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

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
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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
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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!”
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By Dr. Michael Chitwood