A small church had enlisted a new contributions clerk, an unpaid, volunteer position. The clerk’s sole job was to take the offerings and keep up with individual giving so that a receipt for each member’s giving could be issued, usually annually. The first Monday on the job, the new clerk dutifully stopped by the church office, picked up the empty offering envelopes from the previous Sunday’s offerings, took them home, and began recording the names and amounts in her individual records.
She was puzzled by one envelope which had a member’s name on the outside and a copy of a personal check (not the actual check) inside. The check was a private party transaction between the member and a staff member, the member giving a gift directly to the staff member. The check copy found its way into the offering plate because the donor was expecting it to be added to their church contributions and be a part of their total charitable giving for the year. The church received nothing. The check went directly from the “donor” to the staff member and into the staff member’s bank account.
Were the church to issue contribution credit for this gift they would be lying, since no donation was received by the church. As the situation unfolded, it appeared that there were several people involved in the previous practice. The new contributions clerk raised questions and the practice was stopped. There are several levels of deception involved here and there could be serious consequences.
This is an extreme example of how churches and ministers have headaches with contributions. No one likes to pay taxes. Charitable giving is one of the main avenues for avoiding or reducing one’s income tax bill and churches are the main recipient of most charitable giving.
In a small church, a single staff church, the pastor may be the point man for giving guidance on what “counts” as a tax deductible contribution credit, and that not by his choice but by default. I have never known of a church with a single full-time staff (the beloved pastor) with weekly attendance of 75-125, a budget of $150,000 and an impeccable credit score. Like it or not, we pastors have a special hat to wear: chief church administrator.
My conjecture is that the average and smaller sized SBC churches probably deal with more technical questions about contributions than the larger churches. Larger churches employ CPAs, have audits, and may have a business person as administrator relieving the pastor of these duties.
Since the government gives special tax treatment for charitable gifts, there are rules about what is acceptable to the IRS. My state convention does a splendid job in addressing this in a non-technical but understandable way with an article: Church Contribution Credit. Here’s the executive summary, somewhat illustrated.
A contribution credit can only be given for cash or cash equivalents such as electronic deposits, checks, debit cards, or credit cards to the church.
The simplest rule is that the church must receive the donation. Stating the obvious? See the above example. Here’s a sad fact: most pastors have people in their congregation who so want to avoid paying their legitimate taxes that they will try and use the church, sometimes illegitimately and even fraudulently, to avoid doing so.
Non-cash donations (stocks, real estate, building materials, jewelry, etc.) are great but they cannot be assigned a value by the church on a contribution receipt. The donor has to justify the value with the IRS, if needed. The church merely acknowledges and describes the gift:
“Thank you for giving the church that old boat that has been sitting in your back yard for decades, the one you turned into a planter.” If you want to claim a $20,000 charitable deduction on it…it’s between you and the IRS.
A contribution credit can only be given when the donation was voluntary and made without the donor receiving or having the possibility of receiving anything of material value or tangible benefit.
Nope. No contribution credit for checks to the church for books, barbeque tickets, etc. The acknowledgement of member’s giving should include the sentence, “No goods or services were provided in exchange for the contribution, other than intangible religious benefit.” If the church gives contribution credit for fundraiser BBQ supper tickets or Bible study books purchased by the member, then the church is lying.
A church member cannot receive a contribution credit for volunteer hours.
A church often has skilled members who can do HVAC repair, concrete work, carpentry, etc. If the member donates materials the church can give a statement that they received the materials and the member can assign a value for the gift for his taxes. He cannot ask the church to assign a value to his time and receive a receipt for that. Think of the charitable contribution credits that would accumulate if the IRS allowed credit for volunteer hours.
The donor cannot direct the use of the gift to their own or another’s direct benefit.
The wording in the link above is that, The donation must be made “to or for the use of” the church. The church must exercise control over the donation. The donation cannot simply be a “pass through” to an individual or ministry. The church must have the authority to accept or reject the donation.
This one can be tricky because there are always people in our churches that want to launder their giving through the church and receive a charitable contribution credit for it.
The situation most often encountered is probably benevolence directed to a specific person. Our churches routinely collect money for specific benevolence needs. What the church should have is a benevolence fund to which a member may designate an amount and do so without directing that the money go to a specific individual. The donor may suggest to the church’s benevolence committee that they consider that specific need. The committee may then make a decision.
A second common situation is when members wish to give cash gifts to a staff member and do so through their offerings. The church can probably manage this through a designated fund but there has to be an arrangement where some church committee controls the money and is able to decide where the money goes, rather than the donor. The initial example above is one where gifts were part of a conflict between staff members and their allies in the congregation. The church should turn such gifts down even if they have the proper method in place to handle it.
So, how does a single staff member manage all this? I’m pretty certain that no class in seminary covers this stuff and it is a certainty that pastors will eventually be confronted with questionable situations. Over the years, I’ve had pressure over all kinds of donation funny-business involving contributions, pseudo-contributions, and non-contributions. Here’s my humble advice:
- The pastor should get educated on IRS rules for donations. My state conventions has annual seminars around the state where this type stuff is explained. Attend one of them. Most of us consider ourselves as God’s Preacher, Undershepherd, and Spiritual Leader for our church. But in every church I served, I was also the administrative leader of the church. Get educated. It’s your job to oversee this stuff.
- Get a few people in the church educated on this. Take the church treasurer, the administrative secretary if you have one, chair of the stewardship and/or finance committee or any other appropriate church leader to one of these seminars. Take time every year to emphasize these things. You will resign, retire, or die one day. Be sure there are people who know how to handle this after you have moved along. You cannot guarantee that your successor as pastor will know how to manage this part of church life and you can help him by having people in the church whom you have educated on this.
- Learn to say “no” to people in the church who want to push the boundaries. Sometimes it falls to the pastor to say, “Uh unh, we can’t do this.” The more formal and clear your church policies are regarding contributions, the less headaches you will have. But…you will eventually have to tell a member that the church cannot give contribution credit for certain donations. In many cases, if the groundwork is laid for the types of routine designated gifts a church is likely to receive the donation can be received without difficulty and without violating any IRS guidelines. You can always tell a member that he or she is free to give whatever they want to whomever they want, whenever they want. But if they want to give through the church and receive a contribution credit from the church they should understand that the church obeys relevant laws.
- Say “Thank You!” to all the people who give regularly, generously, faithfully and do so without thinking of it as a tax break. Say it early, loudly, and frequently.
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No, I’m not a CPA, I’m not giving tax advice. I am making observations as a humble and plodding pastor. See your CPA that gets paid $200 per hour to answer specific questions or the state convention paid staffer who handles this. And take a lesson from Ben Franklin above: be sure you scowl when you are educating your church on these things. It will help you.
That is a very practical article that ought to be read by every pastor and stewardship committee member in every SB church.
I will add that overseer implies administration.
Churches are often careless in this arena. It’s one of the areas where the legal ramifications are the greatest.
I’m curious if my fellow pastors ever have to deal with these situations or do they maintain credible deniability and ignore them.
Years ago (I was an associate pastor and it was in a time when churches were much less careful than we are now, in general), we had a mother whose daughter and son-in-law went as missionaries. She started designating all her tithes and offerings directly to them – she was not poor and gave generously. The deacons finally said that they didn’t think that giving directly to your daughter through the church to get a tax deduction was permissible. She didn’t like it much.
People may designate how the money they contribute is to be used. However, when they do this they MAY NOT claim a charitable deduction. The organization must be free to apply contributions as they see fit with no strings attached if the donor want s to claim the donation as a charitable contribution.
Recently dealt with this in a case where 300,000 was the size of the gift.
the key here is for the church to have written and clear policies.
Agreed. The best written policies are the ones provided by the state convention. Our state office has a good explanatory article on gifts for mission trips.
The deal with the lady giving through the church to her daughter is clear in being a direct benefit to a family member. I’m looking for the fearless pastor who will say, “No, we cannot give contribution credit for this. We don’t participate in money laundering.”
Excellent article. Positive, helpful, accurate. Share it with everyone.
Ministers and church treasurers who ignore this do so at their own peril since the IRS does not accept ignorance as a defense. https://www.startchurch.com/blog/view/name/alabama-pastor-goes-to-prison-for-love-offerings
“The donation must be made “to or for the use of” the church. The church must exercise control over the donation. The donation cannot simply be a “pass through” to an individual or ministry. The church must have the authority to accept or reject the donation.”
What about designated gifts, such as the Lottie Moon Christmas Offering or building fund, etc. For example, last year, after I learned about the IMB financial crisis, I received some unexpected money–a refund from a doctor’s office and a few other things like that. I immediately wrote a check to my church, designating the LMCO, hoping it would get sent to Richmond immediately, even though it wasn’t LM season. I assumed the church would honor my request, and they did, as far as I know. But is this considered a “pass through” in the eyes of the law?
No problems here. Guidance from denominational people is for the church to establish a designated fund for [whatever] church purpose and then receive donations for it. Lottie and Annie are such things.
From the view of a pastor, treasurer, or church contributions clerk the difference between the usual mission offerings and established designated funds (building, bus, benevolence, etc.) and other ‘pass through’ purposes is obvious and usually clear.
There is no end to the things people would want to “pass through” (or launder) if the church didn’t exercise proper control over giving but for most SBC churches Lottie, Annie, cooperative program, global hunger, state missions, etc. are already established. No issue whatsoever with designated giving to those.
It’s tough to do much with 1000 words on IRS rules. The best advice is to read the link and talk to those in the field; however, the pastor should be generally familiar with the guidelines. I emphasized oddball, illegitimate cases which I have encountered.
It’s up to the individual to justify their donation to the IRS. The individual may claim anything they wish (and the church is perfectly free to accept any gift for purpose designated or not) but if they want a contemporaneous written acknowledgement from the church to present to the IRS showing a legitimate contribution, the church must follow IRS rules.
I would prefer that denominational lawyers, financial advisors, CPAs or the like write articles like this one, which they do occasionally. I just don’t see this stuff on the outlets like SBCV where many SBC ministers and laypeople get a lot of their information.
Apparently the rules are somewhat different for organizations like CRU. You generally specify an individual there and it goes into their account. And then CRU pays them out of that account–so there may be the similarity, CRU controls the money.
It’s easy to get in the high weeds. On stuff routinely encountered by the typical SBC church, the link above (and there are others like it on specific financial topics) is good advice. The article says, “Contribution credit is allowed for church-approved love offerings for church employees since the donations are taxable income to the church employees.” The church employee gets a W-2 showing that as taxable income. But, anyone who wants to know more about those type cases better consult a knowledgeable professional.
This should be a no-brainer, but isn’t, unfortunately.
The Church adopts a budget which says how money will be spent. The budget includes ministry or missions.
When people give to the church, their gifts are to the church to be distributed as determined by the church. If people do not want to give to the church, but want their contributions to go directly to a certain ministry (CRU, a missions board), they can give the contributions to those organizations. I believe those organizations have ways of raising support etc. I am not sure how it works, but it does.
Churches should be very clear about the laundering of gifts to the church. They are made to look like church gifts when they are actually personal gifts.
We had this come up early on in our ministry. One person in the church had a relative who was a missionary in Africa. He worked in an orphanage. The church member wanted to give the church a check which would then be re-cut by the church to the missionary.
This was 20 years ago. I did some research at the time and determined that we would be jeopardizing the church’s tax exempt status if we did what this person was requested.
At that time, the rules did allow for the church to vote to make the missionary in Africa part of the church’s missions budget, but that had to be a church decision. Also, the church could decide how much to give the missionary in its budget. We have a regular offer, and an annual missions offering, so people may give to both.
This individual gave to both, and a lot of his gift went to the missionary in Africa, after the church voted to include that person in the missions budget. There was no guaranty that the money would go there, but a lot did. The bottom line was that the church decided whether to include the person in the missions budget and the church decided how much the person would get from the annual budget. The giver could not be guaranteed that all of his gift would get there, but that was a risk he took.
Our church member was also irritated at the procedure, even though much of his gift got to the family member.
However, it was important for the church to establish, even with this big giver, that the church was not a shell organization run for the benefit of a few well-healed individuals.
The same thing happens, I suppose, in building projects. Although the church doesn’t run the risk of losing its tax exempt status in those situations, the principle of “Who runs the church?” is still at stake.
If some guy wants to give $1,000,000 to building the church a gymnasium, the way it should work is that the church should vote to build the gym. If the guy wants to give $1,000,000 to the project, great! But if he writes a check for $1,000,000 and gives it to the church on the condition that the church builds a guy with it, the church has to address with this generous person how organizations function.