Skip to main content


Showing posts from November, 2013

Memorial Fund Gift for Employee

Question: A church staff member recently passed away. His wife remains a current employee. If a memorial fund is established for the family of the deceased employee, can the church (her employer) make a non-taxable  contribution to the memorial fund, even though it benefits a current employee and her family? Answer: Multiple factors must be taken into consideration to determine the taxability of a disbursement of this nature.  First, the "gift" cannot be disguised compensation, (e.g. previously undisbursed vacation pay for the deceased employee). Even if it is designated by the church as a gift, the disbursement may be taxable as compensation if the IRS deems it to be pay that he was owed for previous services. Additionally, the contribution cannot be made in anticipation of future services by the wife; if this is judged to be simply advanced compensation, it will be taxable. Also, the church should consider whether contributions of this nature have been a common practic

Small-Employer Healthcare Arrangements

Question: Our church is a small employer. We currently offer health benefits to two of our pastoral staff. How does the Affordable Care Act affect our church beginning January 1, 2014? Answer: The Affordable Care Act (ACA) market reforms will affect almost all employers who provide health benefits to their employees. Each small employer must wisely plan for the changes effective January 1, 2014. MinistryCPA has researched the ACA on behalf of its small-employer clients in consideration of the organizational and business situations under which they operate. Because each small employer is unique, MinistryCPA works with small employers on a client-by-client basis.

Humanitarian Aid as a Business Expense

Question: I am a missionary in a restricted country, and a large part of my ministry is providing humanitarian and medical aid to individuals. I receive my financial support directly from my church, which issues me a Form 1099-MISC. Can I deduct my humanitarian aid expenses for income and self-employment tax purposes? I have considered using the Schedule C gift deduction, but the $25 per-client limit on deductions is highly restrictive. Also, the nature of the expenses does not seem to fit the IRS guidelines for business gifts. Answer: Since IRS Publications do not address every possible category of deductible expenses, general principles must be applied in this situation.  IRS Publication 535  describes allowable business deductions: "To be deductible, a business expense must be  both ordinary and necessary. An ordinary expense  is one that is common and accepted in  your industry. A necessary expense is one that  is helpful and appropriate for your trade or business . An expe

Housing Allowance on Non-ministerial Income?

Question: As the minister of a small church, I receive no compensation. I do, however, work a secular job for which I am compensated, and I use the earnings from this job to cover my housing expenses. Can I apply to the IRS for a housing allowance designation of this income? Answer: Unfortunately, no. According to IRS Publication 517 , " The church or organization that employs you must officially designate the payment as a housing allowance." A housing allowance is designated by your employer, not the IRS, and is available only on income from ministerial services.

Stadium Parking Income for a Church...Continued

Question: We recently answered a question related to a church opening its parking lots for patrons of a nearby football stadium in exchange for donations (read the previous post here: Stadium Parking Income for a Church ). In relation to that situation, a reader asks why the church may be subject to UBIT (unrelated business income tax) if the work is performed by volunteers. Answer: The question references an exception to UBIT in IRS Publication 598, which states, "Any trade or business in which substantially all the work is performed for the organization without compensation is not an unrelated trade or business." Again, please reference our earlier post for more on the specifics of an unrelated trade or business.  This exception would seem to include the situation under consideration, but the phrase "substantially all the work" is extremely important in determining whether income is exempt. This issue was addressed in IRS Letter Ruling 982206, issued Janua