Question:
A ministry offers an allowance on books and other study aides to assist its pastor in his teaching and preaching. If the pastor maintains ownership of these materials rather than the church, do these amounts become taxable to him as additional compensation?
Answer:
We believe that as long as the books and other similar supplies are related to his ministry rather than for his personal recreation, they are not taxable and he may maintain ownership without tax consequences. Presumably he and the congregation have gained the ministry benefit for which they were purchased. On the other hand, if he were to purchase books for recreation purposes (i.e., hobbies such as hunting, exercising, etc.), we would advise him to not use the church's reimbursement account.
It is important to understand the presumption that the ministry-related books are expendable supplies incurred in support of employee activity and have negligible or reduced value in used condition. Additionally, it is important that these materials were not purchased with the intent to resell for a profit.
The time to address whether church reimbursements for ministry versus personal expenditures is when the reimbursement is requested. It will become difficult to determine and to correct an erroneous classification when the pastor decides to move on from his present ministry.
The IRS would likely classify this as a de minimis fringe benefit. According to IRS Publication 5137 (Page 4), "De minimis fringe benefits include any property or service, provided by an employer for
an employee, the value of which is so small in relation to the frequency with which it is
provided, that accounting for it is unreasonable or administratively impracticable."
A ministry offers an allowance on books and other study aides to assist its pastor in his teaching and preaching. If the pastor maintains ownership of these materials rather than the church, do these amounts become taxable to him as additional compensation?
Answer:
We believe that as long as the books and other similar supplies are related to his ministry rather than for his personal recreation, they are not taxable and he may maintain ownership without tax consequences. Presumably he and the congregation have gained the ministry benefit for which they were purchased. On the other hand, if he were to purchase books for recreation purposes (i.e., hobbies such as hunting, exercising, etc.), we would advise him to not use the church's reimbursement account.
It is important to understand the presumption that the ministry-related books are expendable supplies incurred in support of employee activity and have negligible or reduced value in used condition. Additionally, it is important that these materials were not purchased with the intent to resell for a profit.
The time to address whether church reimbursements for ministry versus personal expenditures is when the reimbursement is requested. It will become difficult to determine and to correct an erroneous classification when the pastor decides to move on from his present ministry.
The IRS would likely classify this as a de minimis fringe benefit. According to IRS Publication 5137 (Page 4), "De minimis fringe benefits include any property or service, provided by an employer for
an employee, the value of which is so small in relation to the frequency with which it is
provided, that accounting for it is unreasonable or administratively impracticable."
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