By Cynthia Gordon-Floyd, CPA, Contributing Writer
In my consulting practice, I have found that many pastors use the church’s credit card for business as well as other expenses that could easily be determined to be personal in nature. As a church financial secretary for 25 years, I fully understand the interest of providing the pastor with a credit card so that his or her numerous needs can be met without the constant trail of checks, receipts, and expense reports. Yet, the risks to the pastor, as well as to the church, far outweigh the perceived convenience.
Consider some of the risks associated with personal use of a church’s credit card. They include losing an important tax-exempt status as well as charges of embezzlement and potential criminal prosecution. Every 501(c)(3) organization is established to benefit others and cannot exist to personally benefit any individual despite their position or level of influence. The personal use of a credit card is considered a personal benefit; and despite any repayment of those personal transactions, the availability of the card to the pastor could be construed as private inurement. This determination by an IRS official would result in the church losing its tax-exempt status.
If the pastor uses the church’s credit card for personal transactions and does not or cannot 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’s credit card can be held liable for repayment and fined up to $20,000 each.
Unintentional and careless use of a church’s credit card frequently results in embezzlement and instances of unintentional embezzlement may be common. As an example, if a pastor stops to get gasoline on the way home knowing that he or she has a trip scheduled at the end of the week, the use of the vehicle for personal purposes in the interim period is considered embezzlement. An IRS agent would analyze each credit card transaction for its direct business purpose and use. A lack of documentation to prove appropriate use (considering the nature of the purchase, frequency, and reimbursement status), can and has resulted in criminal prosecution.
Cynthia Gordon-Floyd is a certified public accountant and founder of Willing Steward Ministries, LLC (http://www.willingsteward.com), a financial consulting and accounting firm for churches and other faith-based non-profits specializing 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 degree in Accounting from DePaul University. She is a steward and the financial secretary at First AME Church of Manassas in Manassas, Virginia.
