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Pastors Should Avoid the Pitfalls of Using Their Church’s Credit Card

In my consulting practice, I have found that many Pastor use the church credit card for business as well as some expenses that could easily be determined to be personal in nature. As a church financial secretary for 25 years, I fully understand the lure of providing the Pastor with a credit card so that his/her numerous needs can be met without the constant issuance of checks and receipt of expense reports forms.  Yet, the risks to the Pastor as well as the risks to the church far outweigh the perceived convenience.

The following are risks associated with personal use of a church credit card:

(1) Loss of tax-exempt status– Every 501c3 organization is established to benefit others and cannot exist to personally benefit any individual because of his/her position or level of influence.  The personal use of a credit card is a personal benefit and despite the repayment of any personal transactions, the availability of the card to the Pastor would be construed as private inurement.  This determination by an IRS official would result in the church losing its tax-exempt status.

(2) If the Pastor uses the church credit card for personal transactions and does not or can not repay the church for those transactions, these purchases as defined in Section 4958 of the IRS Code would be classified as excess benefit transactions.  The cumulative value would be taxable income but would also result in penalties of up to 225% of the actual value of the transactions. Section 4958 also states that board members who approved the Pastor’s personal use of the church credit card can be held liable for repayment and fined up to $20,000 each.

(3) Embezzlement– Unintentional and careless use of a church credit card frequently results in actual embezzlement.  This can occur without direct intent but if a Pastor stops to get gasoline on the way home knowing that he/she has a trip scheduled at the end of the week, the use of the vehicle for personal purposes in the interim period is an instance of embezzlement. An IRS agent would analyze each credit card transaction for its direct business purpose and use.  Without proper documentation, justifying every credit card transaction may be very difficult.  It has been documented that the lack of documentation, nature of the purchases and frequency of use and the lack of reimbursement to the church can and has resulted in criminal prosecution.

Cynthia Gordon-Floyd is a certified public accountant and founder of Willing Steward Ministries, LLC. Willing Steward Ministries (https://willingsteward.com) is a financial consulting and accounting firm for churches and other faith-based non-profits and specializes in Bible-focused financial practices, pastoral compensation issues, IRS compliance and other financial needs specific to churches. Cynthia is a graduate of Lake Forest College and received her Master of Business Administration in Accounting from DePaul University. She is a Steward and the Financial Secretary at the First AME Church of Manassas in Manassas, Virginia.

 

II Corinthians 7_9
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True Ministry Freedom is found in Biblical Generosity

Many times in the past when I am teaching a financial training session for Pastors or church leaders, they are amazed that I list as my first Financial Best Practice “having a biblically-sound basis for giving”.  I am a CPA and of course, the expectation is that I will focus on tax and financial methods and advise, but I’m a Believer first and foremost.  As I am given opportunities across the U.S. to train church leaders, God has mandated that I first lift Him up and make clear that His way is still the only way.  The Internal Revenue Service has established rules for financial that we are required to adhere to or face the possibility of substantial fines.  But, if we adhere first to the words found in II Corinthians 9:7; Each of you should give what you have decided in your heart to give, not reluctantly or under compulsion, for God loves a cheerful giver., we would find that much of the anxiety facing many churches would be addressed.  I find many churches constantly looking for their next fundraising campaign to provide funds.  There is a lot a work, time and effort that goes into these campaigns.  The basic truth is each of us has a basic responsibility to give and give generously to God’s work here on earth simply in response to what we have been given – eternal life through Jesus the Christ.  We must teach generosity directly from the Bible and trust God when He says that if we lift Him up, He will draw all unto Him.  No gimmicks or fundraising campaigns are needed.

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Tax Time Shouldn’t Freak You Out!

I spend quite a bit of time reviewing tax returns and advising as best I can on tax strategy and helping Pastors find new ways to conquer their various tax situations.  I don’t believe this is a time to lose it!  Tax planning is for real and understanding how to structure your income and expenses in a fashion that minimizes your tax burden, takes some time and effort.  So, Pastor’s take full advantage of that housing allowance exclusion.  No one in the country enjoys this benefit and therefore, because of the wonderful affect your work has on the community, you are given special tax treatment.  Maximize it by taking the time to understand it!  Then hold your tax preparer responsible for reporting correctly for you and reap the benefits of being in control of your financial future.  Tax time is not a time to freak out, its a time to win through your knowledge and preparedness!  Bravo!