AboutHarvey Mechanic Expertise US Federal tax issues of nonprofit 501(c)(3) public charities only. Establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation.
To search my previous answers you can do a Google search: site:allexperts.com/q/nonprofit [with your other search terms appended].
Experience I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar.
Education/Credentials B.S. Columbia University in New York City, 1970
J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude
Question QUESTION: Is it ok to borrow money from your local church, as a loan to be paid back to the church, not from other peoples tithes or offering but maybe from offerings that yourself have made in the past, when what you are asking the church is much less than what you have offered or tithe into that church.
ANSWER: The past donations are not relevant as to loans. However, the church is permitted to refund past donations. If, instead, it gives a loan it will need to be secured and would need to call for market rate interest. If the loan is inadequately secured and that is given to an
insider then the IRS treats the proceeds as compensation to the
insider which may result in a total of excessive compensation to
that person which is a violation of IRS regulations.
www.irs.gov/irm/part7/irm_07-025-003-cont02.html#d0e4749
If you then read two sections down you would see that such
violations may result in excise taxes for "intermediate
sanctions"
Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com
---------- FOLLOW-UP ----------
QUESTION: Thank you for your response. Where do I find that is ok for the church to refund a past donation?. Please advise.
Thank You.
Answer In the United States acts are legal unless there is a specific prohibition for the act. Merriam-Webster's Dictionary of Law cites to the legal "principle
that an act is not a crime unless there is a law prohibiting it." http://pages.citebite.com/m1q4d7q3j4yse
For refunds of donations where a deduction was taken in a
previous year, put that amount on line 21 of your form 1040 as
stated in IRS publication 17 on page 84 of
www.irs.gov/pub/irs-pdf/p17.pdf -- "Recoveries
A recovery is a return of an amount you deducted or took a credit
for in an earlier year. The most common recoveries are refunds,
reimbursements, and rebates of deductions itemized on Schedule A
(Form 1040)."
The organization must send to the IRS a 1099-Misc indicating the
amounts of the refunds given to persons if the amount is $600 or
more.
See the top of page 6 of
www.irs.gov/pub/irs-pdf/i1099msc.pdf
which is the IRS instructions for form 1099-Misc
--start of excerpt ---
When to report. If the following four conditions are met, you
must generally report a payment as nonemployee
compensation.
• You made payments to the payee of at least $600 during the
year.
--end of excerpt ---
Details about recovery rules are on page 22 of of
www.irs.gov/pub/irs-pdf/p525.pdf
"Taxable and Nontaxable Income" (it may take about 15 seconds to
load from IRS site)
The statutory authority is 26 U.S.C § 111 "Recovery of Tax
Benefit Items" which you may review at: http://bit.ly/15omZa
In that story about its February of 2005 "Question of the
Month", Guidestar asked nonprofit leaders, "Should charities be
able to use earmarked donations (those given for a specific
purpose or program) for other things?" The answer was a
resounding "No" ( 65%). For example, Mary Ferrell of the
Fairmount Park Conservancy ...spoke for many in the "No" camp
when she asserted, "Ack! This is fundamental to the trust people
have in our sector! We do what the donor tells us with their
money, or we send it back to them. Period."
Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com
