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

Designating a Housing Allowance

Once a minister has been hired, it is management’s responsibility to designate a portion of his salary as a housing allowance. This designation should occur before the first paycheck. This designation may be documented in an employment contract, minutes of the church or compensation board or in the annual budget. This designation establishes that a component of the minister’s compensation is considered to be a housing allowance, and therefore not taxable for federal income tax purposes.

Fees to marry, bury and baptize – Little Debit #3

Ministers may receive fees to perform marriages, funerals or baptismals directly from congregants or other individuals. These fees are typically incurred in the performance of their ministerial duties and represent taxable income under Treas. Reg. 1.61-2(a)(1). These fees are reported on schedule C of the minister’s tax return.

Little Debits are selected information obtained from various sources that provide “user friendly” information for churches and ministries. Short and sweet like Little Debbies.

Reporting Housing Allowance (1 of 3)

Question: How are housing allowances reported to the taxing authorities?

By January 31st churches are required to file the W-2s with their employees. By February 28th the W-2s and W-3s are filed with the Social Security Administration.

The amount of a minister’s taxable compensation is reported in box 1 wages, tips and other compensation on the W2. The housing allowance is not reported on form W-2 or on the form 1099.

Fraud Maintenance and Detection (7 of 7)

In the last several fraud postings we have discussed ways that ministries and churches may be vulnerable for fraud. Fraud is defined as an intentional act to misrepresent financial information or misappropriate resources.

Management has a responsibility to set "ethical standards" within the organization. They must establish the "tone at the top" promoting ethical behavior. In post #4 we discussed that management has the opportunity to create a culture of honesty and high ethics.

Telephone tax refund

After losing several court challenges to charging an excise tax on long-distance telephone service, the IRS is no longer assessing the tax. In May of 2006, the IRS announced that it will refund the tax paid by individuals, businesses, and tax-exempt organizations during the 41 months from March 2003 through July 2006.

Individuals can claim their refunds by calculating the actual tax they paid, or they can take a standard refund amount based on the number of personal exemptions they claim on their 2006 tax returns.

Major Tax Deadlines

For January 2007

January 16 - Final 2006 individual estimated tax payment is due, unless 2006 tax return is filed and taxes are paid in full by January 31, 2007.

January 31- Employers must provide 2006 W-2 statements to employees.

January 31- Payors must provide 2006 Form 1099s to payees.

January 31 - Employers must generally file Form 941 for the fourth quarter of 2006 and pay any tax due.

January 31 - Employers must generally file 2006 federal unemployment tax returns and pay any tax due.

IRS has 95,746 undeliverable refunds

Are you still waiting for your tax refund? If so, you may be one of the 95,746 taxpayers to whom the IRS has been unable to deliver a refund check. The refunds total $92.2 million.

Every year there are taxpayers who don’t update the IRS or the U.S. Postal Service when they move or change their mailing address. Checks are mailed to the last known address for taxpayers, and when the address isn’t current, the checks are returned as undeliverable.

HOT OFF THE EMAIL WIRE

The following is an excerpt from an e-mail from a client who is in the middle of an IRS examination:

Yesterday our auditor was in a talkative mood. He told us that he had just returned from meeting in Washington, D.C. where he was told that the IRS was going to audit "televangelists" this year. He indicated that the target will be those living in expensive homes owned by the ministry and they'd also be looking for other ministry expenses that benefit the minister.

Related Party – Defined and Reporting Requirements (4 of 4)

As we have discussed in the three previous blog postings, organizations are required to disclose material related party transactions in their financial statements. Transactions incurred by compensation arrangements, expense allowances, and other similar items in the ordinary course of business are not considered to be a related party transactions and therefore not required to be disclosed in the organization’s financial statements.

Related Party – Defined and Reporting Requirements (3 of 4)

In our two previous posts on related parties organizations may incur material transactions with individuals or organizations that are required to be disclosed in the financial statements.