Q&A: Catering Fees at Church

Could payment to pastor’s wife for catering services constitute excess benefits?

Elaine L. Sommerville, CPA
Bio
A pastor’s spouse decides to cater a meal for a group that wants to host an event in the church’s Fellowship Hall. She is paid a set fee and can keep the payment for herself. Because it is the pastor’s wife being paid for her services at the church and not the pastor himself, is there any chance it could be considered excess benefits under the church’s compensation?
Excess benefits that are subject to intermediate sanctions under IRC Section 4958 arise when the church provides something of greater value than what the church receives in return. From this question, it is unclear who is paying for the catering.
If the church is paying for the catering, then the amount paid must be fair market value for those services. Such a transaction would be subject to the rules regarding excess benefit transactions.
If the pastor’s spouse is providing catering to an outside group that has arranged to have an event at the church, then the transaction more than likely is not subject to the rules regarding excess benefit transactions.
In this instance, however, the church must make sure that the arrangement between the church and the outside party hosting the meal is within the exempt purposes of the church, or that the church is receiving fair market value for the use of its facilities.

To learn more about how to protect your church’s tax exempt status, see the download Protecting Your Tax-Exempt Status.
Elaine L. Sommerville is licensed as a certified public accountant by the State of Texas. She has worked in public accounting since 1985.

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