that we're involved in the work. But how do I enter the expense - do I create an expense acct labeled 'roof repairs in progress'? And then when we get the final bill, do I move the liability to an actual accounts payable acct with 'roof repairs' expense?

Answer:

No entry is required at the time of receiving the estimate or prior to receiving the roofer's invoice. Once the invoice is received you may enter it as an Account Payable. Your accounting program, Church Windows Software (http://churchwindows.com/), will record it as a liability a…