MinistryCPA - Corey A. Pfaffe, CPA, LLC

Question: I have read that donors should not write the name of a missionary directly on their checks to churches or mission agencies.   Rather, they should include it on a separate piece of paper.   I have always believed this to be an urban legend.   Isn't the real issue whether the church or agency has direct control over the gift, and therefore gifts would still be deductible even if the missionary's name was written on the check? Answer: You are absolutely correct; this is a myth. While it may give an appearance of impropriety, the question at issue here is not the designation, but rather control over the gift. A designation becomes an issue if it is made in such a way that it serves personal purposes.  A donor who writes the missionary's name on the check does not endanger the deductibility of the gift, as long as 1) the missionary has already been identified by the church as a worthy recipient or 2) the church subsequently confirms, of its own volition, that

Question: A mission agency runs a school in a foreign country and pays its directors (who are ordained or licensed ministers) a housing allowance as part of their salaries. The ministers avoid income tax on the allowance, but do incur self-employment (SE) taxes. Can the agency pay for the housing directly and correspondingly reduce the salaries of the directors in order to decrease their SE tax burden?  Answer: The agency can certainly pay for the housing directly; however, under normal circumstances, this will not decrease the SE tax burden on the directors. Because the directors still receive the housing benefit, even though it is paid directly to the landlord, it will be taxable as a housing allowance. In essence, the total tax will be unchanged since the IRS sees no change in the true nature of the compensation. Possible exception to the above information: If paid directly by the agency, the benefit may be non-taxable under very strict guidelines provided by the IRS in Pu

An important news update that may affect ministries and tax-exempt organizations across the country: On Friday, November 22, 2013 Federal Judge Barbara Crabb of the Western District of Wisconsin ruled in favor of the Freedom from Religion Foundation (FFRF), declaring the minister's housing allowance unconstitutional. It is important to note, first of all, that this will have no immediate effects. Additionally, only this specific district is affected by the ruling unless it is upheld by a higher court. Presumably, this case will be appealed to the Seventh Circuit Court of Appeals in Chicago, which will rule for Wisconsin, Indiana, and Illinois. Until the Seventh Circuit rules on the appeal, the unconstitutionality ruling will not be enforced. The specifics of the ruling: Judge Crabb held that the housing allowance provides benefit to religious organizations and ministers that has no corresponding secular benefit. The provision of a church-owned parsonage as a tax-free benefit