Financial gifts are given by several persons to our
former pastor who is now retired. The question is: since they give through the
church, are their gifts deductible and do we need to give him a Form W-2 at the
end of the year or are these gifts not taxable?
Answer:
The way the question is worded leads me to believe
that the actions of the donors were unsolicited (i.e., the church did not take
corporate action to initiate the collection of funds in order to compensate its
former pastor). The church is simply acting as a conduit to forward the
gifts to the pastor.
To be deductible, charitable contributions must be
made to a qualified organization, donors releasing control of the funds to it
in order that it might accomplish its charitable purposes. On occasion, a church
will encourage contributions to enable it to compensate its employees,
including its pastor(s). These contributions are deductible by the donors. The
recipients are generally subject to income and self-employment tax (see other
postings within this blog for exceptions or strategies to avoid or limit these
taxes).
Payments to
individuals are not considered qualified organizations per IRS Publication 526, even if the organization is used as a conduit
to accomplish the donor’s unilateral show of generosity. Individuals who
make contributions to another individual are not able to take a tax deduction,
nor is the gift taxable to the recipient. The members of my Federal Taxation I class at Maranatha Baptist Bible College in Watertown, Wisconsin have taken on the challenge of study and research to answer the posted question. Aaron Oberholtzer of Marinette, Wisconsin gets credit for this one.
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