The distinguishing characteristic between for-profit and not-for-profit corporations is not whether each seeks to operate efficiently, generate revenue, and produce earnings, but rather what each entity does with such earnings. Earnings of not-for-profit corporations are used to support the charitable purpose of the corporation or are reinvested into the company to ensure future operations. In contrast, earnings of for-profit corporations are distributed to owners or shareholders.

How does a Church monitor payments made to various suppliers? How do they know that the purchasing agent or payables clerk isn’t receiving kickbacks? An easy internal control feature for protecting employees and the resources of the Church are:
1.Periodically, confirm selected information with vendors including how much they have paid for selected products or services.

2.Review contracts between consultants and vendors.

3.Send documentation of Church policy to vendors, preventing any additional funds or commissions that will be paid to consultants, external to the contract.

A church has an employee who would typically qualify for assistance under the benevolence program; either medical or financial hardship. Is this allowable? Is this taxable compensation to the employee? IRS Publication 3833 provides the following guidance:

IRS will presume that payments made by the church to an employee (or family members) for disaster relief and emergency hardship are consistent with the Church’s charitable purpose if: 1. the class of beneficiares is large or indefinite
2. recipients are selected by an objective determination of need

A pastor would like double-breasted, black suits for special television events. He did not wear these suits in his private life and he maintained the suits at his residence. The church did not pay for these suits, but the pastor incurred these costs and wants to know if this is a business expense, deductible in his personal tax return?