MinistryCPA - Corey A. Pfaffe, CPA, LLC

Question: Our church is looking to apply for 501(c)(3) status. What are the advantages and disadvantages of pursuing formal recognition as a 501(c)(3) organization? Answer: To be tax-exempt under Internal Revenue Code § 501(c)(3), organizations (e.g., churches) must be organized and operated exclusively for exempt purposes set forth in the IRC. Additionally, a 501(c)(3) organization must not be organized or operated for the benefit of private interests (referred to as "private inurement"). Churches are automatically classified as IRC § 501(c)(3) entities regardless whether they have been formally recognized by the IRS. Yet, there are reasons to pursue formal recognition. Those that do receive this recognition receive from the IRS a Tax Determination Letter. Advantages : 1. Church schools that wish to apply for grants will likely need to provide a Tax Determination Letter since foundations do not want to disseminate funds only to find that they were contributed to disqu...

The “Families First Act” requires virtually all small employers to extend sick leave to affected employees, but a tax credit will help small business and not-for-profit organization employers pay for it. Following are the most critical provisions, we believe, for small employers: ·     1.  Public Health Emergency Leave (Division C of the Act effective April 2, 2020) – Small employers who have “ employees who are unable to work (including telework) due to a need to care for a child under age 18 if school or child care is unavailable due to a public health emergency” are required to: o   Provide paid leave “if needed by any employee who has been employed at least 30 calendar days,” o    Pay them “at a rate no less than two-thirds of the regular rate of pay” for public health emergencies declared by a federal, state or local authority that extend beyond 10 days (“employees may be required to use existing accrued leave during the first 10 days”...

Question: Can a church give non-taxable gifts to its pastor(s)? Answer: Typically, there are two ways members of a congregation can give gifts to its pastor(s) and staff member(s). One involves corporate action and the other involves personal and individual action. 1. The church can take up a collection for its pastor(s). In this case, the contributions are deductible to the donors, but must be reported by the pastor since they are deemed payments received from an employer as compensation for his services. Any gifts paid by employers to their employees are considered taxable income and must be reported together with other earnings on Forms 941 and W-2 . Additionally, churches should be aware of the Internal Revenue Service's "De Minimis Fringe Benefits" rules. According to IRS Publication 15-B, a de mininis benefit is any property or service provided to an employee that has so little value that accounting for it would be unreasonable or impractical. However, ca...

Question: I am now committed to a not-for-profit career and finding it very fulfilling. What can I do to better qualify myself? Answer: We like what we are seeing in the new  Master of Nonprofit Administration  offered by Maranatha Baptist University. What we like about it:        1.         We have personal knowledge of the faculty members' experience in the not-for-profit world.        2.         The featured courses hit on the areas we have found not-for-profit leaders hungry for advanced             training. ·           Writing grant applications that appeal to foundations looking for partners ·           Recruiting, selecting, and supporting quality volunteers        3.         ...

Question: How should a church handle benevolent giving and what principles should be followed? Answer: Many churches have established a “benevolent” or “others” fund to help meet the special financial needs of its members and community. All members of the congregation are generally encouraged to give to the fund to allow the church to respond through an authorization process observed by church officers. While a fund like this can be of great assistance to individuals in need, there are some principles a church can follow to be wise with these funds and to comply with the Internal Revenue Code. 1. A benevolent gift is not disbursed in exchange for goods or services rendered. Therefore, it is not considered taxable income to the recipient, and no reporting (e.g. Form 1099 ) is required by the church. A gift of benevolence is a gift with absolutely no expectation of repayment or receipt of services. There may be instances when those in need may ask for a loan rather t...