Without question, this is the most frequent question of all.  It is also one of the most important because it involves one of the current “hot-button” issues as far as the IRS is concerned.  If a church or exempt organization is not careful, it can stumble into some very significant IRS penalties (often called Intermediate Sanctions).

The answer to how these transactions should be handled is fairly simple – adopt a written accountable reimbursement plan which establishes the processes by which employees and volunteers will be reimbursed for expenses they incur on behalf of the church.

To avoid problems, the church should make sure that its policy conforms to IRS regulations by:

• Establishing the business purpose of the transaction
• Adequately substantiating the expense with expense reports and vendor receipts
• Requiring that any excess be returned

Also, the church’s policy should dictate that all of the above be accomplished in a reasonable amount of time.  The most common method is to require that:

• No advances can be paid to individuals more than 30 days in advance of an event
• Substantiation must be presented within 60 days of the employee’s incurrence of an expense
• Any excess advanced over the amount spent on a project be returned within 120 days

If our answers only raise more questions (which is typical for CPAs) feel free to post a question on the blog or email me at verne.hargrave@pskcpa.com