In 2010, a Tax Court ruled that a minister is not limited to one principal residence for purposes of the housing/parsonage allowance exclusion.

The minister excluded the parsonage allowance paid by his employer on two primary residences.  In contrast, the IRS had said the minister could only exclude a parsonage allowance, paid by the minister’s employing ministry, on his primary residence even though the minister/taxpayer had a second home at a nearby lake.   This second home met the use criteria, as defined in the Internal Revenue Code (Code), to otherwise be considered a personal residence.

The Tax Court sided with the minister, and in a divided opinion, said the IRS sought to substitute the phrase “a single home” or “one home” for the phrase “a home” that is currently in the Code.  The Court found no basis for the IRS’ position; in fact to the contrary, it said the Code talks about words in the singular which can and do have the connotation of a plural meaning.

The finding will likely be appealed to the applicable Circuit Court of Appeals by the IRS and then to the Supreme Court if it does not prevail in the Circuit’s Court of Appeals. However, ministers can rely on the Tax Court’s opinion, for now, if they want to claim a housing or parsonage allowance on applicable personal residence(s).

Obviously, a thorough discussion with one’s legal and tax counsel is highly recommended given the IRS’ position on this topic.

(My high school English teacher would frown on my choice of word order… and I don’t want any of you to think I’m talking about raffling off a church.)

Seriously, many churches have various fundraisers – typically called “special events.”  These special
events can take different forms, including a dinner, a golf tournament, an auction and a raffle – to name a few.  Let’s talk about a raffle for a moment, particularly the required reporting by the church for its contributors/supporters/donors.

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Even if your organization doesn’t file a Form 990, you may be eligible for the health care insurance small employer credit under the new Healthcare law. Nonprofit organizations, including churches and ministries, can receive up to 25% of paid healthcare premiums back into the organization as a refund on Form 990-T.

Here’s what you need to do:
If you are a tax-exempt employer filing Form 990-T ONLY to request a credit on form 8941 (Credit for Small Employer Health Insurance Premiums), you must complete the following portions of Form 990-T:

1) Complete the heading at the top of page 1 (before Part I), except for items E, H and I.
2) Enter “0” on line 13, column (A), line 34, and line 43.
3) Enter the credit from line 25 of Form 8941 on line 44f
4) Complete line 45, 48, 49
5) Write “REQUEST FOR 45R CREDIT ONLY” on the top of the Form 990-T
6) Complete the signature area. Must be signed and dated by an authorized officer of the organization.
7) Attach Form 8941 to the 990-T before filing.

Form 990-T is normally only required if an organization has $1,000 or more in UBTI (unrelated business taxable income). You will not be required to complete the 990-T in future years unless you meet the gross UBTI threshold –or- wish to take advantage of another refundable credit.

One important thing to remember is to carefully go through the computation of FTE (full-time equivalent) employee per Form 8941 instructions. In our experience, this is the calculation that reduces the credit for most of our clients. If the FTE is computed incorrectly, you may initially receive a refund for more than you’re entitled, which may generate a notice for repayment from the IRS in a later year.

We get a lot of questions about the tax ramifications of in-kind donations (contributions other than cash). There are two basic types of in-kind donations:

Services (use of materials, equipment, facilities, etc.) -Examples of in-kind services are accounting or legal services, discounted or free rent of facilities, etc.
Goods – Tangible items that are donated to you, such as furniture, stock, etc.

For tax purposes, you’ll need to determine the fair market value (FMV) of the donated goods or services. You may use any reasonable method to determine FMV of the goods & services provided to the donor, as long as the method is applied in Good Faith. Here are a few ways to determine FMV:

Inventory – Value can be obtained from published catalogs, vendors, independent appraisals or other reasonable sources.
Depreciable assets (e.g. furniture, etc.) – These should be recorded at their fair values as of the date of the contribution. What do comparable items sell for at consignment stores?
Services – Use what the donor would normally charge for the services provided.

In-kind gifts that can be used or sold should be recognized on the financial statements at their FMV. If these gifts cannot be used by the church/ministry or sold, they have no value and should not be recognized as assets or contributions.

If an in-kind contribution is to be used for fundraising purposes, such as tickets, gift certificates, or merchandise for an auction, these items should be recorded as a contribution, at the item’s FMV. Any difference between the item’s recorded fair value and the ultimate amount received for the item should be recognized as an adjustment to the original contribution amount.

Next time, I’ll address more details about contributed services and a form you need to know about regarding in-kind donations.

Short-term mission trips are often an integral part of the local church’s ministry efforts. However, the administrative issues are numerous and complicated for the church (as well as for donors and participants) in order to comply with tax regulations for a charitable deduction.

For simplicity purposes (and to limit the length of this blog article), let’s focus on one possible scenario, and that is that the participant pays for their own travel costs. (There are several other possibilities that are not addressed in this article including minors going on mission trips and who pays for them, does the church reimburse participants for travel costs, does the church or the participants solicit contributions specifically for the trip…and others.)
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