December 20, 2008

Benevolence Policies

Question:

What are the tax code rules applicable to a church giving financial help to families it deems necessary for benevolence? Does it matter whether any assistance is paid indirectly on the beneficiaries' behalf (i.e. rent, utilities, grocery gift card) versus directly in the form of cash?

Answer:

IRS Publication 525 stipulates that gifts received for which no services were provided are not taxable income. Hence, no Form 1099-MISC requirement applies.

If the gift was received in exchange for goods or services, it is taxable. This includes all gifts received by employees from their employers with only minor exceptions for non-cash gifts such as the Thanksgiving turkey (see also IRS Pub. 525). The value of taxable gifts must be reported to employees on Form W-2.

A few cautions:

1. Benevolent gifts to families of employees must be treated with extreme care. The "safe" route is to include the gift on Form W-2. However, if there is a demonstrated need (e.g. a child's medical bill) by a family with one member employed by the church, and the church follows the same procedure with that family as it would with any other family, then it may not be taxable. I recommend careful documentation of the situation.

2. Avoid becoming a "conduit" for re-characterizing a donor's payment of a personal obligation as a contribution to the benevolent fund. For example, while the church may offer scholarships to send children to a Christian camp it should not accept a family member's contribution with the designation that it be forwarded to one of his or her own family. My suggestion when confronted with this potentially disingenuous (or well-intentioned) contribution is to respond as follows: "We'd be happy to assist you in maintaining your anonymity with regard to your gift to [your granddaughter] but, of course, we cannot provide you a receipt for tax deduction purposes."

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