This is an area where Clergy Financial Resources would advise caution.
In order to maintain their tax exempt status, Churches have to use their resources to pursue charitable goals. The Internal Revenue Code strictly forbids the use of Church assets or income to benefit individuals who have a close relationship with the Church. This is also called the “inurement prohibition.”
The problem is that even if they are in a hardship situation, giving to Church employees or their families could still be perceived as a private inurement.
If a Church is giving money to an employee, it is safest to treat the disbursement as taxable compensation, to pay taxes on it and to report it on their W-2 or 1099 form. The Church should also clearly document that the funds are being given according to a “formal hardship assistance plan”, not favoring the employee over others in need. Lastly, Church board members and their families should not receive benefits, since they have control over the approval and disbursement of funds.
If you have additional questions about benevolence funds, you can visit our website at https://www.clergyfinancial.com/resources/proadvisor/ to schedule a Pro Advisor meeting with Clergy Financial Resources.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369
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