November 15, 2010

Church-established Fund for Families Adopting Orphans

Question:

A church plans to establish an adoption fund as part of an orphans/widows ministry. Church members may contribute tax-deductible donations to the fund. The church leadership understands that IRS rules related to benevolence prohibit designation by donors to specific individuals. Rather, benevolent funds must be controlled by the church and distributed to recipient families identified by the church as a whole.

Will donations given for adopting families identified by the church be tax deductible for donors and non-taxable to recipients? Will the same answers hold true for adopting families who are both members and employees of the church?

Answer:

As long as the church as a whole exercises control over the process for identifying the recipients of benevolent funds, as long as the disbursements are not disguised compensation to employees, I believe that the donations will be tax-deductible and recipients will not be taxed.

It should be noted that Qualified Adoption Expenses for the federal Adoption Credit must be reduced by amounts "paid or reimbursed by your employer or any other person or organization" (instructions to Form 8839).

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