Governance Issues

Donations of Clothing or Household Items

Effective for donations made after August 17, 2006, deductions for charitable contributions of clothing or household items are limited to items in good used condition or better. According to Accounting Today, vol. 20 no. 17, September 18 – October 1, 2006 edition,

Ordained Ministers and Social Security

FACTS: Ministers are self-employed for social security purposes, that is, they pay their own social security taxes. Churches are not supposed to withhold social security taxes for ordained ministers.

OPTION: Ministers have the option as to whether or not to have federal tax withheld from their check.

Some ministers have extra AMOUNTS withheld from their checks in federal withholding to cover the social security taxes they are to personally pay FOR THE YEAR.

Personal cell phone calls during Ministry trip (2 of 2)

If an employee uses a ministry provided cell phone to call home to a spouse while on a ministry trip, the same rules previously discussed apply. It depends on the actual level of use. For instance, one short call home a night probably would fall into the de minimis fringe category, but lengthy and numerous calls probably should be attributed to the employee as compensation.

(Can you hear us now??)

You Can’t Make ME! (Oh yes, the church can!)

According to the Non-Profit Legal and Tax Letter, August 28, 2006 edition, Mr. Hugh Webster notes that Non-Compete Agreements are enforceable against former employees of a non-profit.

Kickin.. back

How does a Church monitor payments made to various suppliers? How do they know that the purchasing agent or payables clerk isn’t receiving kickbacks? An easy internal control feature for protecting employees and the resources of the Church are:
1.Periodically, confirm selected information with vendors including how much they have paid for selected products or services.

2.Review contracts between consultants and vendors.

3.Send documentation of Church policy to vendors, preventing any additional funds or commissions that will be paid to consultants, external to the contract.

HOW CAN IT HAPPEN?

In an article released from Agape Press, Joseph DeRusso, former consultant to the Roman Catholic Archdiocese of New York, has pleaded guilty to fraud, tax and obstruction of justice charges related to a $2 million kickback and embezzlement scheme.
HOW does this Happen? How does a consultant divert $1.2 million in kickbacks related to purchases for the Roman Catholic Archdiocese? Simple…or perhaps not so simple. Fraud occurs in various ways, usually, when the perpetratore has a 1. perceived pressure, 2. the opportunity to commit the fraud or 3. rationalization (they owe me!).

Benevolence for Employees

A church has an employee who would typically qualify for assistance under the benevolence program; either medical or financial hardship. Is this allowable? Is this taxable compensation to the employee? IRS Publication 3833 provides the following guidance:

IRS will presume that payments made by the church to an employee (or family members) for disaster relief and emergency hardship are consistent with the Church’s charitable purpose if: 1. the class of beneficiares is large or indefinite
2. recipients are selected by an objective determination of need

Capitalizing Interest

Cha-ching…cha-ching…

Capitalizing Interest as a Construction Cost

How To Capitalize Interest as a Construction Cost

As construction begins on a facility, many churches finance the costs with external debt. The debt is not free since interest is paid periodically to the bank. The interest is also a cost of the construction of the asset and should be capitalized as part of the cost of the facility. The facility cost, including capitalized interest, is then depreciated over the estimated useful life of the asset – 40, 50, 70 years, or more.

Avoiding Campaign Activities

On June 1, 2006, the IRS issued a Newswire Release Number IR-2006-087 reminding charities to avoid campaign activities this election season.
Why?