Most churches pay for the pastor's cell phone bill! Is that really allowed?
A common practice that I see going on in many churches today is the church paying the pastor or founder's cell phone bill. Most churches do it by paying the bill directly on behalf of the pastor. Every month the pastor turns in the cell phone bill and the church writes the check and sends it off. Other churches pay for it online, using the church credit or debit card.
Churches justify paying the cell phone bill because the pastor or founder uses it for church purposes, and often times incurs charges above the regular plan because of the number of minutes used conducting church/ministry work. Though it may be a noble thing to do, it is illegal for the church to pay the pastor's cell phone bill unless certain steps are taken to do it correctly. Without the proper steps, it is classified by the IRS as an excess benefit transaction under Section 4958, which imposes a penalty on the church of up to 200 percent of the cell phone bill. This penalty is officially called an "intermediate sanction."
In my travels across America for conferences, I have found that a majority of churches violate Section 4958 when they pay the pastor's (or other employee's and officer's) cell phone bill. There are two ways that the church can pay the cell phone bill in a way that is consistent with the law. Following is a quick rundown:
Method #1 Church owned cell phone
The church has a board meeting in which a measure is passed to open up a cell phone account.
At that same board meeting it is also passed that the pastor is required to carry the church cell phone at all times, for the convenience of the board of directors and church members, so church business may be conducted.
The church should purchase an account that has unlimited minutes and no roaming charges. This will allow the pastor to use the phone for both church and personal purposes.
Method #2 Reimbursement method
Make sure that the church has adopted an accountable reimbursement policy under Section 62. Our Advanced Compliance System II will help you with that. This plan is approved at a board meeting.
At the same board meeting, pass a resolution that asks the pastor to use his/her cell phone for church business (to which he/she answers "Yes"), and then state that he/she will be reimbursed for any expenses that are business and church related.
If church related calls go beyond the monthly plan, keep a log of them. Submit those calls to the board of directors using a reimbursement form, and attach a copy of the phone bill showing those calls and how much they cost.