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Loans to pastors.

Loans to Pastors

Legal and tax implications

Give to the one who asks you, and do not turn away from the one who wants to borrow from you. Matthew 5:42

Article summary. Many churches have made loans to a pastor. But few church leaders understand the legal and tax implications associated with such loans. For example, the nonprofit corporation laws of many states prohibit incorporated churches from making loans to an officer or director. Such law often will apply to senior pastors, since they typically are officers or directors of the church. Associate pastors also may be affected in some cases. Church leaders also need to be familiar with the tax implications of these loans. Most importantly, if a loan is "interest free" or at a "below market" rate of interest, then the pastor to whom the loan was made may realize taxable income from the transaction that must be properly reported ...

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Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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  • March 1, 2002

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