Church Charitable Deduction Denied!
Jan21

Church Charitable Deduction Denied!

Church Charitable Deduction Denied! It’s that time again.  In addition to the tax statements from employers, banking institutions, and various financial entities — we hear from our favorite charities, and even a statement from our church.  The tax laws are very strict when it comes to compliance by employers and corporations.  A church or religious organization, however, that does not acknowledge a contribution incurs no penalty, but without a written acknowledgment, the donor cannot claim a tax deduction.  Failure to provide the appropriate documentation to its parishioners is [in my personal opinion] an inexcusable omission.  The scripture in James 4:17 comes to mind … “ If anyone, then, knows the good they ought to do and doesn’t do it, it is sin for them.”  (NIV) What is the consequence of a church’s failure to go the extra mile?  In one court case (David P. Durden, et ux. v. Commissioner, TC Memo 2012-140) the lack of an appropriate document from the church cost the taxpayers additional tax of $7,552 and an accuracy-related penalty of $1,510.   In this instance, the IRS rejected the church statement because the acknowledgement did not have a statement indicating whether the taxpayers received goods or services for the money contributed.  The second “corrected” statement from the church was also denied because it was not contemporaneous; the statement must be received BEFORE the earlier of the date the original tax return is filed or the extended due date of the tax return. Okay, enough already, we’re convinced, we want to do what is right!  Take a look at the narrative in IRS Publication 1828, Tax Guide for Churches and Religious Organizations, page 24. “Although it is a donor’s responsibility to obtain a written acknowledgment, a church or religious organization can assist the donor by providing a timely, written statement containing the following information: Name of the church or religious organization, Date of the contribution, Amount of any cash contribution, and Description (but not the value) of non-cash contributions. In addition, the timely, written statement must contain one of the following: Statement that no goods or services were provided by the church or religious organization in return for the contribution, Statement that goods or services that a church or religious organization provided in return for the contribution consisted entirely of intangible religious benefits, or Description and good faith estimate of the value of goods or services other than intangible religious benefits that the church or religious organization provided in return for the contribution.” As a church or religious organization, we can apply a more favorable scripture from 2 Corinthians 8:21 …  “For we are taking pains to do what...

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Are your Payroll Docs in a row?
Jan04

Are your Payroll Docs in a row?

“To get one’s ducks in a row essentially means to ensure all of the small details or elements are accounted for and in their proper positions before embarking on a new project. …When a person is fully prepared for any eventuality and has every element in place, he or she can indeed be said to have his or her ducks in a row.” (www.wisegeek.org) As the New Year rolls in, here is a quick checklist to be sure your ducks are in a row —that you are prepared for payroll processing and reporting in January 2015 … 1. New Federal Tax Tables for 2015 updated 2. New State Tax Tables for 2015 updated (if applicable) 3. New salaries and benefits revised in payroll setup 4. Housing Allowance approved and/or parsonage rental value designated 5. Accountable Reimbursement Plans approved 6. Retirement Plans appropriately designated 7. Employee forms (W-4, state-4, I-9) current 8. Employee data (SSN & address) verified and updated if applicable 9. Reconciliation of Forms 941 to W-2 data for 2014 10. Forms W-2 / W-3 prepared and timely...

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Giving Traps…
Dec01

Giving Traps…

GIVING TRAPS… To give or not to give? … that is never the question! As Christ-followers, as Disciples of the Word, as the Church Body (…tax exempt non-profit charitable organization…) –we are commanded to GIVE –help the poor and needy, the sick and the wounded. “He who despises his neighbor sins [against God, his fellowman, and himself], but happy (blessed and fortunate) is he who is kind and merciful to the poor.” Proverbs 14:21 (Amp.) But the church also must abide by governmental tax rules designed to prevent abuse… and to protect its tax-exempt status. Wisdom calls us to be aware of some of the “traps” of benevolent giving… Qualifying the Needy –the recipient of benevolence must lack the resources to meet the need. Do we give without question, or do we have a stated policy that qualifies the need? Discretionary Accounts –many churches maintain a minister’s discretionary fund for benevolence. If the minister does not account for this fund or is the sole signer on the account, then all amounts placed in the account are taxable income to the minister. Repeat Requests –the IRS grows concerned when the benevolence assistance is regular and continuous to the same recipient. This can be construed as unreported income, or receipt of private benefit, and could potentially jeopardize the church’s tax-exempt status. Employee Assistance –The IRC requires all benevolence payments provided to employees be taxed, reported on W-2 and (if non-clergy) payroll taxes withheld. This would include any emergency assistance, such as medical or household expenses. One exception… IRC Sec. 139 allows employers to provide tax free assistance to employees who suffer losses as a result of a qualified disaster. Gifts Designated to an Individual –problems arise when contributions are specifically designated for a named individual. Did the donor intend to make a contribution to the church, or did the donor only intend to benefit the designated individual using the church as an intermediary in order to obtain a tax deduction for an otherwise nondeductible gift? How do we avoid the traps? First and foremost –be proactive! Do not wait until confronted with a request for assistance to determine how to handle the situation. Have a stated, written and approved policy in place. Some conditions to be considered… Was the offering preauthorized by the church board [or governing body]? Are the recipients financially needy and is the need substantial? Are immediate family members of the recipient the primary contributors? Are multiple and consistent benevolent gifts distributed to the same individual? IRS has issued a ruling that can also give certain guidelines… “Section 501(c)(3) organizations …are not precluded from making distributions of their funds to...

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I Don’t Do Computers!
Oct01

I Don’t Do Computers!

In our first PowerChurch training session, the Treasurer, Freida (72 yrs old), walked in carrying checkbook and spiral notebook, and firmly commented, “Before we begin, I need to let you know I don’t do computers!” Off to a great start…. She had been diligently and accurately recording contributions, making deposits, and paying the bills for many years. The issue was not accuracy, but efficiency and proper time stewardship. The Pastor wisely agreed that Freida would continue to keep her manual records while we setup and maintained a duplicate set of records in PowerChurch. All went well until the end of the first month, when the reports printed from PowerChurch were processed within less than five minutes —while Freida worked for two days to produce her reports. End results were the same for both methods. The following Sunday, Freida asked if she could just sit in and observe the contributions entry. She was absolutely fascinated with the ease and efficiency of the process. By the next Sunday, when we walked into the finance office, Freida was sitting in front of the computer, ready and waiting. “Okay,” she stated, “where do I begin?” Six months later, not only was she entering contributions and making deposits, but she was paying bills and printing reports —all from PowerChurch. (I’m not sure what happened to the spiral notebook.) One year later, Frieda was showing others how to enter contributions in PowerChurch.       The accounting system in PowerChurch Plus was designed specifically for use in churches. While there are advanced features for those with a CPA on staff, the program allows you to maintain auditable books, while spending as little time focusing on the nitty-gritty as possible. A degree in accounting is not a requirement, but it does help to know that PowerChurch Plus uses principles of fund accounting to balance all of your accounts and produce reliable, clear audit trails. For more information on this invaluable church management system, go to www.powerchurch.com Photos and names have been used with...

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FAMILY TRAVEL –taxable income?
Sep04

FAMILY TRAVEL –taxable income?

To loosely paraphrase a familiar scripture from Jeremiah … “Vacation is past, the summer has ended, and we are not safe!” Many times a pastor will find it convenient to combine a ministry conference with a family vacation –especially when the conference is located near a popular tourist site.   Nothing wrong with this great use of calendar time, and even an economical saving as travel expenses are reduced to one trip.  The problem arises, however, when the church is paying for the travel expenses with no reimbursement from the pastor for the personal benefit …or the “fringe benefit” is not reported as taxable income. This has become a “hot button” for the IRS, and can potentially result in additional tax liabilities PLUS penalties to the pastor for unreported income …and penalties to the church for failure to report income. This past year (2013), the IRS audited a church in Virginia –initiated due to erroneously filed Forms 941 –which resulted in a far-reaching review of all of the church’s accounting records.  One of the 44 items in the IRS Document Request Form 4564 stated as follows: “…it appears as though the organization paid expenses for Pastor’s spouse to travel with him.  Why did the organization pay for her travel expenses? Who approves her travel?  Why were these expenses not reported on Pastor’s Form W-2 as compensation?  Please detail what expenses were paid for Pastor’s spouse and include a description of each.  Also, are any expenses paid for Pastor’s children?  If so, please provide the same details as was requested for Pastor’s spouse.” Under Section 262 of the Internal Revenue Code, no portion of the travel expenses that is attributable to personal, living, or family expenses is deductible.  Additionally, Treasury Reg. Sec. 1.31-21(a)(4) states that a benefit provided on behalf of an employee is taxable to the employee even if the benefit is received by someone other than the employee, such as a spouse or a child. What to do if this applies to you? … a church and/or pastor?  If the church has paid for pastor’s personal expenses, you have two options:  (1) pastor can reimburse the portion allocated as personal, or (2) church can include the amount on pastor’s Form W-2.  Both options call for good (accurate and adequate) supporting...

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Accounting in Scripture
Aug22

Accounting in Scripture

CONTRIBUTIONS –2 Corinthians 8:19-21 “… chosen by the churches to accompany us as we carry the offering, which we administer in order to honor the Lord himself and to show our eagerness to help. “We want to avoid any criticism of the way we administer this liberal gift. “For we are taking pains to do what is right, not only in the eyes of the Lord but also in the eyes of men.”   ACCOUNTS PAYABLE –Romans 13:7-8 “Give everyone what you owe him.  If you owe taxes, pay taxes; if revenue, then revenue; if respect, then respect; if honor, then honor. “Let no debt remain outstanding, except the continuing debt to love one another, for he who loves his fellowman has fulfilled the law.”   PAYROLL –1 Timothy 5:17-18 “The elders who direct the affairs of the church well are worthy of double honor, especially those whose work is preaching and teaching. “For the Scripture says, ‘Do not muzzle the ox while it is treading out the grain,’ and ‘The worker deserves his wages.’”   FUND ACCOUNTING –Hebrews 4:13 “Nothing in all creation is hidden from God’s sight.  Everything is uncovered and laid bare before the eyes of him to whom we must give...

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