Cash from the collection plate

[erchess]

I received a mailing piece inviting me to come at significant cost to a seminar on the tax and legal aspects of running a church or a ministry. One statement troubled me. It said that if a church pays the pastor or anyone else cash from the collection plate both the person involved and the responsible authorities in the organization could wind up in prison. Is this true and if so, for how long has it been true and what can I do if I after making inquiries find out that the only pastor among my clients has been doing this?

[Koss]

Cash?

That sounds like some scare tactics to me. I cannot envision that such payments would be a criminal offense under federal law. There might be something specific in a few states. But it still seems like an overly broad generalization.

What do they mean by "cash"?

Do they mean that it is unlawful, or inappropriate, for the church to disburse paper currency directly to the pastor from the funds collected in the plate?

Or do they mean that it is unlawful to use those funds to compensate the pastor, even if the money is first deposited into a business checking account operated by the church?

Allowing the currency to flow directly from the plate into the hands of the pastor or any other church employee is a terrible idea, because it severly weakens the paper trail that establishes just how much money was collected from the congregation, and how much was paid to the pastor.

But that doesn't make it a criminal offense. If there are sufficient controls, such as two people other than the pastor counting the money and recording it in a journal, and the pastor signing a receipt for the money, then it might be okay...

The money has to be reported as income to the church, even if it is tax-exempt income. And then it has to be reported as taxable income to the pastor.

If the money is somehow going directly from the congregation to the pastor, then it calls into question whether the contributions are tax deductible for the congregants. Money given to an individual is not a charitable contribution. So I can begin to see where this could be a serious problem.

Compensating the pastor with cash from the collection plate is not a sound business practice. The money should first be deposited into a checking account that belongs to the church.

But I wouldn't worry too much about anybody going to prison. I would take steps to stop the practice going forward. And maybe ask what kind of paper trail there is for previous transactions that were conducted using the cash.

BMK

[taxxcpa]

When I was in the Air Force, I made audits of the Chaplain's fund. On one audit, when I told the Chaplain's assistant that I wanted to make a cash count, he said he had taken it home, but would bring it after lunch.

They sometimes seem to have a casual attitude about handling money.

[JohnH]

There's a story about a traveling evangelist who came through here at one time, and the local newspaper cornered him about his financial practices. Seems there was a habit of passing large metal buckets around and considerable exhortation to not hear any noise when the money was placed in the buckets (bills, not coins).

So when the reporter asked him how he accounted for the money he replied, "I just throw it all up in the air. Whatever stays up is the Lord's, and whatever falls to the ground I keep."

Most of the churches I've been associated with tended to follow good practices when it came to financial stewardship, but I've heard some stories over the years about others...

[JG EA]

...

But that doesn't make it a criminal offense. If there are sufficient controls, such as two people other than the pastor counting the money and recording it in a journal, and the pastor signing a receipt for the money, then it might be okay...

The money has to be reported as income to the church, even if it is tax-exempt income. And then it has to be reported as taxable income to the pastor.

BMK

Churches don't have to report it at all. You mean as good accounting procedures?.

[Koss]

Reporting

JG EA wrote:

Churches don't have to report it at all. You mean as good accounting procedures?

Well, sort of...

I agree that most churches are not required to file tax return. But some are. For example, a church may have to file a tax return if it has too much UBIT.

The church has to properly track all of its income, including donations, in order to determine whether it is required to file a return.

And even if the church is not required to file a tax return, it still has to properly account for the salary that is paid to the pastor. It has to file an information return, i.e., a W-2 or a 1099-MISC, for the pastor.

The church has to track every penny that comes in through the collection plate. It can't just go straight into the pastor's pocket.

One other point: Most churches encourage the use of envelopes that allow cash contributions to be tracked to a specific member, so that the church can issue a receipt. Members who put raw cash in the plate can't get a receipt, and that leaves them without sufficient documentation for their own tax return. If a church gets cash contributions in envelopes that identify the donor, it is absolutely necessary that the amount and the name of the donor be properly logged before the money is separated from the envelope. This is an essential function, regardless of whether the money is then deposited into the church checking account, or used to pay the pastor's salary in cash.

I stand by my original post that it might be acceptable for the church to pay the pastor in cash, if the transaction is properly documented.

But I still think it's a terrible idea.

BMK