April 23, 2013

Taxability of Love Offering to Former Pastor

Question:

A church's pastor resigned a few months ago. Since then he has not been able to find work. The church took a love offering to help him with expenses. Does the church have to take taxes out of this offering since the pastor is no longer part of the church? Would the answer be different if the congregation took up a love offering for someone else in the community?

Answer:

Benevolent gifts to individuals in the local community (not an employee of the church), are generally disbursed by churches from benevolent funds received by the church to disburse to needy individuals. Since these individuals have not provided nor are expected to provide services in exchange for the gifts, these gifts are non-taxable. For more on benevolent fund giving, type "benevolent fund" in the search window above.

Love offerings collected on the behalf of a current or former employee in consideration of past services provided are taxable compensation. Similar to compensation to the pastor while he was in the church's employ, no taxes are to be withheld from this compensation. As a dual-status individual, he is responsible for self employment and income tax payments.


There may be a possible exception to tax ability if the resigning pastor is actually entering retirement.

The Minister Audit Technique Guide says:
"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."

Rev. Rul. 55-422, 1955-1 C.B. 14 discusses the result of cases in which a minister received a gift from his church after retirement. The court ruled it was a nontaxable gift because the pastor had been "adequately compensated for his past services," and "the recipient did not undertake to perform any further services for the congregation and was not expected to do so."

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