(Florida)
I am working with a couple different people with churches who use the church bank credit card to pay for meals and entertainment, instead of using an accountable plan for reimbursements (which would only be 50%). I have tried to explain that only meals for travel away from home and a few other categories are a 100% tax write off.
They believe that as long as they feel its related to "church business", then they can write it off 100% because every other church or organization they know does this.
I explain that not even in a profit business can we do that. Your explanation here is exactly why. The IRS is VERY specific and will go through meals and entertainment with a fine tooth comb. I have seen it before and court cases have proven it time and time again. How do you handle this with churches or exempt organizations using the organizations credit cards to pay for expenses without adding them to income?
Also, if a minister comes in from another church, can the host church pay for their travel expenses and not include that on a 1099 for any love offerings they also receive? I know Publication 463 is very clear on all the travel and deductible expenses, but it says for employees of the organization from what I recall. What about someone elses organization??
AND great tip on the phone receipts!! That is what I do and email it to a file!!!
7Comments
independent contractors/guest speaker
SSandi
http://www.irs.gov/irb/2012-34_IRB/ar11.html
Accountable Business Expenses vs Individual Tax Deductions
VVickey
I think you are referring to what an individual can deduct from their personal taxes. The 50% percent rule does not apply to legitimate business expenses incurred by the church or its employees. That is why an accountable business expense reimbursement arrangement is such a good thing for churches to adopt.
Churches can fully reimburse all of a worker’s business meal and entertainment expenses under such an arrangement. (Taken from Richard Hammar’s Church and Clergy Tax Guide)
HOWEVER...there are some really strict rules to what the IRS defines as "ordinary and necessary" legitimate business expenses.
What does the IRS have to do with churches and the accountability of business expenses?
They have everything to do with it because if an employee was ever audited and the business expense paid was not legit according to their rules...some really nasty penalties can be incurred by the taxpayer...and the church could possibly lose its tax exemption if private inurement was proven.
Entertainment such as meals are a very sticky issue with the IRS. With the tax case Wells v. Commissioner, 36 T.C.M. 1690, the tax court ruled that lunch expenses incurred by a group of attorneys that met one a month to “discuss business” was not business related. The court did state that “an occasional luncheon with staff to discuss the operation of the business would be regarded as an “ordinary and necessary expense” as would “a luncheon to mark an anniversary, retirement, or other occasion for an employee”, since such expenses “aid in the building of morale and loyalty and serve as an inducement for others to work more efficiently”.
In other court cases the frequency of such meals were called into question. Frequent lunches with the same members of the church staff are unlikely to qualify as a business expenses as presumably they have adequate time to discuss business in the office.
So in conclusion, lunch expenses incurred by church employees can qualify as a business expense and can be reimbursed 100% by the church under an accountable expenses reimbursement arrangement [only] if they qualify as entertainment expenses.
The requirements for substantiating such expenses are strict. You must show and document that the expenses were strictly for the transaction of business. I recommend you purchase Mr. Hammar’s book for more details or research IRS section 62 thoroughly.
One last thought, according to IRS section 62, IRS field agents have the authority to invalidate all such transactions if in their opinion the transactions “show a pattern of abuse” which would make all of those invalidated expenses taxable to the recipient and subject to stiff penalties...even if some of them were well-documented and legit.
It pays to adequately document each expense!
Churches can fully reimburse all of a worker’s business meal and entertainment expenses under such an arrangement. (Taken from Richard Hammar’s Church and Clergy Tax Guide)
HOWEVER...there are some really strict rules to what the IRS defines as "ordinary and necessary" legitimate business expenses.
What does the IRS have to do with churches and the accountability of business expenses?
They have everything to do with it because if an employee was ever audited and the business expense paid was not legit according to their rules...some really nasty penalties can be incurred by the taxpayer...and the church could possibly lose its tax exemption if private inurement was proven.
Entertainment such as meals are a very sticky issue with the IRS. With the tax case Wells v. Commissioner, 36 T.C.M. 1690, the tax court ruled that lunch expenses incurred by a group of attorneys that met one a month to “discuss business” was not business related. The court did state that “an occasional luncheon with staff to discuss the operation of the business would be regarded as an “ordinary and necessary expense” as would “a luncheon to mark an anniversary, retirement, or other occasion for an employee”, since such expenses “aid in the building of morale and loyalty and serve as an inducement for others to work more efficiently”.
In other court cases the frequency of such meals were called into question. Frequent lunches with the same members of the church staff are unlikely to qualify as a business expenses as presumably they have adequate time to discuss business in the office.
So in conclusion, lunch expenses incurred by church employees can qualify as a business expense and can be reimbursed 100% by the church under an accountable expenses reimbursement arrangement [only] if they qualify as entertainment expenses.
The requirements for substantiating such expenses are strict. You must show and document that the expenses were strictly for the transaction of business. I recommend you purchase Mr. Hammar’s book for more details or research IRS section 62 thoroughly.
One last thought, according to IRS section 62, IRS field agents have the authority to invalidate all such transactions if in their opinion the transactions “show a pattern of abuse” which would make all of those invalidated expenses taxable to the recipient and subject to stiff penalties...even if some of them were well-documented and legit.
It pays to adequately document each expense!
guest speakers
SSandi
We have guest speakers and a policy to cover them...
we cover the mileage (.35) for the shortest route, no lodging as we are willing to host them in members homes, and up to one meal while traveling as the host feed them diner and breakfast.
we also pay $150.00 income for speaking which we track and if any of them get to the $600.00 income, they get a 1099 misc.
local people do not get mileage or meals.
Offering collected goes on the books and towards these costs with the general fund making up the difference.
GUEST SPEAKERS POLICY
A council approved Guest Speakers will be given payment for service of $_____________ per speaking engagement. Mileage may or may not be authorized. Non-council approved speakers may or may not be given payment.
• If mileage and/or lodging are authorized payments will be made in compliance with the travel policy.
• Mileage to be paid in compliance with the travel policy only for distances over 50 miles (round trip).
• If an overnight stay is required and authorized, the church will make arrangements for a host family.
• When a pulpit swap is conducted, only authorized mileage will be paid to Redeemer Free Lutheran Church Pastor, visiting pastor will be paid by their home church.
• Council invited Pastor Candidates will have no mileage limit and payments will be made in compliance with the travel policy.
Offerings taken for guest speakers will be applied to authorized amount in order to defray costs, if offerings do not meet the authorized amount the general fund will make up the difference.
If offering exceeds the authorized amount the excess will be added to the general fund account.
we cover the mileage (.35) for the shortest route, no lodging as we are willing to host them in members homes, and up to one meal while traveling as the host feed them diner and breakfast.
we also pay $150.00 income for speaking which we track and if any of them get to the $600.00 income, they get a 1099 misc.
local people do not get mileage or meals.
Offering collected goes on the books and towards these costs with the general fund making up the difference.
GUEST SPEAKERS POLICY
A council approved Guest Speakers will be given payment for service of $_____________ per speaking engagement. Mileage may or may not be authorized. Non-council approved speakers may or may not be given payment.
• If mileage and/or lodging are authorized payments will be made in compliance with the travel policy.
• Mileage to be paid in compliance with the travel policy only for distances over 50 miles (round trip).
• If an overnight stay is required and authorized, the church will make arrangements for a host family.
• When a pulpit swap is conducted, only authorized mileage will be paid to Redeemer Free Lutheran Church Pastor, visiting pastor will be paid by their home church.
• Council invited Pastor Candidates will have no mileage limit and payments will be made in compliance with the travel policy.
Offerings taken for guest speakers will be applied to authorized amount in order to defray costs, if offerings do not meet the authorized amount the general fund will make up the difference.
If offering exceeds the authorized amount the excess will be added to the general fund account.
Meals and Entertainment
AAnonymous
Why would the church need to write it off anyways if they don't pay taxes?
Youth Pastor Retreats--Expense
AAnonymous in NC
This would depend on whether the church's administrative council looks upon this as the church's expense or the youth minister's expense and whether there is an accountable reimbursement plan in place? ALL expense amounts paid by the church should be accounted for in your records--basic Accounting 101.
You are invited to read topics on the RESOURCES tab at the top of the website page pertaining to this: Basic Accounting, Church Budget, Reimbursement Policy, and Ministers W-2.
You are invited to read topics on the RESOURCES tab at the top of the website page pertaining to this: Basic Accounting, Church Budget, Reimbursement Policy, and Ministers W-2.
Good Answer!
VVickey
Anonymous is correct. I will emphasize what he stated regarding documentation and receipts.
Keep all receipts and document on that receipt and/or with a reimbursement form ... the church business that took place at that meeting.
Keep all receipts and document on that receipt and/or with a reimbursement form ... the church business that took place at that meeting.
How much is allowed?
AAnonymous
As far as I know, all the costs are allowed. IF he is discussing church related items, all he has to do is speak the words/specify the title of the discusison/ and/or the reason for the gathering or the discussions, conferences, get togethers. It doesn't matter where he is, it just matters that he makes sure to keep all the receipts in question and classifies them accordingly. This includes mileage to and from the venues as well.