Archive for John Stancil

Starting And Maintaining A Non-Profit Organization

Each year, more than 50,000 organizations apply to the IRS for tax exempt status. There are several steps involved in becoming tax exempt. Many do not realize that there is a difference in a non-profit organization and one that is tax exempt. Not all non-profit organizations hold tax-exempt status. According to IRS statistics, there were slightly over 189,000 returns filed in 2011 by tax-exempt organizations. However, the National Center for Charitable Statistics lists a total of 1,427,807 non-profit organizations. Obviously, many non-profits are not tax exempt, or at least, are failing to file a return.

Forming a Non-Profit Organization

The first step in forming a non-profit organization is to form a non-profit corporation. This involves filing an application with an appropriate official in the state in which the Read More

Written by | Posted in Non-Profit Tax • Religion

What Is A Church?

Churches occupy a distinct place in the tax code of the United States. They are tax exempt, but that is not where the uniqueness lies. Many types of charitable organizations are considered tax-exempt non-profit organizations. Most organizations wishing to obtain tax exempt status must first file Form 1023 (or the new Form 1023EZ) with the IRS, seeking approval as an IRS-qualified tax exempt organization. The unique aspect of a church is that qualifying as tax exempt is automatic if it meets the IRS definition of a 501(c)(3) organization:

1. The organization must be organized and operated exclusively for religious, charitable, scientific, or other charitable purpose.
2. Net earnings may not inure to the benefit of any private individual or shareholder. Read More

Written by | Posted in Clergy • Religion

Minister’s Housing Allowance Subject of Court Battles

The housing allowance is a significant tax benefit for a minister. It can result in thousands of dollars in tax savings annually. The law currently allows a minister to occupy a church-owned parsonage without paying income tax on the value of the accommodations. Alternatively, the church may designate an amount to be paid to the minister as housing allowance. This amount, when used for housing costs, is not subject to income tax. Both a parsonage and a housing allowance are subject to self-employment taxes.

Only One Home Subject to Housing Allowance

Several court cases have recently been brought, seeking to limit or abolish this tax benefit for ministers.

Read More

Written by | Posted in Clergy • IRS • Religion • Tax Controversy • Tax Provision/Tax Reporting

The Minister’s Housing Allowance

The housing exclusion has been characterized as the most important tax benefit available to ministers. There are two commonly encountered situations in regard to housing for a minister. In the first case, the minister lives in church-provided housing. While this was quite common in the past the number of churches providing a parsonage for the pastor has declined significantly in recent years.

Under these arrangements, a minister lives in the parsonage without charge. In some cases, the church will also provide a housing or utility allowance to cover expenses incurred by the minister in maintaining the home. The value of the provided housing and allowance are not subject to income tax, but the fair rental value plus any allowance amount are subject to self-employment taxes. Read More

Written by | Posted in Clergy • Individual • Religion

Opting Out of Social Security For A Minister

One of the tax options given to a minister is the ability to opt out of social security. This is a step that should be taken after a great deal of deliberation, as the decision is irrevocable. In order to opt out, the minister must file Form 4361 and certify that he or she opposes, either conscientiously or because of religious principles, the acceptance of any public insurance (with respect to services performed as a minister), including social security and Medicare coverage. Note that the objection is to the use of ministerial earnings for public insurance. Economic considerations or other non-religious reasons are not valid factors for opting out. Unfortunately, many likely opt out for economic reasons. Some faith groups actively promote opting out for their ministers.

The minister opts out only in relation to ministerial earnings. If he or she is employed in a Read More

Written by | Posted in Clergy • Individual • Religion

The Minister’s Dual Tax Status

An ordained minister occupies a unique niche in the United States tax code, as he or she is a dual-status taxpayer. A minister is an employee for income tax purposes and is self-employed for social security and Medicare. This dual status has frequently been the source of confusion for both ministers, churches, and tax preparers. A complicating factor is that a minister may opt-out of social security and Medicare but that is a topic for another time.

It is proper for the church to issue a W-2 to the minister. A 1099-MISC is an incorrect treatment in this instance, although many churches do issue 1099-s to their ministers. Some churches do not fully understand their own tax-exempt status and do not give the minister any tax documents at year end. Obviously, this is also improper. Read More

Written by | Posted in Clergy • Individual • Religion

Who Is A Minister For Tax Purposes?

A minister occupies a unique niche in the United State tax code. He or she is considered an employee for income tax purposes, but self-employed for social security and Medicare. In addition, a minister is eligible for a housing allowance that is not subject to income tax, and has the choice to opt out of social security and Medicare.

Because of this unique tax treatment accorded ministers, it is important that the individual be properly qualified as a minister in order to receive this that treatment. One is not classified as a minister just by claiming to be one. The IRS has not directly addressed the issue of who is a minister. However, five factors have emerged that must be considered:

1. The person must be ordained, licensed, or commissioned by a local church or Read More

Written by | Posted in Clergy • Income Tax • Religion

IRS Agrees To Monitor Church Political Activity

The Internal Revenue Service recently announced that it will monitor churches for political activity. It is a rather convoluted route that brought the IRS to this announcement. It is actually a settlement between the IRS and the Freedom From Religion Foundation (FRFF) in which the FRFF had sued the IRS, alleging that the IRS routinely ignored complaints about churches engaging in political activity, promoting candidates, and speaking out on issues and proposed legislation. The Johnson Amendment, enacted in 1954, prohibits 501(c)(3) organizations from engaging in partisan political activity.

It is somewhat amazing that it required a lawsuit to force the IRS to investigate political activity by such organizations. First, as a result of a 2009 lawsuit, the IRS was ordered to make such investigations. The IRS maintained that it was not ignoring complaints of Read More

Written by | Posted in IRS • Religion

German Church Tax Causes Controversy

There is currently a controversy in Germany in regard to the application of capital gains to the “church” tax that is levied on individuals who profess membership in certain churches in Germany.

The Bill of Rights was added to the United States Constitution in order to provide greater constitutional protection to certain individual liberties. These liberties include freedom of religion, a free press, the right to peaceful assembly, the right to bear arms, protection against unreasonable search and seizure, the right to avoid self-incrimination (taking the fifth), due process, protection against double jeopardy, the right to a jury trial, the right to counsel, and protection against cruel and unusual punishment. We have seen how some of these rights have been eroded over the years through changing attitudes, judicial Read More

Written by | Posted in Capital Gains • Europe, Middle East • Income Tax • Tax Controversy

Is There A VAT In Your Future?

The value-added tax (VAT) has been adopted by every developed country and most developing countries in the world. There is, however, one exception –The United States. That may be changing as there is currently discussion regarding its adoption in the U. S.

The value-added tax is a tax on goods and services and is collected at every step in the production chain. This is unlike the sales tax, which is paid only on retail sales. In a sense it is similar to sales taxes that are currently in place in 45 states as it is a consumption tax. VAT rates, obviously, vary from country, but in a survey of Organisation for Economic Co-operation and Development (OECD) countries, the rate varies from a low of five percent to a high of 24.5 percent. Read More

Written by | Posted in VAT

IRS Now Makes Transcripts Available Online

Have you ever needed a copy of a past tax return and contacted the IRS to get one? In the past, you had two options. You could mail or fax Form 4506 and expect to get a copy in “up to 75 days.” Oh, and you must pay $50 for each return requested.

The second option was to request a transcript of your return on Form 4506-T. A transcript just shows the line items on your return somewhat similar to the long-defunct 1040-PC. These are free and are normally received 5-10 days after the IRS receives the request. A transcript request may be faxed or the taxpayer may call 800 908-9946 to request one. These can also be requested online at http://www.irs.gov/Individuals/Get-Transcript.

However, the IRS now has a new, faster method of receiving a transcript. If you go to Read More

Written by | Posted in Individual • IRS

Make Non-Cash Charitable Contributions – But Do It Right

Non-cash charitable contributions can be of great benefit at tax time. However, both donors and the recipients frequently overlook required IRS rules which could would to the taxpayer’s detriment. In addition, the taxpayer frequently may often understate the deductible amount of the contribution.

In order to deduct a contribution of $500 or more, the donor must list the property being donated, the date of the donation, as well as the name and tax ID number of the organization. This should be recorded on Form 8283. It has been my experience that many organizations do not make the tax ID number readily available to the donor. It should be placed on the receipt for the donation to make it easier for the donor to properly claim the contribution. When the number is not available, an Internet search may often yield Read More

Written by | Posted in Income Tax • Individual
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