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Just Because the Pastor Did Not Take A Salary Does Not Mean He or She Will Not Be Taxed on One

10/18/2016

There are thousands of pages of Internal Revenue Service regulations that pertain to Churches. I do not know of any Church Treasurer that is aware of everything written in the statutes that apply to their tax exempt status. Most Church Clerks do not know one law that compiles Church tax law, much less all 277.

Buried in those thousands of pages is a clause known as Treasury Regulation CFR 1.451-2(a) which is known as Constructive Receipt of Income. This regulation allows the IRS to tax income, even if it was not received by a Pastor.

What the Statute Means

The basic premise of this statute is this:

“Income although not actually reduced to a taxpayer’s possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given.”

This means that any income refused by the Pastor is taxable if it meets any of these three stipulations.

1. If the money has been set aside for the Pastor.

2. If it is credited to the Pastor’s account.

3. If it is otherwise made available to the Pastor, but he or she refuses it.

The Pastor’s “Church Comes First” Mind-Set May Prove Costly

As I travel across the nation teaching Church Management and Tax Conferences I constantly encounter Pastors who will not accept salary from their Church simply because they are in the growth process and they are willing to make the sacrifice to see their Church improve.

As oversight for thousands of Churches in the USA, I understand the Pastor’s heart. However, no Pastor should be so humble as to place themselves and their families in unknown financial peril.

Necessary Precautions

Any Pastor who chooses not to accept a salary must make sure he or she does so with these guidelines in place if he or she wishes to avoid taxation from the IRS.

1. Make certain that any income you refuse is not made available for you to draw upon at any time.

2. Make sure that any income you refuse does not go toward something that would benefit you or your family in the future.

3. Be certain that any income you refuse is not credited to your account now, or in the future.

4. Make certain that your decision is properly recorded in Board Meeting Minutes prior to you refusing the income.

Why You Need Us

These and other vital tax issues are taught in our weekly Church Management Tax Conferences all across the USA. Our 78 years of experience and knowledge make us the premier Church Management firm in the Nation.

Every Pastor and Church Leader should make it their number one priority to attend the nearest conference immediately. Your procrastination may prove to be your demise. Visit us at www.cmtc.org or call 800-344-0076 to register. You and the safety of your Church are not guaranteed tomorrow.

Remember, for others it is a job, but for us “It is A Ministry!”

By Dr. Michael Chitwood

Your Donations May Not Be Tax Deductible

10/13/2016

We are quickly approaching the time of year when people will be gathering records for the annual dreaded ritual of filing their individual income tax returns. Most Christians rely upon and take for granted that the donations they make to their local Church will be tax deductible.

Although charitable contributions are mostly deductible, sometimes donations made to a Church may not be recognized by the Internal Revenue Service as a legitimate deduction.

Deductions Are At the Mercy of the IRS and Its Agents

Just because you attend a house of worship, does not necessarily mean the IRS recognizes it as a Church. In the court case of Jack Taylor VS The Commissioner, Mr. Taylor was denied tax deduction credit for donations he made to the Indianapolis Baptist Tabernacle (IBT) because the IRS and the Tax Court stated that they did not prove that IBT was a Church. The Judge ruled that all donations for tax deduction credit were solely at the mercy of the IRS and its agents.

Without a Letter of Determination from the Internal Revenue Service, there is no guarantee that donations to your Church will be accepted.

Donations with Strings Attached

To maintain tax exempt status and ensure donations to them are tax deductible, donations made to the Church must not be made with strings attached. One of those strings is when the donation is earmarked for the benefit of a private individual. Any donation made to a Church for that particular purpose should be clearly marked as “Not for Contribution Credit.” If audited, and the IRS discovers the donation was earmarked for and benefited a private individual, that donation will be disallowed.

Improper Donor Receipts

One of the biggest mistakes Church clerks make is providing improper end of year Donor Receipts. In my travels across this nation I am appalled at the number of Church Treasurers who are unaware of the rules and regulations governing this issue.

When Donor Receipts are issued, any contributions of $250.00 or more must be listed separately and must contain the following information:

- The receipt has to state the amount of the contribution.

- The receipt must give a description of anything the church/ministry gave in return for the donation. For instance, many organizations use marketing campaigns to encourage people to make donations. The organization may say, “If you make a donation of $500.00, we will send you a special book signed by the author,” etc.

- The receipt must state the value of what the taxpayer received in return.

- The taxpayer must have the receipt in his/her hands on or before filing his/her tax return or by the due date of his/her tax return, including extensions.

Any of the above scenarios are grounds for donations to be denied by the IRS for tax deduction credit.

Why You Need Us

As the Premier Church Management Firm in the United States, Chitwood and Chitwood ensures that we remain current on all changes in the Internal Revenue Code, as those changes are released by the IRS.

At our weekly Church Management Tax Conferences, we train Pastors and Church Leaders on these regulations and how to protect their Ministries from the many IRS pitfalls.

I encourage every Pastor and Church Leader to enroll in the nearest conference to learn what you need to do and what you need to avoid to remain legally compliant. To enroll, visit us at www.cmtc.org or call us at 800-344-0076. You will be glad you did.

Remember, for others it is a job, but for us “It is A Ministry!”

By Dr. Michael Chitwood

Why A Pastor Should Not Have A Discretionary Fund

10/6/2016

As I travel the nation teaching Church Management and Tax Conferences I discover many Pastors who maintain a Pastor’s Discretionary Fund. I realize the motive behind this fund and that those Pastors want the freedom to help those in need, who cross their paths. However, this thing that may seem like a blessing may in fact end up as a curse to the Pastor and his or her Church.

How A Discretionary Fund May Be A Blessing

Pastors travel across a broad spectrum of society. Whether it is visiting hospitals, families in crisis, prisons, or just enjoying lunch in a restaurant, they constantly cross paths with people in need. This provides tremendous opportunities to demonstrate the love of Christ and the compassion of His people by offering benevolence assistance to those less fortunate.

However, every need does not necessarily qualify as a legitimate benevolence. You cannot give Church funds for any reason which others or the Pastor may consider as a need. Church funds are tax-exempt monies and should only be utilized in accordance with proper IRS codes.

What Constitutes Benevolence

You cannot use Church funds to fix the Deacon’s son’s automobile so he can get to work in order to keep him from violating probation. You cannot use Church money to bail a Church member’s son or daughter out of jail. You should not be using Church money to pay someone’s rent or mortgage payment. These are just a few of the reasons some Churches provide benevolence. However, there are only five items a Church should consider for benevolence assistance. They are:

- Emergency Food
- Emergency Clothing
- Medical Emergencies
- Emergency Utilities
- Emergency Housing

When a Pastor uses a Discretionary Fund, he or she does not take the proper steps to determine that the need is legitimate. Just because someone requests medical emergency assistance does not mean they will use the money for that purpose, or that they have a real medical need.

Another problem is the abuse of benevolence by the general population. According to some statistics, 92% of people requesting benevolence are using Churches to fund their lifestyles. Many of these individuals do not work or work very little. They have a circuit of Churches they target each week.

Problems with Discretionary Fund

The Pastor will more than likely provide funds for reasons which are not legitimate. This could cause major problems for the Pastor and the Church.

Another problem is that when the Pastor has a Discretionary Fund, he or she will often use it for their own benefit, which violates Private Inurement regulations. Although sometimes they use it accidentally, according to some statistics, Pastors will use the fund to purchase their meals, put gas in their private automobile, and for countless other reasons. These purchases do not end up being reported in the Pastor’s annual income and therefore is not taxed. This may result in income tax evasion for the Pastor and create Private Inurement issues for the Church.

Eliminate the Discretionary Fund

The wise thing to do is eliminate any discretionary fund. If people need assistance, they should contact the Church, complete a detailed Ministry of Helps Request Form, and then allow a benevolence committee to review it. The benevolence committee should never vote on a request based on emotion, but from careful review of the request—they should check references and always vote from their head and not their heart.

How We Can Help

These and other pertinent topics are taught all across the USA at our Church Management and Tax Conferences. With 78 years of experience Chitwood and Chitwood is the number one firm in America for Church Management. We know what others are still trying to learn.

It would be in every Pastor and Church Leaders best interest to visit us at www.cmtc.org or call us at 800-344-0076 to register for the nearest Church Management and Tax Conference. Your procrastination may be your downfall.

Remember, for others this is a job, but for us “It Is A Ministry.”

Just Because the Pastor Did Not Take A Salary Does Not Mean He or She Will Not Be Taxed on One

What the Statute Means

The Pastor’s “Church Comes First” Mind-Set May Prove Costly

Necessary Precautions​

Why You Need Us​

By Dr. Michael Chitwood

Your Donations May Not Be Tax Deductible

Deductions Are At the Mercy of the IRS and Its Agents

Donations with Strings Attached

Improper Donor Receipts

Why You Need Us

By Dr. Michael Chitwood​

Why A Pastor Should Not Have A Discretionary Fund

How A Discretionary Fund May Be A Blessing

What Constitutes Benevolence

Problems with Discretionary Fund

Eliminate the Discretionary Fund

How We Can Help​

By Dr. Michael Chitwood

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