A church is considering setting up an internship or residency program that would focus on young people in its community who are pursuing ministry as a vocation. The church general budget or missions fund may pay the individual a few hundred dollars per month, but the remainder of his full-time support would have to be raised from people both inside and outside the church.
How can the church appropriately accept funds from donors to support the individuals in this program while ensuring it avoids donor control issues?
The church leaders demonstrate understanding of important tax rules when they address the donor control issue. Donors should not be permitted to use (control) the church as a conduit to satisfy non-charitable purposes. A common example of this type of control might be a parent or grandparent who wishes to pay a child's Christian camp fees or school tuition while gaining a tax deduction.
The situation described above is a common charitable activity of many churches. To receive tax-deductible gifts, the church must establish a fund to account for the gifts, thus avoiding co-mingling the funds with unrestricted gifts used for the church's general operations.
Just as important, via direct communication with donors or clearly communicated policy the church must maintain control over the funds. If a donor contributes to the fund knowing that a particular individual has been identified by the church as worthy of such a ministry, he or she should receive a receipt from the church establishing the deductibility of the gift. However, the donor must also understand that should the named individual withdraw participation, the church may identify other recipients who will fulfill the purpose of the charitable gifts.
Furthermore, what are the implications of having the church provide some support directly through payroll and the remainder coming from outside contributions?
It is my experience that most churches in these situations exercise significant oversight and accountability in the ministries of interns. The intern should be classified as an employee of the church, not as independent contractor. Thus, the full amount of compensation (both church general funds and funds received from donors) is reportable on Form W-2. Independent contractor payments are reported, in full, on Form 1099-MISC.
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