Recently a minister was sentenced to 21 months in jail for failing to report all of the income received from his church. In reporting his taxable income, the church failed to include payments made on the minister's personal credit cards, payments for life insurance premiums, values for automobiles as well as other personal expenses that were paid by the church. U.S. v. Clark, 103 AFTR 2d 2009-1349, 3/20/2009.
This case indicates the importance in identifying and properly reporting all aspects of a minister's compensation. While many of you may find the above items unusual, it is not unusual for a tax exempt organization to end up paying for personal expenses of its top executives. However, in most cases, the only amounts reported for payroll purposes are just what is run through the payroll system. This type of activity is one of the reasons the new Form 990 requires extensive reporting on compensation paid to an organization's officers, directors and key employees. Additionally, the IRS has in the past, and stated it will in the future, conducted examinations of the compensation section of specifically selected Forms 990.
Tax Tip: A nonprofit organization should review all of the payments made to or on behalf of staff members and determine which payments are taxable and which are not. Then properly treat the taxable benefits according to all the rules regarding payroll reporting and taxation.