CPA's & Consultants Providing Business Insight To Churches & Ministries


Rather than keeping records of the actual expenses paid by employees for meals, lodging, and incidentals during their travel away from home, a per diem method may be used by employers to reimburse under an accountable plan. A per diem (per-day) is an allowance used along with the number of days, location, and type of expenses incurred, to calculate the reimbursement. The IRS per diem follows the rates set by the U.S. General Services Administration (GSA) in use for their federal employees. Whether actual expenses or per diem are used, employees must still substantiate the time, place, and business purpose for such travel.

Impact of Healthcare Reform on Church and Nonprofit Plans

As organizations renew their healthcare coverage, many are learning about the new nondiscrimination rules. For plan years beginning on or after September 23, 2010, a group health plan (other than a self-insured plan) shall satisfy the requirements of section 105(h)(2) on the Internal Revenue Code of 1986 (relating to prohibition on discrimination in favor of highly compensated individuals). Previously, most health care plans were allowed to provide benefits only to select groups of employees. Group health plans that existed as of March 23, 2010 may be “grandfathered” and continue to escape the nondiscrimination rules. Grandfathered status can be lost if the plan is modified. Two useful articles covering the subject are available by clicking the links below.

Exempt Status Revoked? Here’s How to Get it Back

Tax exemption provides relief to the organization from property and income taxation and extends the charitable deduction to donors of the organization. Minimum filing requirements, such as an annual information return, are required of organizations other than churches and certain church-related entities. As difficult as it is to obtain tax exemption, the IRS has revoked tax exemption of approximately 275,000 entities nationally because they failed to follow the minimum filing requirements. Active organizations in this situation may be subject to additional income tax filings, withholding, taxes and/or penalties. The IRS has posted a list in spreadsheet form, searchable by state, that includes the name, employer identification number (EIN), organization (subsection) code, and last known address for these revoked organizations, and is available here,,id=239696,00.html.
While many on the list have closed or dissolved, for those who desire to continue operating, there is a process to reinstate tax exemption. Details can be found here,,id=221600,00.html. We can assist with these steps, which include resubmitting the application with applicable fee (reduced fee available for smaller organizations), written statements, completed information returns, and a signed declaration.

Update on Health Insurance Tax Credit for Churches and Nonprofits

On May 5, 2011 the IRS updated information on its website related to the health insurance tax credit. For purposes of determining eligibility for the credit, ministers who are treated as employees are included in the calculation of full-time employees. The health insurance premiums paid for employee ministers are also included when calculating the credit. However, for purposes of determining average annual wages, the compensation paid to ministers is not included. Minister’s wages are not subject to FICA, and are thus excluded from the definition of “wages” for purposes of the credit. Generally, tax exempt organizations with fewer than 25 full-time equivalent employees and average wages less than $50,000 are eligible for the tax credit or a portion of the credit. The credit is refundable and is limited to the amount of required federal income tax withholdings from payroll and the employer share of Medicare tax.

Visit the IRS website to read more at,,id=220839,00.html.

President Signs Repeal of Expanded 1099 Requirements

As expected after a great public outcry and recent action in Congress, on April 14, 2011 President Obama signed into law the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (HR 4; 1099 Act), which repeals both the expanded Form 1099 information reporting requirements and also the 1099 reporting requirements imposed on taxpayers who receive rental income. This removes the requirement to provide 1099s to corporations (other than law firms) and for the purchase of products and tangible property and reverts to the 1099 reporting requirements to the existing rules.

California Property Tax Exemption for Religious Organizations

The State Board of Equalization (SBE) has reissued its Publication 48, Property Tax Exemptions for Religious Organizations , that provides a guide for organizations that wish to file for and receive a property tax exemption on qualifying church property. California laws provide for three exemptions that may be claimed on church property: the Church Exemption; the Welfare Exemption; and the Religious Exemption. An advantage of the Church Exemption is that it is the sole exemption available to leased property. While the Welfare Exemption covers the greatest number of uses, the Religious Exemption is generally more desirable for church-owned property because of its one-time filing provision. ( California SBE Information Publication 48, 04/01/2011 .)

2012 Budget Proposal Limits Charitable Contribution Deduction

The President proposes to limit, starting in 2012, itemized deductions (including charitable contributions) for married taxpayers with income over $250,000 and single taxpayer with income over $200,000. President Obama explained that his 30% reduction in itemized deductions for high-income taxpayers is necessary in order to pay for a 3-year fix to the AMT (alternative minimum tax). The proposal limits the tax rate at which high-income taxpayers can take itemized deductions to a maximum of 28%. The language is found on page 212 of the Federal Receipts portion of the proposed budget (see at

Can Ministers Exclude Housing Allowances for More than One Home?

The Tax Court, in a divided decision, said yes to a minister that received an allowance for a second home that he had on a lake. The court rejected the IRS argument that the tax free allowance is limited to a single residence. More on this as it unfolds.

Update on Health Care Credit for Nonprofits

As you may already know, the small business health care tax credit is available starting in 2010 for churches and nonprofits that meet the eligibility requirements (fewer than 25 full-time equivalent employees and average wages less than $50,000). All employees of the church are considered, including ministers who receive a W-2. The IRS has now clarified the procedures for nonprofit organizations to claim the credit. The IRS will issue a refund to qualifying churches and nonprofit organizations for up to 25% of the cost of providing health insurance to employees. The 25% credit will increase to 35% in 2014. To claim the credit, nonprofit organizations must file Form 990-T and attach Form 8941.

A Step in the Right Direction: Senate Votes to Repeal of the Expansion of Form 1099 Filing Requirements

The Senate, by a 81-17 vote, approved an amendment to repeal a health care reform provision that would have had a major paperwork burden on churches and ministries. The provision would have required churches, ministries, and businesses to report to the IRS any purchase of more than $600 of goods or services from any vendor. This requirement, scheduled to go into effect in 2012, greatly expanded the current 1099 requirement that applies only to payments to unincorporated providers, and only for services.

Let’s hope the House will follow the Senate’s lead, and do it quickly.