MinistryCPA - Corey A. Pfaffe, CPA, LLC

Question: A church plans to establish an adoption fund as part of an orphans/widows ministry. Church members may contribute tax-deductible donations to the fund. The church leadership understands that IRS rules related to benevolence prohibit designation by donors to specific individuals. Rather, benevolent funds must be controlled by the church and distributed to recipient families identified by the church as a whole. Will donations given for adopting families identified by the church be tax deductible for donors and non-taxable to recipients? Will the same answers hold true for adopting families who are both members and employees of the church? Answer: As long as the church as a whole exercises control over the process for identifying the recipients of benevolent funds, as long as the disbursements are not disguised compensation to employees, I believe that the donations will be tax-deductible and recipients will not be taxed. It should be noted that Qualified Adoption Expe

Question 1: A church choir produces and sells a Christmas CD, the proceeds offsetting the cost of making the CD and contributing to its music ministry budget. Will the sales be subject to sales tax? Answer 1: Sales taxes are collected by most states, so the law must be considered for the location of each church. Since I'm in Wisconsin, I'll share its law. According to the State of Wisconsin, Department of Revenue, Publication 206, churches may make such sales without collecting and submitting sales tax to the state authorities if the Occasional Sales Rules apply. In Wisconsin, as long as the church does not otherwise hold a Seller's Permit and, as noted above, the sales receipts are not event admission fees, then the church will not be subject to sales tax collection and payment if it satisfies Wisconsin's definition of "not engaged in a trade or business." Only if a church makes sales of greater than $25,000 in a calendar year and makes sales on more

Question: Our church is acting as the mission agency for an individual sent from the church. We will receive funds and clearly indicate that the church has complete authority over the funds in order to protect their tax-deductibility. My understanding is that in order for the church to send the money on to the missionary, we can do one of the following: 1. Pay the missionary reimbursements for allowable business expenses requiring documentation; other support sent to the missionary will be taxable as self-employed ministry income. 2. Make the missionary an employee of the church, paying the individual through payroll and therefore take taxes out of the support before paying the missionary. 3. Pay the missionary without requiring documentation as a self-employed individual and issue Form 1099-MISC. Are any/all of these correct ways to handle this? Answer: Knowledge of complex tax laws provides one of many reasons that mission agencies are most often more prepared than a local

Question: If a church has recorded the acquisition costs for capital assets but chooses not to depreciate (thereby, not being in compliance with FASB 93) how do these capital assets get removed from the books at time of disposal or replacement? Answer: While two wrongs don't make a right , I suppose the ministry here would be required to make a general journal entry reducing capital assets and recording a gain or loss depending on the cash proceeds received, if any. I recommend that churches that do not need to follow Generally Accepted Accounting Principles use a modified cash basis in which capital asset acquisitions are recorded at the time of purchase as disbursements on a Statement of Receipts and Disbursements. Note that I do not call it an income statement or a statement of activities since it is not consistent with the use of GAAP. Further, checks written for mortgage payments (both principal and interest) are recorded as disbursements. Only current assets and cu