It is certainly the case that what the Internal Revenue Service considers incomeis often different from what ordinary people consider income. The situation of a discounted sale is an excellent example.
A well-established church in Northern Virginia had accrued a number of houses during its long and storied history. In addition to its facilities at the main church campus, the church owned several houses in neighborhoods
around town.
The church wanted to be a blessing to its pastor, so they explored the idea of selling the pastor one of the church-owned houses. Because of booming real estate prices in Northern Virginia, a house that the church purchased for about $200,000 was currently valued at about $650,000. The church floated the idea of selling this house to their pastor for the price they paid.
To be clear, the church has every right to sell this house to their pastor, and he has every right to buy it. But because the sale would be $450,000 below fair market value, the church would have to include $450,000 on the pastor’s W-2 Form for the year, and he would be responsible to pay taxes on that money as though it were income. Keep in mind that the church did not give the pastor a check for $450,000, but the IRS certainly counts the discounted price as part of the pastor’s annual income.
In many cases, sales like these would create such a heavy tax burden for the pastor that the discounted rate would bankrupt him. Unless the church also had the ability to greatly increase his annual salary to cover these taxes, their generous gesture would actually turn out to be harmful.
If you have questions about how taxes work when church property is bought and sold, please contact the legal team at the Christian Law Association.