Is it okay for our church to send the pastor and his wife to a conference of the fellowship and pay for it all if there is no reason to send the wife? How about gifts to visiting ministers? Are these examples of payments that “inure to the benefit of an individual” that could cost the church its tax exemption?
You are correct to be concerned about private inurement that can cost any charitable organization its tax-exempt status. The more likely issue here, however, is excess benefits.
In 1996, Congress passed the “intermediate sanctions” rules of Section 4958 to impose excise taxes on “excess benefits” received by insiders of 501(c)(3) public charities and 501(c)(4) social welfare organizations when the insiders receive more from the organization than they give in return. The rules were passed in large measure as a reaction to “televangelists” who were paid excessively by their churches and the IRS had no effective remedy other than to revoke the churches’ exempt status. The new rules impose a tax on “disqualified persons,” insiders such as the pastor of your church (and his wife), who receive more than they give, and also on organization managers who knowingly approve such transactions. (See Ready Reference Page: “Charities Must Avoid Excess Benefit Transactions.”) The rules allow the IRS to impose the taxes without revoking the exemption, although the IRS always has the option to do so and is likely to do so if it considers the infraction to be substantial, repeated, and uncorrected.
The IRS has also adopted a policy of imposing “automatic” excess benefit taxes upon an insider who receives reimbursement for expenses that do not comply with the “accountable plan” requirements for businesses. If there is no organizational reason for the pastor’s wife to accompany him to the conference, the payment of her expenses must be declared as additional compensation to the pastor or the IRS will consider it an “automatic” excess benefit, even if, when the benefit is added to his salary, his total compensation is still reasonable. (See Ready Reference Page: “IRS Issues Tips on Collecting Automatic Excess Benefits Taxes.”)
The visiting minister is probably not an insider, (i.e. if the minister has not been a position to exercise substantial influence over the church in the last five years) and would therefore not be subject to the excess benefit rules. It would take a very substantial gift to cause a loss of exemption for creating a private benefit to an outsider. (See Ready Reference Page: “Charities May Not Confer Private Benefits.”)
Sunday, December 2, 2007
Add new comment