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?


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Comments for Loan from General Fund to Pastor

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Repair of Home with Housing Allowance
by: Vickey

If the church owned the parsonage you could do that, but if the pastor owns the 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.

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.

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: "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.

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.

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.

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