Skip to main content

Stadium Parking Income for a Church

By
Question:

 A church located next to a football stadium opens its parking lot to fans on Saturdays when the team has a home game. This happens about half a dozen times each year, and the parking lot is manned by volunteer church members. Parking is free, but the volunteers do solicit donations. Does this arrangement affect the church's tax-exempt status? How much control can these volunteers have over the church's use of the donations?

 Answer:

 First, this situation will not affect the tax exempt status of the church. Non-ministry related sources of income, although they do not affect the tax exempt status of the church, may be subject to unrelated business income tax (UBIT). According to IRS Pub. 598, churches may be subject to UBIT on "income from a trade or business regularly conducted by an exempt organization and not substantially related to the performance by the organization of its exempt purpose or function, except that the organization uses the profits derived from this activity." This activity clearly meets all the criteria of the IRS definition, which subjects unrelated business income to tax, except possibly in the area of being "regularly conducted." IRS Code Section 513-1(c)(2)(i) addresses this issue:
Where income producing activities are of a kind normally undertaken by nonexempt commercial organizations only on a seasonal basis, the conduct of such activities by an exempt organization during a significant portion of the season ordinarily constitutes the regular conduct of trade or business. For example, the operation of a track for horse racing for several weeks of a year would be considered the regular conduct of trade or business because it is usual to carry on such trade or business only during a particular season.
Because the church opens its parking lot each time the stadium lots are open, the church is likely viewed as conducting its business regularly during the season in which comparable nonexempt commercial entities are engaging in the same business. Although the activity is not conducted year round, the church takes advantage of the opportunity whenever it is available. Based on these considerations, the church will most likely be subject to UBIT on this income. Expenses directly incurred in the production of this income may be deducted in the computation of UBIT.

The church should also carefully consider the amount of control allowed to the volunteers over the funds. Excess control by the volunteers could be viewed as disguised compensation if their influence produces personal benefit.  Rather than giving them direct influence on the use of the funds, the church should allow them input into the decisions of the committees that "control" the designation of funds.  
Labels:

Comments

Post a Comment

Popular posts from this blog

Rental of a Church Parsonage to a Non-Minister

By
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...
Post a Comment
Read more

How can my ministry expenses be covered by the church?

By
     How can my ministry expenses be covered?                            Many ministers use their personal autos for ministry purposes. Their employers can reimburse these costs using a standard mileage rate published by the IRS. The per mile rate represents employees’ entire reimbursable cost other than highway tolls and parking tabs. If not covered by use of the ministries’ credit card, other costs can be reimbursed as well—business and travel meals, lodging, office supplies, and professional library purchases among them. Some ministries reimburse travel costs using per-diems published by the IRS. If employee business expenses are not reimbursed, the personal tax deduction benefit to the individual minister is severely limited. Non-taxable reimbursements after documentation is provided to the employer follows IRS rules for accountable plans. Non-taxable cash advances before expenses are in...
Post a Comment
Read more

What is the best retirement account for a Minister?

By
       What are my options for retirement savings?                  Regardless of options, start now! You probably have learned about traditional and Roth IRAs. We have often found them well short of the benefits we will share here regarding Internal Revenue Code section 403(b) plans. These plans must be established by your employer (although you might need to be the initiator). They are funded in two ways—withholding from your paycheck at your option (called “elective deferrals”) and as initiated by the employer (matching or non-elective contributions). These contributions not only save income tax, but they also reduce the income you must report as subject to the 15.3% SECA tax. Further, at retirement with the cooperation of your church or Christian ministry the distributions to you can be tax-free to the extent of your qualified housing expenses. Many ministries also adopt what are often called “FICA alternative” be...
Post a Comment
Read more