This Week's LessonWeek of September 29
This week we turn our attention to Part 1 of Loans to Pastors. Start by completing the following quiz. Then review the Executive Summary for the key points on this topic, or read the Weekly Lesson for a complete discussion of this topic.
Pastor D would like to purchase a new home, but needs help with a down payment. The church board agrees to loan Pastor D $25,000 at no interest, payable on demand. Does the church have the legal authority to enter into such a transaction?
Instructions Click on the correct answer for each of the following questions.
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 by the church. No-interest or low-interest loans also may constitute prohibited "inurement" of the church's assets to a private individual, thereby jeopardizing the church's tax-exempt status. This week's lesson is the first in a two-lesson series that provides pastors with the information they need to evaluate such loans.