- Is Steve's un-reimbursed commuting expenses an allowable deduction on his personal tax return if he is assigned to be a volunteer usher for the Church's Saturday or Sunday services?
If Steve is assigned to be a volunteer in the church on both Saturdays and Sundays, his tax position regarding the un-reimbursed commuter expenses can be explained as follows:
According to code 162(a), the un-reimbursed commuter expenses remain unallowable for tax purposes because of the following reasons: Such expenses are not incurred for a profit gain. Steve is not in any profitable business so as to be able to claim the expenses as allowable deductions. The expenses can also not be considered as necessary and ordinary for the church business. The church is considered to continue in perpetuity even if Steve does not offer the voluntary service. The costs thus remain a burden for Steve alone and are not allowable in tax.
According to code 170 of the IRC, such an expense is categorized as a charitable contribution and gift to the church. The general rule to allowance for deduction is stated therein as follows “There shall be allowed as a deduction any charitable contribution (as defined in subsection (c)) payment of which is made within the taxable year. A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the Secretary.” This provision entitles Steve to an express claim for an allowable expense for tax purposes. The amount allowable for tax purposes shall however not exceed the excess of 50 percent of the Steve’s contribution base over the amount of all other charitable contributions allowable.
Code 170(a) on allowance of deduction gives the general rule stated above that “there shall be allowed as a deduction any charitable contribution (as defined in subsection (c)) payment of which is made within the taxable year. A charitable contribution shall be allowable as a deduction only if verified under regulations prescribed by the Secretary.” According to this provision, Steve is entitled to claim a particular amount in tax as specified later in the code. That is a percentage of 30 or 50 depending on the type of contribution and claim.
According to code 170(c) which explains about Special limitation with respect to contributions described in subparagraph (A) of certain capital gain property, Steve is entitled to an allowable amount that shall not exceed 30 percent of his contribution base for the year.
Code 274 does not allow any “activity which is of a type generally considered to constitute entertainment, amusement, or recreation, unless the taxpayer establishes that the item was directly related to, or, in the case of an item directly preceding or following a substantial and bona fide business discussion (including business meetings at a convention or otherwise), that such item was associated with, the active conduct of the taxpayer’s trade or business, or a facility” The activities of Steve can not be disqualified on grounds of this code because they don’t subscribe to the qualities of the above described activities. The expenses are therefore allowable deductions for tax purposes.
The amount of claim to be placed for tax allowance by Steve will however be reduced by the amount of such expense as the church reimburses his wife, Frances, on the days they commute in his car. A claim of a similar claim will result in double compensation for the couple which is not provided for in the IRC. So as to prevent the instance of double claim for tax deduction, Steve will claim an amount less by the amount paid by the church to his wife for the days they commute in their car. According to the code 274, wife and husband are considered as one taxpayer and as such, the amount that Steve will eventually claim for deduction in tax will be reduced by the amount already reimbursed by the church to Frances. This will take into account all the days worked by the wife and not only the weekends: according to paragraph 1 that a wife and husband are treated as one taxpayer.
- Are Steve’s un-reimbursed commuting expenses an allowable deduction on his personal tax return if he is not assigned as an usher or volunteer for the Church's Saturday or Sunday services?
The deductibility of Steve’s unreimbursed commuting expenses can be debated basing on a strong argument on IRC$ 162. According to the section, all deductible expenses must satisfy the following conditions for them to qualify as allowable.
The expense must have been paid or incurred in carrying out the taxpayer’s trade or business only. According to the supreme court of the United States of America, for the taxpayer to qualify to be in trade, the so called trade should be driven by a profit motive. That is, it should end up in a profit. According to the same court, a sporadic activity, a hobby or amusement do not qualify. This automatically disqualifies the commuting expenses from being allowable deductions on the income of Steve for tax purposes. Steve does not devote his full time exertions on a substantial and continuous basis to the church attendance.
According to section 162(a), the expense must be paid or incurred at the taxable year at issue. The expenses incurred by Steve are actually in the year at hand. Relying on this provision, the expenses are deductible but the prior provisions of section 162 disqualify the expenses from being allowable deductions.
For an expense to qualify for tax deduction it must be ordinary and necessary for the business at hand. It should be routine and directly related to the business activity. The usual attendance of Steve at the church whether assigned or not assigned the voluntary service also disqualifies the expense from qualifying for tax allowance purposes
For example in the case, Welch Vs Helvering, The US supreme court held that the payments must be both ordinary and necessary to be business expenses; it held that although payments made to a creditor by a taxpayer may have been necessary, they were not ordinary because the circumstances under which they were paid were outside the norms of conduct in society
According to the provisions of section 162, the expense must have been incurred to help in the appropriate development of the taxpayers business. The provisions of section 162 collectively disqualify the un-reimbursed commuting expenses from being allowable deductions for tax purposes. This is based on the sole argument that the tax payer does not incur such expenses for business purposes and as such they are not necessary to the tax payer for tax purposes. The expenditures also do not serve as capital or current investments and they are not incurred for business purposes. The commuter expenses are considered to be inherently personal and not connected to any business whatsoever.
Steve will not be exempted from any tax by laying any claim on the tax relief because the IRC codes will not provide for such. He will not be in a position to claim any allowable deduction but would rather bear the entire burden of the expenses. He is however bound to enjoy some limited relief when the code 274 treats the husband and the wife as one taxpayer.
3. What are expenditure or reimbursement limitations for recognized places of worship (church or religious entities), especially in regards to payments made by the non-profit entity to their volunteers?
According to the IRC code 501(c)(3), the churches and other recognized places of worship are tax exempt. The churches and other recognized places of worship are exempted from tax because they are not profit motivated. Their activities are usually social driven and aim at spiritual and social welfare for the people. The federal law thus recognizes them as tax exempt institutions so as to encourage their establishment and survival.
According to Reg. 1.170A-1(g), there can be an accountable or a non accountable reimbursement plan. A reimbursement plan shall usually entail the following characteristics as outlined in the IRC: it should involve a business connection. This means that it should be connected in some way to a known business with a clear motive for its existence.
The employee or volunteer should substantiate the expenses incurred in the claims to be made. The individual should be particulate in the way as to outline the claims of the expenditure by the church. The employee should also return all the excess amounts to the organization of origin. The reimbursed expenses are usually exempt from the withholding and payment of wages, not required to be reported on the employees IRS form, and they are excluded from employee’s gross income.
Rev. Rul. 84-61, 1984-1 C.B. 39 and Rev. Rul. 69-645, 1969-2 C.B. 7 identify this plan as one which hardly satisfies the three conditions of the accountable reimbursement plan. Churches and religious organizations should not reimburse automobile mileage at a rate which exceeds the standard mileage otherwise the excess amount is treated as paid under non accountable plan. This gets more disadvantageous to the employee or volunteer because it is now inclusive in the taxable income and subject to tax withholding. This is according to Rev. Rul. 56-508, 1956-2 C.B. 126
Therefore,Steves expenses as a volunteer will not be tax allowable since as much as they are incurred in commuting to the church, they cannot be treated as entirely for the purpose since he also uses the same vehicle as his wife who is a salaried employee of the church. This is provided in the limitations as per the codes above.
IRC code 501(c)(3) states that for churches and other recognized worship places are tax exempt and therefore expenses incurred or reimbursed with regard to the activities for these institutions are exempt to the extent that they are exclusively in relation to the church. According to the same code, these reimbursed expenses the reimbursed expenses are also exempt from tax withholding and need not be declared under the employees IRS form.
References
Internal Revenue Code 162Internal Revenue Code 170Internal Revenue Code 170(c)Internal Revenue Code 170(a)Internal Revenue Code 170(j)Internal Revenue Code 274Internal Revenue Code 501(c)(3)Reg. 1.170A-1(g) Reg. 1.170A-13(a)(1) Reg. 1.170-2Rev. Rul. 84-61, 1984-1 C.B. 39Rev. Rul. 69-645, 1969-2 C.B. 7Rev. Rul. 56-508, 1956-2 C.B. 126
