MinistryCPA - Corey A. Pfaffe, CPA, LLC

Question: A congregation is raising money for building improvements, receiving gifts designated for that sole purpose. Is it necessary to hold those gifts in a separate bank account or is it permissible to hold the funds in the church's general checking or savings account and otherwise account for it in its records? Answer: Churches typically receive both general and designated gifts. A third category of gifts--called Permanently Restricted by accountants--is rarely received by churches. It is not required that these funds be segregated from other cash accounts as long as proper accounting is maintained. Many churches have multiple designated accounts. Maintaining separate bank accounts for each is rarely necessary or even advisable. If general and designated funds are commingled, the church may wish to establish a reasonable method for allocating any interest or other earnings to unexpended designated fund balances. Extreme care must be taken to avoid using designated...

Question : Can a congregation give gifts to its employees on a tax-free basis? Answer : Yes and no... The Rest of the Story : Internal Revenue Code Section 102(c)(1) prohibits the exclusion "from gross income any amount transferred by or for an employer to, or for the benefit of, an employee." However, IRC Section 132(e) offers an exception for "de minimis fringe" amounts, defined as "any property or service the value of which is (after taking into account the frequency with which similar fringes are provided by the employer to the employer's employees) so small as to make accounting for it unreasonable or administratively impracticable." A Reveune Ruling by the IRS clarified this for holiday gifts: Gifts of minimal value that are provided by an employer to its employees may be excluded from the employees' incomes if the gifts have little value and are not readily convertible into cash. "The value of a turkey, ham, or other item of...

Question : A retiring minister receives a severance package from the church, and the congregation collects a love offering as additional financial assistance. Are the payments taxable? Answer : Yes, the income will be characterized in the same manner as his standard compensation during his tenure as a minister. This is also true of deferred compensation plans under which the minister continues to receive support for a period of time after retirement. He should consider requesting that an appropriate portion be designated as housing allowance. Alternatively, he may wish to request withholding ("elective deferral") into a 403(b) retirement plan. Question : Several members pay out-of-pocket costs to provide home repairs on his house. Are their payments for these materials tax deductible as contributions? Are the payments for lumber, etc. taxable to the minister? Answer : Since the costs paid and benefits received are related to a personal act between a benevolent d...