Giving contribution credit and satisfying the IRS: Woe is us.

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:

1. 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.
2. 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.
3. 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.
4. 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.