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In this section we will be showing you the IRS laws in respect to Churches and Religious Orders and how it affects the presiding officer. We will highlight the specific areas of the code that bear particular notice to this subject.
We will first show you the statute 6033 (a)(2)(I) provides for mandatory exceptions to filing requirements for religious organizations and states the filing requirements shall not apply to "churches, their integrated auxiliaries, and conventions and associations of churches." Also 6033 (a)(2)(III) exempts as well "the exclusively religious activities of any religious order." Your church or religious order has complete immunity to disclosure. It is not necessary for you to maintain records of any kind except for your own purposes and reasons. Impact Ministries International does strongly encourage one to be diligent and not slothful in his ministry affairs and should have some type of accounting system in place, but understand it is for your ministry alone and not subject to disclosure. With this in mind let us look closer at statute 6033.
Sec. 6033. Returns by exempt organizations
STATUTE
(a) Organizations required to file
(1)
(2)
Exceptions from filing(A)
Mandatory exceptionsParagraph (1) shall not apply to -
(i)
churches, their integrated auxiliaries, and conventions or associations of churches,(ii)
any organization (other than a private foundation, as defined in section 509(a)) described in subparagraph (C), the gross receipts of which in each taxable year are normally not more than $5,000, or(iii)
the exclusively religious activities of any religious order.
Now lets take a look at another statute. Section 107
Sec. 107. Rental value of parsonages
In the case of a minister of the gospel, gross income does not include -
(1) The rental value of a home furnished to him as part of his compensation; or
(2) The rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home.
Clarification
: In order to qualify for the exclusion, the home or rental allowance is remuneration for services, which are ordinarily the duties of a minister of the gospel. The rental allowance is for, the rent of the home, the purchase of a home, or expenses directly related to providing a home.
Sec. 265 (a)(6). Expenses and interest relating to tax-exempt income
(a)
General ruleNo deduction shall be allowed for –
(6)
Section not to apply with respect to parsonage
and military housing allowances
No deduction shall be denied under this section for interest on a mortgage on,
or real property taxes on, the home of the taxpayer by reason of the receipt of
an amount as -
(A)
a military housing allowance, or(B)
a parsonage allowance excludable from gross income under section 107______________________________________________________________________________
Sec. 1402. Definitions
STATUTE 1402(c)(4)
(a)
Net earnings from self-employment
The term ''net earnings from self-employment'' means the gross income derived by
an individual from any trade or business carried on by such individual, less the
deductions allowed by this subtitle which are attributable to such trade or
business, plus his distributive share (whether or not distributed) of income or
loss described in section 702(a)(8) from any trade or business carried on by a
partnership of which he is a member; except that in computing such gross income
and deductions and such distributive share of partnership ordinary income or
loss –
(c)
Trade or business
The term ''trade or business'', when used with reference to self-employment
income or net earnings from self-employment, shall have the same meaning as when
used in section 162 (relating to trade or business expenses), except that such
term shall not include –
(4)
The performance of service by a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry or by a member of a religious order in the exercise of duties required by such order;
Clarification:
A painter, auto mechanic, legal aid or medical doctor may be self-employed. If the religious order of which one is a member directs one to undertake duties in one's field of training and experience, as a self- employed person, then any income received is not taxable as income from a "trade or business."Sec. 3401. Definitions
STATUTE
(a)
Wages
For purposes of this chapter, the term ''wages'' means all remuneration (other
than fees paid to a public official) for services performed by an employee for
his employer, including the cash value of all remuneration (including benefits)
paid in any medium other than cash; except that such term shall not include
remuneration paid –
(9)
For services performed by a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry or by a member of a religious order in the exercise of duties required by such order; or
Internal Revenue Service regulations provide guidelines for IRS employees to help them understand the Internal Revenue Code. IRS regulation 31.3401 (a)(9) - 1
states; "for services performed by a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry or by a member of a religious order in the exercise of duties required by such order. The nature or extent of such service is immaterial , so long as it is a service that the minister is directed or required to perform by ecclesiastical superiors.Clarification:
If the religious order of which one is a member directs one to undertake duties in one's field of training or experience then any income received is not taxable as income from a "trade or business". The exchange of services between members or a member required to work outside the religious order in employment capacity is not "remuneration for services", nor is it income, but rather "services performed by a member of a religious order in the exercise of duties required by the religious order. "Example:
Brother Tony Michaels is directed by his order to work for ABC Printing Company. His employer in this case, (ABC Printing Co.) is not under any compulsion whatsoever to withhold either federal income taxes, or social security taxes. " The nature or extent of such service is immaterial , so long as it is a service that the minister is directed or required to perform by ecclesiastical superiors."Publication 526 (pg. 3)
Contributions You Can Deduct
Generally, you can deduct your contributions of money or property that you make to, or for the use of, a qualified organization. A gift or contribution is "for the use of" a qualified organization when it is held in a legally enforceable trust for the qualified organization or in a similar legal arrangement. The contributions must be made to a qualified organization and not set aside for use by a specific person. If you give property to a qualified organization, you generally can deduct the fair market value of the property at the time of the contribution. See Contributions of Property, later.
Your deduction for charitable contributions is generally limited to 50% of your adjusted gross income, but in some cases 20% and 30% limits may apply. See Limits on Deductions, later.
Clarification:
Corporation Sole, as a church is a "qualified organization." On Page 9 of Publication 526 under "50% Limit Organizations" churches, conventions and associations of churches are recognized. That means that an individual can donate up to 50% of the adjusted gross income to a church, convention or association of churches and other approved qualified organizations.IMI is strongly recommending that if you elect to donate 50% of your adjusted gross income to the CS that you are the officer of , then you absolutely do not want to claim a tax deduction on your personal income tax. Why? Under current law , as recently amended, contributions by a taxpayer to his own church , even including compulsory dues, tithes, or fees are deductible so long as the congregant receives in return only "intangible religious benefits...which generally [are] not sold in a commercial transaction outside of the donative context" 26 U.S.C. ~ 170(f)(8)(B)(3). This new language does not solve the puzzle concerning personal donations to ones ministry, however it does give us a clue as to where the IRS is going with it. Ultimately the IRS would like to disallow this type of deduction. Don't become a test case! Bottom line is in most cases you will be receiving some type of "tangible benefits" through your CS thereby disallowing your personal tax deduction.
