Loan from General Fund to Pastor

We have a small 200-300 member church located in Maryland.


Recently the air-conditioning/heating unit at our pastor's residence went bad. (he does use a housing allowance for tax purposes.

With a promissory note signed, are we OK with loaning him $7500 for the repair? Any tax issues? Legal problems?

Thanks
Dave

Know the answer? Face the same situation? Please post your answer or comment by using the "comment" link below. Thank you!

Comments for Loan from General Fund to Pastor

Click here to add your own comments

Jun 04, 2010
Asking for problems
by: Pete

You are begging the feds to shut you down on this one.

Loans to anyone out of church funds is illegal.

Jun 04, 2010
Against the Law? What law is that?
by: Marcus in Texas

While I do not want to challenge Pete's comment, I do think it may be important for him to enlighten folk like me as to the law being violated. If a church has a benevolence fund in the approved annual operating budget, would the church be in violation of this law if it made no interest short-term loans to church members or non-members to help them through difficult situations? I will certainly be interested in knowing more about the law (or laws) being broken in such situations.

Jun 05, 2010
Personal Loan From Church
by: Vickey

Technically, you are both right. Some states do not allow nonprofit organizations to loan money to employees or members of the organization. In those states it could possibly be a criminal offense. Check your state laws.

If it is legal in your state, there is a lot of possible legal and/or tax issues such as private inurement. Sometimes the IRS views private (noninterest) loans as private inurement which can harm your tax-exempt status.

Dan Bubsy in his book: Zondervan 2010 Church and Nonprofit Tax and Financial Guide: talks about compensation-related loans and the tax implication. He stated that if the loan is below $10,000, there is no additional compensation to the borrower.

However, I would consult with an attorney, tax advisor, or representative from the IRS before making such a loan.


Jun 09, 2011
housing allowance
by: Anonymous

As I see it the repair should be paid by the church under the pastors housing allowance which includes home repairs, maintenance, furnishings, etc. It should not be a loan, but repair of the home under housing allowance provisions for the pastor.

Dec 05, 2011
Repair of Home with Housing Allowance
by: Vickey

If the church owned the parsonage you could do that, but if the pastor owns the home...it wouldn't be that simple.

You could not just pay $7,500 for air conditioning repair out of church funds and call it a housing allowance.

If the pastor has a designated housing allowance properly set up, you might could call a special meeting to amend and add to the designated amount, but you would have to be careful not to step over that private inurement line.

Personally I think the best solution would be along the lines you suggested, but have the pastor get a personal loan for it and then see about raising his housing allowance to help pay monthly payment.


Click here to add your own comments

Join in and write your own page! It's easy to do. How? Simply click here to return to Church Accounting FAQs.

Need a Consultation, help setting up an effective Accounting System, or someone to do your monthly bookkeeping?