Tricky Transactions: Recording Church Assets Held in Pastor’s Name

By Raul Rivera

It's common for churches to handle the purchase of a car for official use incorrectly. Sometimes, a pastor or another appointed individual buys the vehicle under their name, and the church takes on the payment responsibilities. However, without proper documentation and adherence to guidelines, this practice can lead to complications with the IRS and State Attorney Generals.

Each month, the church faces a problem when making the monthly payment on the vehicle, which only amplifies the issue. Thankfully, there is an easy fix to this growing problem.

In this blog, I'll outline how a church can correctly manage assets held in the pastor's name. Following that, I'll detail two issues that can emerge from improperly handling such situations.

How to Handle Church Assets Held in Pastor’s Name

Church ABC needed a car for Pastor XYZ to use for church business. The problem was that the church didn't have the credit to finance the car. So, the church elders had a meeting to figure out a solution. They decided that Pastor XYZ would buy the car in his name and finance it himself. The church would then pay the monthly payments for the car, treating it as an expense in their books.

The elders voted on this decision to make it official. They documented this agreement in the meeting minutes, ensuring everything was clear and above board. They also drew up a simple legal agreement specifying that Pastor XYZ was holding the car's title in trust for the church. This meant that while the car was in his name, it was really for church use, and the church was responsible for its costs and liabilities.

Each month, the church made payments towards the car, which included both the principal and the interest. They kept careful records of these payments in their financial books. This arrangement allowed Pastor XYZ to have a car for church activities without putting financial strain on the church's limited resources. Below are the proper steps to take.

1. Authorization: The decision by the church elders allowing the pastor to finance the car in his name should be documented in the meeting minutes where the vote took place.
2. Title Holding: The fact that the pastor holds the title in trust for the church should be documented with a legal agreement specifying the church's ownership rights and responsibilities for insurance and liabilities related to the car. 
3. Recording in Church Books: The transaction should be recorded in the church's books. Even though the pastor holds the title, the car is for church use, and the church is responsible for the payments. The entry would be:
   1. Debit “Asset: Vehicle": In the chart of accounts of the church, create an asset account and call it “Vehicle X.” This reflects the car as an asset used for church purposes.
   2. Credit "Liability: Loan Payable": In the church's chart of accounts, create a liability account and call it “Vehicle X Loan.” This indicates the church's liability to the pastor for the car payments.
   3. Monthly Payments: Each payment made by the church should also be recorded as follows:
      1. Debit "Liability: Loan Payable" for the principal amount: This reduces the liability.
      2. Debit "Expense: Interest" for the interest portion: This reflects the cost of financing.
      3. Credit "Bank/Cash": This accounts for the cash outflow from the church’s bank account.
4. Interest and Principal: The church must keep track of both the principal and the interest in its financial statements. The principal reduces the liability for the car loan, while the interest is an expense for using the pastor’s credit. You can do this by looking at the monthly statement, which will detail how much of each payment went towards the principal and how much went towards interest.

Two Issues That Emerge When Not Done Right

When a church doesn't properly document assets held in trust, like a vehicle in the pastor's name, several problems can occur:

Misrecorded Payments: Each payment made by the church on such an asset is often recorded as an expense, which is an incorrect practice. This mistake can quickly attract the attention of anyone scrutinizing the church's finances, leading them to believe there is a loan or lease. During an IRS audit, this is an easy target, potentially triggering a broader investigation into the church's financial practices. At StartCHURCH, we specialize in guiding churches into compliance and can navigate you through correctly handling these transactions.

Incomplete Reports: The details matter when you entrust your finances to a bookkeeper. Imagine for a moment that you do not provide your bookkeeper with the right information concerning the car purchase arrangement. Your bookkeeper may need to categorize your church’s monthly car payment as “Unclassified Transactions” or “Unapplied Principal.”  This isn’t a red flag about your financial stability but rather a signal that the report in front of you isn’t as complete as it should be, even though the figures have been reconciled with the bank.

To steer clear of this, it's crucial that you provide your bookkeeper with the complete picture. This means communicating the entire amount paid for the purchase, including taxes, tags, and title fees, the sum of the down payment, and the portion that was financed. When the monthly statement lands in your mailbox or inbox, consider it a prompt to connect your bookkeeper with the finance company’s records electronically or to forward a copy of the statement their way. Doing so empowers them to accurately reflect how much of your payment is chipping away at the principal and how much is going toward interest.

Taking these steps not only streamlines your bookkeeping process but also brings a sense of personal involvement and control over your financial narrative. Remember, a detailed report is a powerful tool in your hands.

Be Encouraged

Navigating the financial responsibilities of church assets doesn't have to be a burden. With the right procedures and documentation in place, as outlined above, churches can avoid common pitfalls and easily maintain compliance. At StartCHURCH, we're committed to providing the tools and guidance necessary to manage your church's finances confidently and correctly. Remember, proper stewardship and clear financial practices uphold the church's integrity and ensure that leaders can serve their communities without the added stress of financial complications. Lead your church with assurance, knowing that StartCHURCH is here to support you every step of the way.

Call us at 770-638-3444 or schedule a consult below to talk to one of our specialists and learn the benefits of the StartCHURCH Bookkeeping Service and receive 2 key sample letters, a vehicle holding trust agreement and a sample of the minutes of the special meeting.

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