The church can structure benevolence payments either as tax deductible contributions or nondeductible contributions. The most difficult kind of benevolence contribution is a contribution that designates a specific recipient. The designation may be in writing, on a envelope accompanying the contribution, in a letter, fundraiser, or even oral. Ordinarily designated contributions to a benevolence fund are not deductible, since the intent of the donor is to make a transfer of funds directly to a particular individual rather than the church. This does not make it illegal, it simply makes the contribution nondeductible. The IRS recognizes these contributions as a gift from one individual to another individual which are not deductible. With designated contributions, the church only becomes the administrator of the fund. The donors should be notified of their nondeductible contribution.
In order for these funds to be considered tax deductible, the church would need to have full control of the donated funds, and discretion as to their use, so as to insure that they will be used to carry out its function and ministry purpose.
The church, in the exercise of its ministry purpose, can establish a benevolence fund to assist individuals in need. Donors are free to suggest beneficiaries of the fund. However, such suggestions would be deemed only as a suggestion rather than mandatory in nature. The administration of the fund, including all disbursements, is subject to the exclusive control and discretion of benevolence committee or church board. The committee or board may consider suggested designations, but in no event are they bound in any way to honor them. They are accepted only on a condition that they are merely nonbinding suggestions or recommendations. Traditional contributions to the church or benevolence funds subject to these conditions are tax deductible.
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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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