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Church's 'Love Gifts' to Pastor Represent Taxable Compensation for Services Performed
Federal
State:
Key point. "Love gifts" made by churches and church members to clergy constitute taxable compensation for services performed rather than nontaxable gifts.

The United States Tax Court ruled that "love gifts" made by a church to its pastor represented taxable compensation. A church had 25 to 30 active members and as many as 7 ministers, and offered services three days each week. The lead pastor had informed the church's board of directors that he did not want to be paid a salary for his pastoral services but would not be opposed to receiving "love offerings," gifts, or loans from the church.

The pastor and his wife managed the church's checking account, and jointly signed all of the church's checks. They signed numerous checks in 2012, made payable to the pastor, with handwritten notations such as "Love Offering" or "Love Gift" on the memo line. The church transferred "love offerings" to other members of the church, including the pastor's wife.

In 2012, the church's bookkeeper prepared and sent to the pastor a Form 1099-MISC reporting that he had received nonemployee compensation of $4,815 from the church. When the bookkeeper left the church in late 2015, the pastor's daughter became the church's bookkeeper.

The pastor filed a joint federal income tax return for 2012, claiming a deduction for a charitable contribution of $6,478 to the church. He did not, however, include as an item of income the $4,815 of nonemployee compensation reported on Form 1099-MISC. Although the pastor did not dispute that he had received $4,815 from the church, he insisted that the amounts transferred to him were improperly reported as nonemployee compensation when in fact they were nontaxable "love offerings," gifts, or loans.

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