Tax Issues

Bill Allows 2010 Haitian relief contributions to be deducted on 2009 returns

President Obama has signed into law a bill that allows donors who contribute to the Haitian relief effort to elect to deduct their 2010 contributions on their 2009 returns. The election would apply to those contributions made in cash after January 11, 2010 and before March 1, 2010.

The bill also relieves recordkeeping requirements for these contributions, in that a telephone bill would satisfy the Code Sec 170(f)(17) recordkeeping requirements if it shows the name of the done organization, the date of the contribution, and the amount of the contribution.

Minister’s Housing Allowance Challenged

In yet another California challenge to the constitutionality of the minister’s housing allowance (or parsonage allowance), the Freedom From Religion Foundation filed a lawsuit in Sacramento federal court arguing that ministers should not be granted a special tax exemption not available to others, as this represents a violation of the separation of church and state. The lead counsel for the Foundation is Michael Newdow, who gained notoriety as the attorney who led an assault on the pledge of allegiance in public schools. The lawsuit was filed in October 2009, and in December 2009, a federal judge ruled that certain ministers – in favor of the housing allowance – could not join the case as they had requested.

Donations to Church Prior to Filing Bankruptcy

In a test of the Religious Liberty and Charitable Donation Protection Act of 1998 (RLCDPA), a federal court in California ruled that contributions to a church made in the year preceding bankruptcy filing cannot be recovered by the bankruptcy trustee. The church was allowed to keep the donations. The RLCDPA prohibits bankruptcy courts from recovering contributions to religious organizations when the amount does not exceed 15% of the debtor’s gross income; or if more than 15%, the contributions were consistent with prior practice. The bankruptcy trustee tried to argue that the 15% applied to income after expenses (disposable income). The court disagreed and affirmed the 15% applied to gross income. In re Lewis 401 B.R. 431 (C.D. Cal. 2009)

Revised Fee for Tax Exemption Application

New user fees apply to Exempt Organizations exemption applications, ruling requests and other matters for 2010. The fee for 501(c)(3) tax exempt application (Form 1023) will be reduced to $200 when the application is submitted electronically. If a paper application is filed, the fee will be $850. Consult section 6 of Rev. Proc. 2010-8 (http://www.irs.gov/irb/2010-01_IRB/ar13.html) to ensure that you include the appropriate fee with your application for exemption or other ruling or determination request.

IRS Announces 2010 Standard Mileage Rates

The 2010 standard mileage rates for business purposes, and medical and moving purposes are reduced from 2009 levels, as anticipated.

Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be: 50 cents per mile for business miles driven, 16.5 cents per mile driven for medical or moving purposes, and 14 cents per mile driven in service of charitable organizations.

In 2009, the standard mileage rates were: 55 cents per mile for business purposes, 24 cents per mile for medical or moving purposes, and 14 cents per mile driven in service of charitable organizations.

See the IRS news release at http://www.irs.gov/newsroom/article/0,,id=216048,00.html

Tax Exempt Application Fee to Increase in 2010

The IRS has announced that it will increase the application fee for tax exempt status from $750 to $850 starting in January 2010. This would apply to a 501(c)(3) organization that expects annual revenue of $10,000 or more. The application form used by charitable organizations is Form 1023.
The IRS also plans to launch “Cyber Assistant”, an Internet-based Form 1023 application, during 2010. Once the new web-based application is available, the fee will only be $200 for those who use it. Those who choose to file the existing paper form will be charged the $850 fee. The new web-based is not available yet - the IRS will announce its availability at a later date. For more information, visit the IRS website at http://www.irs.gov/charities/article/0,,id=212562,00.html.

Cutting Salary Better than Cutting Benefits

According to a new survey published by Christianity Today International, average compensation for ministers decreased about 2.4% in 2009, reflecting the budgeting decisions made by churches in the wake of the nation’s economic recession. One of the problems of cutting non-taxable fringe benefits is that the employee is then forced to replace those benefits with after-tax dollars from their already reduced paycheck. This has a compounded negative impact on the employee’s take home pay. If at all possible, churches (or any employer for that matter) who are considering a reduction of payroll costs should strive to maintain non-taxable fringe benefits and first reduce taxable compensation. (Christianity Today International publishes an annual Compensation Handbook for churches).

IRS Issues Proposed Regulations Clarifying Church Tax Inquiries

The IRS and Department of Treasury have issued proposed regulations under IRC Section 7611 to clarify the procedures for authorizing church tax inquiries and examinations. The proposed regulations name the Director, Exempt Organizations as the “appropriate high-level Treasury official” who has the authority to initiate a church inquiry. These proposed regulations replace references to positions that were abolished under the IRS Restructuring and Reform Act with references that are consistent with the statute and IRS's current organizational structure. To see the proposed regulations, see http://www.irs.gov/pub/irs-tege/7611pregs080509.pdf. Written or electronic comments and requests for a public hearing must be received by November 3, 2009.

The IRS Reveals its Strategy in Audit Guide for Ministers

Updated in April 2009, the IRS guide for audits of ministers reveals the techniques used by the IRS when examining tax returns of ministers. To see the audit guide, go to http://www.irs.gov/businesses/small/article/0,,id=210018,00.html. The guide covers such topics as who is a minister, types of compensation, business expenses, and self-employment taxes.

Statement of IRS regarding taxation of personal use of cell phones

A statement of IRS Commissioner Doug Shulman indicates Secretary Geithner and he will “ask that Congress act to make clear that there will be no tax consequence to employers or employees for personal use of work-related devices such as cell phones provided by employers.”

To read the full statement, go to http://www.irs.gov/newsroom/article/0,,id=209795,00.html

I hope Congress acts quickly on this request—it will make all our lives a little easier.