Question:
A church has been asked to act as a conduit for a wealthy
individual to give a considerable gift to a needy family in its community. The church has not yet identified this family
as a target of its own benevolent fund nor does it intent to do so. Can the
church accept the donation from the wealthy individual, granting a charitable
contribution, and serve as a conduit to pass along nontaxable income to the
needy family?
Answer:
We advise against participating in this situation. A September 9, 2009, blog post gives some helpful insight into this kind of situation.
If the church decides to take on the family and support it
through its benevolence fund, then that is different. This should still pass a
reasonableness test in which the amount from the church is not a "token" gift to establish some legitimacy to the wealthy individual's tax-deductible gift. Rather, the church must demonstrate that it has truly seen and responded to the need.
A church must avoid being a conduit particularly for
someone who may otherwise be expected to assist the recipient regardless of a
charitable motivation. For example, a father who donates to a church school seeking for the donation to cover his child's education should not be allowed to do so.
The step transaction rule permits the IRS by statute
to compress two steps into one if in fact the two steps are for purposes of tax
avoidance. Accordingly, the step a wealthy individual takes to process a gift through a receptive church only to have the funds go to an individual not viewed by the church as worthy of its charity is truly to no advantage over simply making a direct gift. The rare exception is when a donor simply wishes to have the church maintain his or her anonymity and accepts the fact that no charitable deduction receipt is forthcoming from the church.
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