For about five years, a financial secretary for a 200-member church quit sending payroll tax money to the Internal Revenue Service.
Instead, she pocketed the funds.
When the IRS came knocking on the church’s door, it owed about $350,000, including penalties and interest, recalled Frank Sommerville, an attorney, CPA, and editorial advisor for Church Finance Today.
“This individual was the sole person in charge of payroll and getting those payroll taxes paid,” Sommerville said. “So the end result was, the church had to sell its property and dissolve to pay the payroll taxes.”
In other cases, it may not be malfeasance that causes a church to neglect payroll taxes, but rather, financial problems within the congregation. Prioritizing the electric bill over the IRS, though, can have dire consequences, Sommerville warned.
A different church had a file folder marked “IRS.” Each time an envelope came in the mail from the IRS, the church would drop it in that folder, said Vonna Laue, a CPA and executive vice president of the Evangelical Council for Financial Accountability (ECFA).