February 07, 2011

Parachurch Ministries Under the Authority of a Church

Question:

A church has a member who, on his own, founded a ministry. The ministry has not pursued recognition by the Internal Revenue Service as a tax-exempt organization under section 501(c)(3) of the Internal Revenue Code. Also, it is not a formally sponsored outreach program of the church.

The member has asked whether the church would act as a clearing house for designated donations towards his ministry. Most of the donations would come from non-attendees of the church. Checks would be made out to the church designated for the ministry. The founder would then use the donations to pay for the expenses associated with it. The over arching goal of the ministry is in harmony with the church's mission. Can the church issue tax-deductible receipts for these designated donations?

Answer:

This is a good question that has been answered, in principle, in several other entries in this blog. Type "conduit" in the above search window for more.

My advice has always been to churches and other tax-exempt organizations to avoid becoming conduits for donor contributions that are directed elsewhere. As the recipient, the church may be held responsible by donors and others for the appropriate disbursement of the funds (e.g. if the founder errs in his use of funds, the church could possibly bear the consequences).

If the ministry is truly one that the church leadership and membership supports and the founder is willing to come under the authority and oversight of the church as one of its ministries, then, by all means, receive donations and expend funds for its ministry using the standard receipt and disbursement procedures of the church (e.g., deposits into the church account, documentation of disbursements maintained by the church, fully integrating the ministry into the budgeting procedures of the church).

If the church and founder are not interested in these type of measures, then, in my opinion, the founder should pursue his independent status as a IRC 501(c)(3) organization.

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