December 08, 2014

Ice Bucket Challenge - Taxable Income?

Question:

A church's minister has an immediate relative who has been suffering from ALS for the past six years. The church sponsored and organized an "Ice Bucket Challenge" for the relative.

Originally, the thought was to raise $3,000-$5,000. The church intends to (1) transfer the funds to the facility that cares for the relative or other ALS charities and (2) report the funds as a bonus compensation to the minister.

However, the church raised close to $30,000; now the tax situation has more serious consequences if the church calls it compensation to the minister. How should the church report these monies?

Answer:

We see three areas that could affect how to report this money:

  1. If the funds are simply going to an organization to support its general operations (not to pay a single patient's costs) or to other ALS charities, the transfer is from one Internal Revenue Code section 501(c)(3) organization to another. There is no tax consequence for the church's ice bucket challenge.

  2. If the funds are given as true benevolence (as opposed to disguised compensation) to pay the employee's relative's bill, then there is no tax consequence to the minister. We have written many blog posts on benevolence; we suggest readers type the word "benevolence" in the search bar of this blog, or go to the Labels section on the right side of the page and click on "Benevolence."

  3. The church needs to be sure that it is not disguising compensation to the minister. At times, church's have felt that they have not provided fair compensation for employees; this feeling may appear in churches where the minister's family has experienced financial stress because of a medical condition. The church in the question here must be careful that it is truly carrying on a benevolent cause and not disguising compensation to its minister. 

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