April 30, 2012

Unsolicited, Unilateral Gifts Directed to Individuals


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? 


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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