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What do we do with left over funds?

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What do we do with left over funds?

Our church is going to dissolve and has about $10,000 in the bank. What are we supposed to do with that money? Can we give it to the pastor as a gift?

Whenever a charitable organization dissolves, it is required by the federal tax law to assure that its remaining net assets are used for charitable purposes. Usually that means that the funds are given to another charitable organization or public agency with similar or allied purposes.  (See the dissolution clause in Ready Reference Page: “Articles of Incorporation Establish Basic Form of Nonprofit Corporations.”)  Sometimes the state Attorney General gets involved to assure the charitable use of the assets.

You could not “give” the $10,000 to the pastor, but you might legitimately use it to pay some additional compensation or a severance type of payment.  You have to be sure to treat any payment as taxable income and not a gift.  You also want to assure that the pastor’s total income is reasonable and not an excess benefit.  (See Ready Reference Page: “Charities Must Avoid Excess Benefit Transactions.)

Tuesday, March 29, 2011

Comments

Statutes in a number of states require that funds belonging to a hierarchical church must be given to the ecclesastical authorities.  In one recent case a church dissolved, gave its funds to charities it picked, and a general mess ensued.  Constitutional law will also produce this result in many cases in the absence of a statute.

Excellent point. I had assumed, though perhaps improperly so, that the church is a stand alone organization since there was no reference to a hierarchical authority.

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