Skip to main content

Benevolent Gift Rules Review

Question:

My church regularly gives financial help to individuals in need. Should the individual receiving financial help/charity from the church be issued any kind of Form 1099 from the church?

Answer:

IRS Publication 525 states that gifts to individuals not in the employ of the donor are non-taxable. This is true regardless whether the gifts are periodic or regular as long as no services are required (past, present or future) to receive the benevolence. I recommend that viewers of this blog type "Benevolence" in the above search window for much more on this subject.

Question:

Donations have been made to our church, and the donors requested that certain individuals then be given the same amount in charity from the church due to a perceived need (specifically, for people who have lost their jobs, but the specific individuals were named by the donors). The church told the donors that it would assume complete legal control over the donated funds, but the church has, in fact, been giving as much, or more, to the needy individuals as was donated by donors making such requests. Are these donations tax deductible as charitable donations for the donors?

Answer:

Generally, these type of gifts are deductible by the donor and non-taxable to the recipient. Again, type "Benevolence" in the above search window for much more on this subject.

Tax-exempt organizations that file Form 990 (most churches are excluded from this requirement) are familiar with IRS rules regarding donor advised funds. The Instructions to Schedule D of Form 990 define these funds:

"Generally a donor advised fund is a fund or account:
1. That is separately identified by reference to contributions of a donor or donors;
2. That is owned and controlled by a sponsoring organization; and
3. For which the donor or donor advisor has or reasonably expects to have advisory privileges in the distribution or investment of amounts held in the donor advised funds or accounts because of the donor's status as a donor" (Form 990 Schedule D Instructions).

The presence of this status does not deny tax-deductibility of donations but does merit the attention of the IRS since obvious abuse could occur. For this reason, in my blog entries I have persistently cautioned churches to be aware of potential abuses and to steer clear of them.

Comments

Popular posts from this blog

Rental of a Church Parsonage to a Non-Minister

Question: A church owns a parsonage, but the pastor does not use it as he owns his own home. The church rents the parsonage to a tenant other than a minister or employee of the church. Will the church be responsible for paying income tax on these monies as Unrelated Business Income (filing a Form 990-T) even if the money is used to carry on the business of the church? Answer: Whether the money is used for church purposes is irrelevant.  IRS Publication 598  states: "If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business." Fortunately, in the case of rental income from real property, such income is "excluded in computing unrelated business taxable income" (Publication 598). Caution: see content below regarding debt-financed property.  However, a second concern not a...

Review: Form 1099 Payments to 501(c)(3) Organizations

Question: A church rented space from another church last year. Should it request a completed Form W-9 and issue Form 1099-MISC? Answer: Payments from one 501(c)(3) organization to another 501(c)(3) organization are not subject to Form 1099-MISC reporting. The IRS Instructions for Form 1099-MISC state that "payments to a tax-exempt organization" are exempt from reporting a Form 1099-MISC.  The following are typical examples of payments of $600 or more by a church which are subject to reporting a Form 1099-MISC: Rent paid to an individual (non-corporation) Payments for services rendered by individuals who are not employees (e.g. janitorial service, facilities, snow removal, guest speakers) Support sent directly to missionaries

Housing Allowance and Form 1099-MISC Reporting

Question: A church provides its minister a housing allowance but believes it must report the full amount of compensation (including the non-taxable housing allowance portion) on Form 1099-MISC in order to demonstrate the full earnings of the minister. (Starting in 2020, Form 1099-MISC is replaced with Form 1099-NEC for non-employee compensation.) If the church reports his compensation, including the housing allowance, on the Form 1099-NEC as taxable income, will he be able to deduct his housing expenses somewhere else on the Form 1040? Answer: This question brings up a couple of issues. First, most ministers are properly classified as employees who receive Form W-2 , not as independent contractors who receive Form 1099-NEC . Box 1 on Form W-2 reports taxable compensation. It is reduced to reflect the church's designation of a portion of his pay as non-taxable housing. Then, in Box 14 (Other), Form W-2 typically reports as a memorandum item his additional non-taxable, housing allowa...