In January 2002, Congress finalized Code Section 4958, this is the first of possibly several forthcoming legislative proposals to limit the tax-exempt status of certain organizations. The enactment of these “intermediate tax sanctions” will require much greater attention to tax planning by churches in their business affairs.
Ministers’ tax deferred retirement plans may face an IRS crackdown. Nonprofits participating in the 403(b) retirement plans should beware that the IRS is planning to cite participants for excessive contributions and tax deductions even though this complex plan is unclear on limits of contributions. You may owe thousands of dollars to the IRS!
The White House has also now implemented sanctions to help the IRS police the nation’s nonprofit organizations. Highlights of these laws include an excise tax on nonprofits with “unreasonable compensations” and “non-fair market value transfers.”
Ministers are included in the new IRS audit selection program which divides taxpayers into industry specific segments. As one of the 31 market segments, ministers will be audited by IRS agents trained specifically to keep ministers in tax compliance.
If your church is getting royalties from books published or services offered – beware. The AARP recently paid $135 million dollars to the IRS on royalty payments it received, even though it is a tax-exempt organization.