Our pastor asked the church board to provide him with a credit card in the church's name since his credit rating was too poor to obtain one on his own. The board agreed to do so. It understood that the pastor would use the card for mostly personal expenses, and that he would reimburse the church for the charges he made. During the previous year he made $6,000 in charges to the card, and has paid back about half of this. What should the church do? Should we cancel the card? Was it an appropriate arrangement? How much of the charges, if any, should the church report as taxable income on the minister's W-2?
There are several points to consider, including the following:
Inurement. One of the requirements for exemption from federal income tax is that none of a church's funds or assets inures to the benefit of a private individual, other than as reasonable compensation for services. Inurement may occur in many ways, including excessive compensation, payment of excessive rent, and the payment of personal expenses of an officer that the church did not characterize as compensation at the time of payment. It is possible that your pastor's use of a church credit card for his own personal needs and expenses constitutes inurement, especially if he fails to reimburse the church for all personal charges. This exposes the church to a loss of its tax-exempt status.