In our series of ordinary and necessary expenses, churches and ministries should document lodging and certain incidental expenses (such as cab fares) by receipt and/or other contemporaneous records that include the business purpose of the trip.
If proper documentation is not received by the church/ministry for expenses paid by the church/ministry on the behalf of an individual, the IRS would deem those expenses paid by the ministry as income to the person that incurred the expense. If the ministry does not identify those expenditures without proper documentation and either demands repayment or classifies them as compensation to the individual, the transaction becomes an “excess benefit transaction” and would be subject to an excise tax of from 25% to 200% payable by the individual.
Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication, including any attachments, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting marketing or recommending to another party any transaction or matter addressed herein.
For more information about excess benefit transactions, please contact us.
