For the purpose of community outreach, our pastor wants to join a couple of local clubs. The board would like to pay his dues, but can this be considered a business expense?
Many ministers belong to local clubs, including fitness and golf clubs. Some churches agree to pay the annual dues or fees to these clubs as a fringe benefit. In some cases, the minister (or church) treats the club dues as a business expense because membership in the club will either contribute to the minister’s health or expose the minister and church to the community.
Section 274(a)(3) of the tax code specifies that “no deduction shall be allowed for amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or other social purpose.” As a result, dues paid to health and fitness clubs, golf clubs, airline clubs, hotel clubs, and dinner clubs are no longer deductible as a business expense. However, dues paid to professional organizations, such as bar associations and medical associations, and civic or public service organizations, such as Kiwanis, Lions, Rotary, chambers of commerce, and trade associations, are not covered by this prohibition and may qualify as business expenses.
Two points should be emphasized:
Reimbursements. Since most club dues cannot be treated as a business expense, a church cannot pay for or reimburse such dues under an accountable expense reimbursement arrangement. If a church pays for a minister’s club dues, the full amount must be added to the minister’s Form W-2 or 1099-MISC as additional taxable compensation. It is not a business expense that is reimbursable under an accountable arrangement.
Deductions. Congress enacted legislation in 2017 that ends the itemized deduction on Schedule A for unreimbursed (and nonaccountable reimbursed) employee business expenses, including club dues. Further, the Act provides that no deduction is allowed with respect to membership dues in any club organized for business, pleasure, recreation, or other social purposes.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.