Thanks to Jack Strauss, Jr. for the following information.  Copyright and contact info is found at the bottom of this page.  Used by permission.

Minister fails to substantiate his deductions. They are disallowed and an additional negligence penalty is imposed on him.

Hubert Swaringer was the pastor of the United House of Prayer for All People in New York. He was self-employed and paid from the offerings of the congregation. His wife, Flora Swaringer, was the church secretary and was paid a salary of $44,271 in 1995. She was an employee of the church but Hubert filed a Schedule C, Profit or Loss From Business, relating to his ministry. He reported $28,600 as income from the church. On his Schedule C, Hubert claimed deductions of $24,574 with regards to his activities as minister. Of that amount, the IRS disallowed $19,271. Amounts Hubert took in automobile, travel, meals, utilities, robes, dry cleaning, and tithes were disallowed. The Tax Court considered each category as follows:

Automobile. Swaringer claimed a deduction of $9,294 for automobile expenses. The IRS disallowed $7,966 of that. Hubert claimed that he figured the amount based on the number of miles driven in his ministry. However, the Code requires that certain substantiation rules be met. He must substantiate the amount of the business use and total use of the automobile, the time of the use of the automobile, and the business purpose for the use. He also has to maintain adequate records such as a log, diary, or trip sheet. Swaringer~s only records consist of a document prepared by his secretary after the end of the year that contains headings as to the date of travel, the place of travel, the general purpose of the travel, and the mileage. But this document contains his travel to and from his residence and his place of business ~ that ~s personal commuting and not deductible. In addition, ~the reasons stated for the travel lack any specificity.~ Consequently, these records do not satisfy the requirements of the Internal Revenue Code.

Travel and Meals. Swaringer claimed deductions of $2,100 and $1,560 for travel and meals, respectively. But the IRS only allowed $649 and $500. The Code says that travel expenses have to be substantiated by evidence establishing the amount of the expense, the business purpose for the travel, and the time and place of the travel. Swaringer claimed that he was entitled to use the per diem substantiation rules, or to take a per diem amount in lieu of substantiation. But in order to use the per diem in lieu of strict substantiation, he still must ~substantiate the elements of time, place, and business purpose of the travel expenses in accordance with~ the regulations under the Code. He did not satisfy this requirement.

Utilities. Swaringer claimed a deduction of $2,034 for utilities, which the IRS disallowed in full. The deduction was claimed for telephone expenses incurred on his home phone. But again he has no records substantiating these expenditures as expenses incurred in his trade or business. He did not keep monthly telephone statements. In addition, the cost of basic local phone service with respect to the first telephone line is a personal expense and is not deductible.

Robes and Dry Cleaning. Swaringer claimed deductions of $4,900 for robes and dry cleaning. The IRS allowed only $1,000. He argued that because of the nature of his employment as a minister, he was required to wear business suits that he would not otherwise have worn. But, the Tax Court said that even if this was correct, the cost of clothing is only deductible if the clothing is of a type specifically required as a condition of employment and is not adaptable as ordinary clothing.

Finally, the IRS imposed a 20% negligence penalty on Swaringer. This is applicable to any situation where the taxpayer fails to make a reasonable attempt to comply with the law and includes any careless, reckless, or intentional disregard of the law. It also includes any failure by the taxpayer to keep adequate books and records or to substantiate items properly. Swaringer v. Commissioner of Internal Revenue, United States Tax Court. Docket No. 282-00S. March 22, 2001.

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The Legal Trends Memorandum is distributed free of charge to leaders of churches and other religious non-profit organizations.  Any readers understand that the publisher is not rendering legal or other professional advice.  For legal advice please contact a competent attorney in your jurisdiction.  Copyright 2001 by The Legal Trends Memorandum.  However, you are free to distribute this publication to other churches or non-profit organizations.  Just let us know who received a copy. Published by The LegalTrends Memorandum, P.O. Box 113047, Carrollton, TX  75011.  Tel:972-417-8856.  Fax: 972-417-9686.  E-mail: jbstraus@aol.com.   Edited by Jack Straus, Jr.  Back issues available at: http://members.home.net/jbstraus/ltm/index.htm