Church And Ministers – The Tax Advisor You Should Run Like Hell From

Kat Jennings

This was a story told to us by another Tax Advisor that we promised to protect their privacy if they shared their story with us and allowed us to share it with our audience. Therefore, we are publishing this under my name and encourage your comments at the end of this blog post.

There are wonderfully intelligent, honest and expert Tax Advisors to choose from on TaxConnections. However, on occasion we run across people who use unethical scare business tactics to gain your business. This is why we bring you this story.

Have a grace day!
Kat Jennings, CEO

Tax issues for churches and their ministers are often misunderstood, misapplied, and misguided. It is not so much that they are difficult but they are different from tax issues faced by the average taxpayer. Special rules apply to churches in regard to their tax obligations and their treatment of ministers. Ministers are uniquely considered employees for income tax purposes but self-employed for social security and Medicare. Many ministers, church treasurers, church financial secretaries, and even tax preparers do not fully understand how to handle these tax issues.

Fortunately, there are a number of aids available to help understand these tax issues. Publications, seminars, and the like are in abundance. However, in seeking outside help, one should be careful to ascertain that the resource is a valid, informed resource. Oftentimes in my tax preparation career, I have had ministers tell me that I did not prepare their taxes the same way that a previous preparer did them. In these cases, I would explain to the client why I did it differently, as the prior preparer did it incorrectly. Before engaging someone to prepare taxes for a minister, it is especially important for a minister to check the experience and background of the preparer specifically as it relates to ministers.

A number of organizations offer seminars relating to church and minister tax issues. Many of these are very good and will give you good, straightforward advice. Others are teaching the tax law incorrectly. Others are somewhere in between, but may use scare tactics to spur their attendees into often misguided action.

I recently encountered one of these seminars. Some of what the leader said was true, but much of his seminar was made up of half-truths and scare tactics to convince those in attendance that they needed to utilize the services of this organization, who would supposedly help avoid trouble with the IRS.

As we signed in for the conference, we filled out a sheet indicating the organization we represented, along with other information. As representatives of our church, we indicated the church name and other information. Seminar personnel proceeded to look up the name of the organization in IRS Publication 78. This is a listing providing names of organizations that have been recognized by the IRS as eligible to receive tax-deductible contributions. When the name of our church was not found in Publication 78, they stamped “ILLEGAL” on our registration form, indicating we were not eligible to receive tax-deductible contributions. Nothing could be further from the truth, as churches do not have to register with the IRS to obtain this status. It is automatic for a church to have this status.

It was also stated that the minister’s compensation should be set by an outside agency. This is to avoid excessive compensation and avoid the specter of private inurement. While this is something that may be done, it is not a requirement, or even advisable in many instances. It did not take us long to realize the seminar was designed to elicit additional services from those in attendance. Verbal statements were often made that went further than what was included in the written materials.

The bottom line on this organization is that most of what they say has a grain of truth, but is often overstated in order to invoke the fear of adverse consequences in regard to the IRS. Of course, the seminar provider benefits as it provides services to help set a minister’s compensation, does an operational review of the church, does a compliance exam, sets up the corporate structure and applies for tax exempt status. They also offer bookkeeping and tax services to the church and ministers.

In seeking help in the area of church and ministerial tax issues, you would be well-advised to avoid sensationalism and see out those who are quietly competent in this unique area of taxation. Some good resources are and Dan Busby’s Minister’s Tax and Financial Guide and Church and Nonprofit Tax and Financial Guide are very readable as is Church Finance by Batts and Hammar.

TaxConnections is where to find leading tax experts and technology around the world. Discover tax professionals who offer you a wide range of tax expertise and be more informed about the technology that supports them in operating efficiently and successfully.

TaxConnections connects tax professionals with new tax clients and tax jobs around the world. Tax Professional Members establish higher visibility online so prospective clients and employers can find our members easily. Each members also receives a Virtual Tax Office which is the most valuable online real estate available today! TaxConnections makes a difference in your professional life.

We offer a Special Membership rate to tax professionals out of work.

Kat Jennings, CEO

Facebook Twitter LinkedIn Google+ Flickr YouTube Vimeo    

Subscribe to TaxConnections Blog

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

2 comments on “Church And Ministers – The Tax Advisor You Should Run Like Hell From

  • As tax preparers, our primary client type is ministers and missionaries. We, too have heard horror stories similar to those above. A knowledgeable preparer can save ministers significant headaches down the road!

  • This is a grEAt post! So true the fact that there are hucksters everywhere praying, literally, on people trying to do good for others. It is a crying shame that there are so many flimflam presentations and pudgy bald presenters espousing – mostly wrongfully so – the nuances of managing the business aspect and compliance requirements of churches. I personally have reported MANY ‘tax practitioners’ to the authorities who have the audacity to charge an attendance fee and then spew nonsense to the audience because of lack of knowledge and/or understanding of the US Tax Code. Stay diligent against hucksters!

Comments are closed.