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

IRS revises Form 941 instructions and Form 941c

According to the RIA Payroll Guide Newsletter (preview) 11/10/2006, Volume 65, No. 23 the IRS has revised the instructions for Form 941, Employer's Quarterly Federal Tax Return. It has also made some changes to Form 941c, Supporting Statement To Correct Information. The revisions are effective October 2006.

Ministry Vehicle Purchased by Pastor

A senior pastor of a church wishes to purchase a church vehicle for his personal use. How is the sale recorded by the church? What are the tax implications to the pastor?

Fair value of the vehicle (adjusted for wear/tear) at the time of the sale will be used as the selling price. If the sale is consummated by an actual check written by the pastor, then the vehicle sold for $8,000 (with a net book value of $0 (cost less accumulated depreciation) is recorded in the general ledger using under the following scenario:
DR CASH $8,000 (as an example)
DR Accumulated depreciation $6,000

Restricted Contributions…GAAP Requirements

Contributions that are restricted based on the passage of time, should be recorded as “temporarily restricted” and then “released to unrestricted” when the passage of time has occurred. For example…a donor contributes $20,000 on 7/5/06 which is restricted to be used for medical benevolence as follows: $5,000 in 2006; $5,000 in 2007; $5,000 in 2008; $5,000 in 2009. How is the contribution recorded?

In 2006 – the church/ministry records the following:
DR Restricted cash $20,000
CR Temporarily restricted contributions – benevolence $20,000

Travel expenses advanced to employee…tax implications??

Periodically, ministries may advance funds to employees to pay for designated expense, including travel. If these advances are not substantiated by the employee and repaid…what are the tax consequences to the employee?
Typically these advances are recorded as employee receivables and when repaid (employee submitting third party documentation of the costs incurred), then the ministry expense is recorded and the employee receivable is reduced as follows:
DR Ministry expense $XX
CR Employee advances $XX

FASB issues two proposed standards affecting non-profit organizations

According to the FASB website
the Financial Accounting Standards Board has published for public comment exposure drafts of two proposed FASB Statements of Financial Accounting Standards (SFASs) intended to improve the accounting and disclosures for mergers and acquisitions (M&A) by not-for-profit organizations.

Travel Expenses for Ministry Volunteers

The ministry can pay expenses for volunteers on ministry trips, as long as the volunteer performs meaningful and significant service during the trip. Publication 526, "Charitable Contributions" specifically states that if there is no significant element of personal pleasure, recreation, or vacation in the (charitable) travel, the expense of travel on behalf of a charitable organization is deductible (and conversely, if paid for by the organization, not taxable income).

What is the difference between a Compilation, Review, and Audit?

Many times board members, lenders, and ministers have made requests that their organization obtain financial statement services from CPA firms. The services most commonly requested are as follows:

Compilation – A compilation is the compiling of numbers creating financial statements. No attestation procedures procedures are performed. A compilation is limited to presenting in the form of financial statements information that is the representation of management. No opinion or any other form of assurance regarding the accuracy of the information is rendered.

Accounting Standard SOP 98-2 - Joint Costing

All expenses of a discrete joint activity should be reported as fund-raising rather than allocated between fund-raising and other components. In order to overcome this presumption for each discrete joint activity, each of the criteria of purpose, audience, and content must be met for the activity.

Purpose – This criterion is met if the purpose of the discrete joint activity includes accomplishing program (other than cause education) or management and general functions. (Call to Action)

Who is Committing Fraud?

According to the 2006 Association of Certified Fraud Examiners Report to the Nation,

64.1% of the cases were committed by employees and only 18.1% were performed by anonymous individuals. 37.7% of all fraud perpetrators have been with the organizations for over 10 years.

How is Fraud Detected?

Most fraud is detected by tips from others or by accident. Therefore organizations should take tips seriously. Organizations should consider the establishment of a Hotline for individuals to make anonymous tips to the risk of fraud, especially in light of the Sarbanes-Oxley legislature. This internal control has become an increasingly greater used resource to increase the tips of fraud for employees that have detailed knowledge of the organizations.

From the 2006 Association of Certified Fraud Examiners Report to the Nation