Q: Our church has a preschool. If we allow the pastor's two children to attend the preschool free of charge, then don't we also have to allow the children of our preschool and church staff to attend free of charge? I called the IRS and they said it had to be the same for everyone. This makes sense to me but our board members have questions. They want this to be a benefit only for the pastor. Must we offer this same benefit to everyone?
A: Many churches operate schools or preschools and offer tuition discounts to employees of both the school and church whose children attend the school. Section 117(d) of the tax code specifies that qualified tuition reductions are not taxable. To be qualified, however, certain conditions must be met. These include the following:
- The tuition reduction is provided to an employee of an "organization described in section 170(b)(1)(A)(ii)" of the tax code. This section refers to "an educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on."