Three Ways Gifts Can Hurt You

All right, ladies and gentlemen, thank you so much for joining us today. I am here with none other than Wes Carter of Winters and King and churchlaw.tv.

How are you doing today, sir?

I’m wonderful. Thank you. Great. Good to see you as always. I know you’re going to enlighten us and give us some wonderful information when it comes to compensation for a pastor or how to start a church. I know you guys are the go to for church attorneys.

You told me today you want to talk about gifts. And so I’m excited to hear. but I want our listeners to know I don’t think it’s gonna be what they’re thinking about gifts.

What do you have for us today Mr. Wes Carter? Well I think we’re gonna talk about three ways that gifts can get you in trouble. So usually you think of gifts in such a positive connotation that three ways that I’ve seen lately in the news or in my practice that gifts have caused issues for churches and ministries. So there’s three specific areas. I kind of feel like a pastor.

I have three points and I’ll get you out by lunch.

I love it. I love it. I love it. I love it. Now, here’s what I have a question before you jump in. Sure.

Do you think people? know about that going in? Or is it something, because you said usually, you know, gifts have a very positive connotation.

Are these things that people would think of going into it? Or is it just something that happens? No, my experience is people hear gift and they snatch it up and say, thank you. And that’s the end of the mental process there. But with churches and ministries and any kind of nonprofit, obviously gifts are a very important part of how you sustain the organization. And those come with potentially rules and restrictions that you have to abide by.

So it’s anytime you’re dealing with money as an organization, you need to be wary, not wary, but aware of, you know, what the intent of the gift was, the circumstances surrounding the gift, what you’re going to use the gift for all these things, because, you know, very wide range of gifts and what you have to do with it. So do most people know this? Like if I, you know, have started a church, maybe I came and worked with you, I looked up, how do I start a church, or I need a church lawyer, or I’m looking for pastor compensation, and I find, you know, churchlaw .

tv, and I’m working with you. Do people know this about that gifts can even get you in trouble, or is this something that most people are not aware of and then they find out later? Probably we catch these things later on, which is the unfortunate part. You know, whether we’re talking about not counting compensation when you should have paid tax on it, or trying, a lot of times people are giving staff gifts, for instance, which we’ll talk about, out of a good heart. They’re working hard. They’re doing a good service.

They want to say thank you, but then that causes issues.

And so it’s just either from lack of knowledge or doing things out of a good place. but not understanding the impact it could have. I see. Okay.

Well, I’m excited to learn all about this today. So you’re talking about three ways that gifts can get you in trouble. What is the first way that you’ve got for us? The first one, I just recently saw a case came out again on love gifts and many church cultures, it’s common to give a love offering to a pastor. And for a long time, there’s been pretty clear IRS stance that if the gift is tied to the services you’re providing as a pastor, that’s taxable compensation no matter what you call it. So for instance, Pastor Appreciation Day, Pastor’s Birthday, those kinds of…

Or even Staff Appreciation Day, I mean, it doesn’t have to necessarily be the Senior Pastor. If those are… Even if it’s as a thank you, if it’s tied to thank you for your service as a pastor, or I’m gonna give this to you for your birthday because I love what you do for me as a pastor, or a business administrator or whatever they’re doing for the church, the IRS has ruled again in the appellate courts.

that that’s taxable compensation. So, you know, it’s important for churches to figure out a way to, as those gifts come in, track those, do withholdings on those if you, you know, unless you’re going to expect the pastor to pay those withholdings later, but have a way to track and account for those funds. So that pastor doesn’t end up with, or any staff member doesn’t end up with a whole bunch of compensation that they never paid tax on. Sure. So if I give, I want to make sure I’m understanding. If I, if you’re my pastor and I love you and your wife and your family, and you guys are so great.

And I just feel just in my heart, you know, I’m in it. I just want to give them a thousand bucks, you know, just, it’s not a tie.

That’s not an offering.

I just want to give this to the Carter family and appreciation for who you all are and what you do.

That is considered.

pastor compensate, like it’s taxable?

Yes. Okay.

The IRS will for sure take that stance.

Wow.

I didn’t know that.

Right. The old case was not addressing ministers necessarily directly, but it was gifts to professionals. So like as an attorney, if you give me a thousand dollars because I just got you out of a great case. Yes, thank you so much.

And that’s taxable compensation is what the court would say because you’re giving me that as a thank you for my professional services. I see.

And appellate court just recently addressed this directly for a minister that had not claimed, I think it was like $4 ,600 in compensation because it was a love gift. They appealed, the IRS says no, you pay tax on that.

They appealed it and the appellate courts said, I said, no, that is taxable compensation. You need to pay tax on that. I’m mind blown over that. It’s like bomb going off because yeah, you think if you’re just doing something out of the kindness of your heart and just it’s from a place of love and admiration and respect, you would think, oh, you know, it’s always, yeah.

I mean, the court’s going to always look at it in the entire, all the facts and circumstances, but that’s where they get you. is that if it says a thank you for those professional services, then they say it’s taxable. You gotta pay Uncle Sam. Okay, awesome. That’s good to know. What about number two?

Gifts to volunteers. I’ve seen this a few times in my practice, and it comes up periodically. So the stereotypical instance, I think is, I have nursery workers who take care of screaming babies every Sunday, maybe two or three services a Sunday. And I say, you know what?

I love what you do.

It takes a special heart. $100 gift card. Here’s $100 just as a thank you.

And you know, we get in the habit of giving them 50 bucks a week or 100 bucks a week because it’s such a great service they provide. Not many people, I wouldn’t want to do this. Amen. I’m with you. I appreciate all of you. Thank you.

So the issue there is, again, it’s coming out of a good place in your heart. But we have to be very careful that if we’re paying someone to provide a service, we’re it’s easily cross that line between volunteer and employee. And so there are some ways you can do that at a very small level. But you have to be very careful about how you do that. So if you start doing that before you do it, you need to talk to legal counsel or your accountant.

Because if you cross that line into employee status, then you could get into Well, am I paying them enough to cover minimum wage? Am I tracking their hours? Do I owe them overtime? All these other things. Should I be doing withholdings?

So be very careful when you start paying volunteers as a thank you because there’s a fine line between a paid you know, a gift to a volunteer and compensation to what should be an employee. I see. So with all of these things that you’re sharing and teaching us about today, there are different nuances with the law, the what’s applicable, right? There’s not just one answer. Is that correct?

That’s correct. So we can give small gifts to volunteers here. So let’s say that you had to travel a long way, or you just put in an extraordinary amount of time. I mean, there’s factors that you can look at to see, OK, this isn’t compensation. This is really a, man, you went above and beyond, or you drove six hours to get here to help me. Here’s a little something to help you.

But then it’s a sliding scale. You have to look at that in its entirety and see, is that an ongoing occurrence? Are you giving it to everybody, even if they only had to drive around the block to get there? So it’s something you need to look on a case by case basis. And that’s where it becomes dangerous.

when it becomes institutionalized, just a habit, practice of we’re going to give this to everybody. I see. OK, so you are illuminating us about these ways that gifts can get you into trouble. The first thing you talked about was just love gifts, whether it’s like an appreciation for a pastor or staff. You just finished up with gifts to volunteers. What is the third way that gifts can get you in trouble?

The third way is something we always struggle with in all of our nonprofits, and that is employees gifting gifts. their work time. Employees and volunteers are stereotypically underpaid. And that’s because they love the mission or the ministry of the organization. So they’re passionate, and they’re willing to do that. Right.

But with that, they say, Okay, I can’t afford overtime. So you can only work 40 hours a week employee in their mind, again, from a good place in their heart says, that’s fine, only paying for 40. But I want to do all these other things, or I have all this other work. So I’m going to go ahead and work an extra five hours a week, or stay an extra hour a day. And I just won’t count on my time card. We’ll just call that I’ll, you know, I’ll volunteer that time.

That becomes very dangerous for the organization. Employees cannot volunteer for the same duties they’re paid for. What that is is unpaid work. The government will clearly come down on the side of if an employee is working, let’s say, an extra five hours a week. Let’s just talk worst case scenario here real quick.

We only have a little bit of time. Five hours a week over the course of a year, a lot of time adds up. A couple years, a lot of time adds up. So that employee one day has a falling out with the organization and says, you know, something goes sideways and they end up on some, you know, animosity. The employee goes talks to an attorney. The attorney says, hey, that’s actually five times 52 times three.

That’s how much time you should have been paid. If it’s over your 40, that’s overtime. And if they haven’t paid you, some instances it can be double or triple your actual damages.

And so what you end up with as a church is an employee who has a good place in his or her heart. And since you didn’t enforce the fact that you can only work for what we pay you for, you end up in a wage claim that ends up being a long, drawn -out process. It can cost you a lot, a lot, a lot of money. So if they want to volunteer, just put them in a different area. If they’re in accounting, put them over there with those kids. or out on a food ministry or something like that.

But you can’t have employees volunteer in the same duties that they’re doing and they get paid for because it raises the possibility of a wage claim because they didn’t get paid for the same thing they were doing as an employee. Wow, wow, wow. That is amazing to hear. I love how you can break down all the nuances and just help us see how multifaceted things are when you’re dealing with, you know, pastor compensation or how to start a church, or if you need a church attorney.

This is why I say it’s like an education for me every week when I talk to you. I love it. If someone has questions or wants more information, what do they need to do? They can call us at 918 -494 -6868.

They can go to, we have a website dedicated just to our church and ministry practice at www.churchlaw.tv. And on the website, there’s a contact us page there where you can email us through the website as well. Okay, great. Wes Carter, thank you again so much for your time.

My pleasure. And giving this great, great education. All right, we’ll see you next time.

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