How Pastors Misuse Church Credit Cards & What To Do About It

Understanding how to properly use a church credit card is imperative if pastors and church leaders wish to maintain financial accountability, stewardship, and integrity. Consider the following story.

A few weeks after being hired as the new senior pastor, Howard was given a church credit card. He was told the credit card was for times when he needed to make purchases for the church. 

Howard was informed that he could also use the church credit card when he was traveling for ministry purposes and needed to fill-up his gas tank. Moreover, if he used the church credit card for personal expenses, then it would be fine; the board had approved it. However, he would need to repay the amount each month when the bill was due. 

This arrangement seemed to work fine for a while. 

If there was a personal expense that Howard placed on the church credit card, then he would pay it back each month. Unfortunately, he started missing some payments. When he was able to make a payment for his personal expenses, it was usually just the minimum amount due.

Before long, the church credit card had a balance of $5,700.00 from Howard’s personal expenses. No one on the board has said anything to Howard, and it does not look like he is going to be able to pay off his balance anytime soon.

What should the church do? 

Is it legal for the church to allow the pastor to use a church credit card for personal reasons even if he pays it off each month?

Issues concerning the use of a church credit card and one’s personal expenses can cause serious legal trouble for a church. The story above is a classic example. 

In a desire to help their pastor, many church boards approve arrangements that will not only get their pastor, but also themselves, into trouble with the IRS. 

Should ministers use the church credit card for personal use?

A large number of ministers use the church credit card for both church and personal use. Yes, many of the ministers repay the church for the personal use of the credit card, but there is also a good number of ministers who never do.

Should ministers use the church credit card for personal use?

While it is good to repay the church, this is a practice that should be avoided because the legal consequences can be very serious.

Below are some of the consequences that could result from ministers using the church credit card for personal use. 

1. Loss of tax-exempt status

No part of the net earnings of a section 501(c)(3) organization may inure to the benefit of any private shareholder or individual. In other words, your ministry may not be established to personally benefit someone because of his/her position or influence within your church or ministry. 

(Recommended reading: "Does a Church Need to be 501(c)(3) Approved?")

Despite the good intentions of ministers to repay any money they used, the use of church funds (even temporary) is considered a private inurement. This alone is enough for a church or ministry to lose its tax-exempt status.

Loss of this tax exemption would also make the donations to the church not deductible. The consequences could affect not only the minister but also the donors.

2. Excessive taxes and penalties

What would happen if, as in the example above, a minister was unable to pay the church back? Section 4958 of the tax code classifies this as an excess benefit transaction. This would then result in penalties (known as intermediate sanctions) of up to 225%.

As in the case of the minister who racked up personal charges of $5,700, the penalty would be $12,825. In addition, section 4958(d)(2) says that board members who approved this practice can be held liable and fined up to $20,000.

The intended generous perk for a pastor can quickly turn into a costly one.

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3. Embezzlement

One of the very real dangers that ministers are not even aware of is that when the IRS does an audit of the church, it looks at paper trails and other evidence to determine if a crime was committed.

Though the intentions of most ministers is not to commit a crime with the church credit card, an IRS agent or revenue officer could conclude that the credit card was used with the intent to never pay it back. 

Normally the lack of documentation and the type of purchases made, combined with the amount left unpaid, can result in an unexpected prosecution. 

What if you use the church card by accident?

Mistakes happen, and even I have been guilty of accidentally using the church credit card to make a personal purchase. If I still had an opportunity to reverse the transaction and make the purchase with my personal card, I was sure to do that.

However, if I noticed after I had already left the store, I would immediately write the church a check and explain, in writing, the reason for the check.

I always think it is better to be safe than sorry.

So, if you accidentally use your church credit card for a personal purchase, here is what best practice tells us to do:

    1. Reverse the transaction and make the purchase with your own credit or debit card (if you catch the mistake and are still able to do so). 
    2. If it is too late to reverse the charge, then immediately write your church or ministry a check for the amount you charged and include a written explanation for the check.

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How to minimize the misuse of your church credit card

Every church should have a credit card policy that has the following three criteria.

  1. How the card may be used: The church should only allow the card to be used on purchases that are necessary and within the budget of the church.
  2. Applied spending limits: One great thing about technology is the ability that a bank possesses to allow you to apply monthly spending limits on each credit card that your church issues. It also lets you see transactions sorted out by each credit card user. You know who and how much each user spent on the card.
  3. Strict reporting requirements: Require that every transaction be accompanied with a receipt. To keep the church out of tax trouble, the policy should state that failure to provide a receipt could result in having to classify that transaction as personal income. 

If your church or ministry has not implemented a credit card policy, and it needs one, call our office at 877-494-4655. We will be happy to provide you with one for free.

Tying up your church’s “loose ends”

No one starts a church thinking they will get into trouble with the IRS. Yet, many pastors are beginning to realize that there are several “loose ends” regarding the administrative and legal sides of their churches. 

Today, life moves at a significantly faster pace than it once did. When my wife and I started a church, we thought life was fast paced then, but compared to today's world of ministry, our church planting days now appear slow and laid back.

The fast pace of ministry life is surrounded by hundreds of state and federal laws that have an impact on the financial and civil aspects of ministry. Many pastors, soon after starting their churches, begin to lose sleep over the fact that they did not StartRIGHT.

After a while, past mistakes pile up and the legal and financial sides of church become a heavy burden with an internal nagging voice constantly asking the unknown question, "What if ... ?"

Having been a pastor myself, who has provided consults to thousands of pastors, I understand how you feel. At the same time, I have a word of encouragement for you.

Knowledge is power.

If you will take the time to gain the knowledge you need to bring your ministry into legal compliance, you will soon feel a burden lift from your soul, and your heart will feel set free to dream and soar into the destiny of your ministry.

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