Church and Ministry Q&A… Continued – Focus on Proper Vehicle Usage
Mark Helland, C.P.A.

Mark Helland, CPA is a partner with the public accounting firm Elliott, Dozier and Helland, PC (www.edhcpa.com) which is located in Tulsa, Oklahoma. Mark’s practice focuses on the unique needs of non-profits and he specializes in outsourced accounting, compliance and tax related issues for church and ministry clients across the United States. For further assistance from Mark on these services, Mark can be contacted via email at mark@edhcpa.com or by phone at (918) 627-2286. You can also connect with Elliott, Dozier and Helland and get updates via social media at Facebook.com/hellandcpa, Linkedin.com/in/hellandcpa and Twitter.com/hellandcpa.

After a long delay from my last Q&A article, following is a continuation of the Q&A theme with a specific focus on vehicle usage. Based upon the volume of emails and phone calls that I get from pastors across the country, it seems that vehicle usage is a very confusing and problematic issue for many. If the IRS were to conduct more audits of churches, I am confident that they would find a significant amount of errors and abuse in this area alone.

Vehicle usage is complicated and frequently misunderstood issue for all organizations, not only for non-profit organizations but also for for-profit businesses. In a church and ministry setting, there are two primary IRS approved ways to utilize a personal vehicle.

Approved Scenario #1 – Using a Vehicle Owned by the Church (“Company Car” Approach)

In scenario #1, the church or ministry owns a vehicle that is titled in the name of the organization. As such, the organization pays all the costs of the vehicle, i.e. vehicle loan, gas, repairs and maintenance, insurance, etc. The pastor or other church employee then utilizes the vehicle for church business…and potentially for personal use. The “personal use” part is where all the complicated rules and potential IRS trouble begin. The use of a church or ministry owned vehicle for personal use is a taxable fringe benefit. The only way to completely avoid any consideration or concern about personal use is to park the vehicle at the church and drive a personal vehicle to the church each day for the daily commute. Obviously this is not a very realistic or popular option.

So, assuming that some level of personal use does occur, following is what is required to stay in good graces with the IRS. First, the employee utilizing the church vehicle must keep track of personal miles, business miles and total miles driven for the year. This data will then be used to determine a calculation of the percentage of “business” use for the vehicle. This percentage will then be applied to an “annual lease value” calculation that is based upon the value of the vehicle provided. The final result of all of this is a dollar amount that will be included in the employee’s taxable income.

While this whole process is not rocket science, it is not easy either. There are multiple pitfalls involved in making this calculation, the first of which is remembering to even make the calculation! This tends to be an item that often falls through the cracks as the church bookkeeper or payroll service doesn’t know that a vehicle is being provided to the pastor and the pastor’s CPA may not be aware that a vehicle is provided either. While the calculation can be included in W-2 income, I actually think it is easier to just include the taxable amount as a part of other income on the tax return of the pastor. Another pitfall is that the value of the vehicle is a major driver of the amount to be included in income. For example, a $50,000 SUV will result in a huge amount of additional income for the pastor as opposed to a $20,000 used Toyota.

I have an Excel spreadsheet that I use to make these calculations that I would be happy to provide to anyone who emails me to request it.

Approved Scenario #2 – Reimburse for Business Miles Driven

In the case of vehicles owned by employees of the church or ministry (i.e. not church owned vehicles), usage of a personal vehicle can be reimbursed using the mileage method but must be done using an “accountable reimbursement” plan. Under this type of arrangement, the employee submits a log of miles driven, dates of the trips and business purpose and then is eligible to be reimbursed by the church or ministry.

The church or ministry can then reimburse at the full IRS standard mileage rate (currently 56 cents per mile for 2014) or the organization can reimburse at some other rate. In other words, the organization is not required to use the full IRS rate.

Unapproved Scenarios

A church cannot simply gas up the personal vehicles of employees. First of all, the employee is getting a bad deal with this approach. The IRS arrives at the standard mileage rate each year by factoring in the cost of gasoline and a formula for wear and tear on a vehicle. Just paying for gasoline amounts to an employee not being compensated for the other incidental costs of owning and operating a vehicle. Furthermore, the church could be getting a bad deal and could be opening the door to employee fraud by using this approach. When a gas tank is filled it is impossible to then track how much of the gas was used for ministry use and how much was used for personal trips. By allowing employees access to church funds to fuel a vehicle, an employee could gas up a car that is used primarily for personal use and could also gas up other vehicles owned by family friends! Gas cards would also fall under the previous example – gas cards should never be used to fuel vehicles not owned by the organization.  

 

This article is designed to provide accurate and authoritative information in regard to the subject matter covered. It is shared with the understanding that neither the author nor Tony Cooke Ministries is engaged in rendering legal, accounting, psychological, medical or other professional services. Laws and regulations are continually changing, and can vary according to location and time. No representation is made that the information herein is applicable for all locations and times. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

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