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Showing posts with the label Benevolence

Sizable Gift to Seminary Student

Question:

A church pays a monthly amount to a seminary student as support while he is school. He performs no services, and this money is truly a gift with no oversight of the use of the funds. The yearly amount exceeds $25,000. Is the student able to exclude this gift from taxable income? 

Answer:

The church leadership is wise to be careful in the situation described here. If the payments are compensation for services present or future they will result taxable income.

An example is given in IRS Publication 970, "You are a candidate for a degree at a medical school. You receive a scholarship for your medical education and training. The terms of your scholarship require you to perform future services. A substantial penalty applies if you don't comply. The entire amount of your grant is taxable as payment for services in the year it is received."

If a scholarship program is established with nondiscriminatory and non-compensatory parameters, then the disbursement represents a t…

Love Offering as Disguised Compensation

Question:

As a member of my church's audit team, I have been told many times by the financial secretary that our church takes a love offering for persons serving our church. The love offering is not counted; it is just given to the person. For this reason, no record is maintained for issuing Form 1099s. Is this  procedure in compliance with IRS rules for issuing Form 1099s when payments are $600 or more in a calendar year?

Answer:

First, the offerings should be accounted for because it appears that the collections are received and distributed as compensation for work that is done for the church. When independent contractors receive more than $600 in a tax year, they must be issued a Form-1099 MISC. Of course, this will require that the offerings be counted and that information be collected from the recipient in order to facilitate filing the proper forms (typically, Form W-9 is used for this purpose).
Second, if these individuals are working for the church, they may very well be empl…

Ice Bucket Challenge - Taxable Income?

Question:

A church's minister has an immediate relative who has been suffering from ALS for the past six years. The church sponsored and organized an "Ice Bucket Challenge" for the relative.

Originally, the thought was to raise $3,000-$5,000. The church intends to (1) transfer the funds to the facility that cares for the relative or other ALS charities and (2) report the funds as a bonus compensation to the minister.

However, the church raised close to $30,000; now the tax situation has more serious consequences if the church calls it compensation to the minister. How should the church report these monies?

Answer:

We see three areas that could affect how to report this money:

If the funds are simply going to an organization to support its general operations (not to pay a single patient's costs) or to other ALS charities, the transfer is from one Internal Revenue Code section 501(c)(3) organization to another. There is no tax consequence for the church's ice bucket cha…

Monthly Support as Benevolence

Question:

A older member of our church, a retired children's ministry worker for another organization, is living on a small monthly Social Security benefit. As a church, we have decided to provide her with a monthly love gift. Can we treat this recurring gift in the same way as ordinary benevolent gifts (as nontaxable income)? Are we required to provide her with a Form 1099-MISC?

Answer:

The key consideration here is her relationship to her current church: did she ever provide services to this church in the past? If so, the IRS will likely view this benevolence as payment for past under-compensation, and it will be taxable. If, however, the church has no obligation to make up for lack of compensation for past services, and the motive is truly benevolent, this should be treated as standard benevolence; no Form 1099-MISC should be issued.

Please follow the links below for other guidelines relating to benevolence.

Benevolence Fund Receipts and Disbursements

Benevolence Not Reportable on Fo…

Memorial Fund Gift for Employee

Question:

A church staff member recently passed away. His wife remains a current employee. If a memorial fund is established for the family of the deceased employee, can the church (her employer) make a non-taxable contribution to the memorial fund, even though it benefits a current employee and her family?

Answer:

Multiple factors must be taken into consideration to determine the taxability of a disbursement of this nature. 

First, the "gift" cannot be disguised compensation, (e.g. previously undisbursed vacation pay for the deceased employee). Even if it is designated by the church as a gift, the disbursement may be taxable as compensation if the IRS deems it to be pay that he was owed for previous services. Additionally, the contribution cannot be made in anticipation of future services by the wife; if this is judged to be simply advanced compensation, it will be taxable.

Also, the church should consider whether contributions of this nature have been a common practice in the p…

Church Payment for Summer Camp Expenses

Question:

What are the implications of a church using monies from the general fund to sponsor the children of its members to attend a Christian summer camp? Could the church also pay for staff members' children to attend?

Answer:

Many churches use monies from either the general fund or a designated "Camp Scholarship" fund to help families who do not have the financial resources to send their children to a Christian camp. This benevolence is deductible to the donors and non-taxable to the recipients. Churches must be careful to avoid becoming a "conduit" for re-characterizing a donor's payment of a personal obligation as a contribution to the benevolent fund. For example, while the church may offer scholarships to send children to a Christian camp, it should not accept a family member's contribution with the designation that it be forwarded to one of his or her own family members.

Gifts to staff members are taxable. However, if the church as a whole initiate…

Deductibility of Designated Gifts to a Minister

Question:

A member of a church would like to make a weekly donation to the pastor through the general fund, with a check designated as a gift for the pastor. Is this donation tax-deductible? Is it taxable to the pastor since it is a gift?
Answer:

The key in this situation is to realize that, as a general rule, the gift will be either 1) non-taxable to the recipient and non-deductible to the donor or 2) taxable to the recipient and deductible by the donor. IRS Publication 526 prohibits deduction of contributions to individuals: "You cannot deduct contributions to specific individuals." However, through church-initiated actions to individuals are treated differently because churches are non-profit organizations for tax purposes.

The deciding factors for this question are the initiation and control of the gift. Gifts initiated by the leadership or the congregation as a whole, even if directed toward an individual, are deductible because they are regarded as a corporate act. In virt…

Taxability of Love Offering to Former Pastor

Question:

A church's pastor resigned a few months ago. Since then he has not been able to find work. The church took a love offering to help him with expenses. Does the church have to take taxes out of this offering since the pastor is no longer part of the church? Would the answer be different if the congregation took up a love offering for someone else in the community?

Answer:

Benevolent gifts to individuals in the local community (not an employee of the church), are generally disbursed by churches from benevolent funds received by the church to disburse to needy individuals. Since these individuals have not provided nor are expected to provide services in exchange for the gifts, these gifts are non-taxable. For more on benevolent fund giving, type "benevolent fund" in the search window above.

Love offerings collected on the behalf of a current or former employee in consideration of past services provided are taxable compensation. Similar to compensation to the pastor wh…

Memorial Fund for Employee of the Church: Taxable?

Question:

A member of a church just passed away leaving a wife and six children. The church wants to have a memorial fund that helps the wife. Donations to the fund are not deductible, correct? Would the gifts be included as taxable income to the wife? If the wife was an employee of the church, would the gifts be taxable income to her?

Answer:

Donations to a church are deductible as a charitable contribution. This is true whether the donations are given to the general fund, or marked for a specific fund account such as a memorial fund.

Gifts from a benevolence (memorial) fund are discussed in the following three blog posts:

Benevolent Fund Disbursements to Employees

Benevolent Gifts to Employees (Emergency or Not?)

Benevolence Fund Receipts and Disbursements

These three blog posts all state that gifts given to employees are generally taxable income reportable on Form W-2. The exception to this statement is the employee/church member gift that is truly benevolent, not disguised compensation.

Tuition Payments for an Intern

Question:

A young person attends a Bible college and volunteers at his local church during the summer and school holidays. Can the church make a payment toward his college tuition without it being taxable to him?

Answer:

If the church above were to make a payment towards their young person's school bill, it would be considered compensation for services which the young person had performed while working at the church. The payment would have to be reported to him as taxable income. If it is determined that he was an employee, then the church would need to file a Form W-2 (typically subject to FICA tax employee withholding and employer matching); if it is determined that the young person was an independent contractor, than the church would have to file Form 1099-MISC if the payment was $600 or more.

A 2008 blog post, while it deals with a slightly different version of the above post, can be consulted for further help with this issue:


http://ministrycpa.blogspot.com/2010/08/taxability-of-i…

Benevolent Fund Giving and Disbursement

Question:

A donor recently gave an offering marked for “Benevolence.” The donor had notified the pastor prior to giving the gifts and had told the pastor to use it at his discretion.

The pastor in turn used the money to buy things for a family of the church in need.

Is the gift tax deductible to the donor, or non-deductible, because it is a gift to an individual and not to a tax-exempt organization?

Answer:

Since the donor does not appear to be directing the contributions for some non-charitable purpose and since the funds are under the total discretion of the church to fulfill its biblical responsibilities, the contribution is deductible.

But church leaders are well advised to use a committee of trusted and confidential members/leaders to protect the pastor from accusations of favoritism or of directing benevolence to employees or volunteers as disguised compensation.

Several relevant blog posts are provided below:

Benevolent Fund Review

Church as a Conduit for Non-Deductible Gifts

Church Ben…

Form 1099-MISC Erroneously Issued for Benevolent Gift

Question:

A church issued a Form 1099-Misc for a $5,000 gift given to an individual that suffered a life threatening accident to help her with therapy costs. Is this correct? Should this gift be taxable at a regular rate?

Answer:

Form 1099-MISC is used to report compensation to individuals not under the employ of the issuing organization. If no services are or will be required for the $5,000 benevolence gift listed in the question above, then this amount should not be reported on Form 1099-MISC and will not be reported as taxable income by the recipient. According to IRS Publication 525, gifts to individuals not in the employ of the donor are non-taxable. A corrected Form 1099-MISC should be prepared immediately.

For more blog posts on benevolent gifts, readers should follow the links provided below:

Form 1099-MISC for Benevolent Gifts?


Benevolent Gift Rules Review


Benevolence NOT Reportable on Form 1099-MISC

Church Contribution to Foreign Church Not Recognized as a 501(c)(3)

Question:

A church would like to send funds to a foreign church. This foreign church is not an Internal Revenue Code section 501(c)(3) organization; it is simply a small ministry in need of help. Is there a problem if the church donates to this foreign church?

Answer:

According to IRS Publication 526, deductible contributions may only be made to “qualified organizations.” The only foreign charities that are cited in the publication as permissible are charities in Canada, Mexico, and Israel. Often, U.S. missionaries in foreign countries will use some of their support to aid local ministries that they are associated with. These type of transfers from a US church through a U.S. missionary are not a problem.

Of course, since local churches in the United States are exempt from income taxes, they are not concerned about getting charitable deductions for their contributions directly to foreign religious organizations. However, a church is serving as an agent for its contributors. Care should be …

Church Support of Non-501(c)(3) Organization

Question:

A church has supported a children's ministry for several years which has recently lost its 501(c)(3) exemption. The leaders of the ministry are not employees of the church, and the ministry provides no services directly to the church. Is there any reason why the church cannot continue to give financial support to the children's ministry?

Answer: 


This issue is tricky. A church may support other 501(c)(3) organizations; however, churches must be careful when they attempt to support non-501(c)(3) organizations.

Since the organization has lost its exempt status, the disbursements are no longer from one 501(c)(3) to another 501(c)(3);disbursements of this type are not subject to Form 1099-MISC or other reporting. 
Now that the disbursements are made to a taxable entity, they will likely be viewed as payments for services rendered. The supporting church therefore may be required to issue Form 1099-MISC. The church should research whether filing Form 1099-MISC would be required…

Church as a Conduit for Non-Deductible Gifts

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.
Benevolent Fund Review
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…

Review of Congregation Donations to Staff Members

Question:
A church recently made its congregation aware that they can give personal Christmas gifts to pastoral staff (if they choose), but that members would receive no charitable contribution credit for tax purposes. Is it correct that those personal gifts are not taxable income to the staff members since they don't run through the church records at all, but are simply personal gifts?
Answer: This assumption is correct.
There are two ways members of a congregation can give gifts to staff members. One involves corporate action and the other involves personal and individual action.
1) The church can take up a collection for staff members. In this case, the contributions are deductible to the donors, but must be reported as income to the staff members since they are deemed payments received from an employer.
2) Church members can give directly to staff members. In these cases, the donations are not deductible to the donors, but the staff members do not have to report the gifts as income…

Benevolence Extended to Employee: Taxable?

Question:

My church set up an adoption fund to help members that are willing to adopt children. Two of the members that have answered this call are church employees, one is an administrative employee and the other is a pastor. Are funds paid out of this fund taxable to the employee?

Answer:

Benevolent activities of the church may benefit members of the church or community who are also employees as long as they are not disguised forms of compensation. Benevolent disbursements are not considered taxable income to the recipient since they are not compensation for services rendered to the church. The church should establish clear parameters for eligibility to receive benevolence; employment status with the church must not influence the procedures for receipt of benevolence.

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 posted questions. Julia Doerstling of Lantana, Texas contri…

"Benevolent" Gifts to Volunteers

Question:

At times, a church gives out monetary "thank you" gifts to volunteers regularly involved with ministry. It has considered this to be a "benevolence." Since there is a "service" done, though with no monetary reward in mind, is this still benevolence, or should this be considered a Form 1099-MISC item? Also, if this is done on a regular basis, would this now be considered more of an employer/employee item?

Answer:

These gifts should be considered taxable income. If the "volunteers" are independent contractors, then Form 1099-MISC should be issued to each individual paid $600 or more. Employees should be issued Form W-2 with applicable withholdings.

IRS Publication 3079--Tax Exempt Organizations and Gaming--addresses some of these issues with an example. While I personally am opposed to gaming activities, the IRS position on volunteers can be seen by reviewing portions of the publication.

"Example: ABC Organization operates a private scho…

Taxable Support of Foreign Missionary or Benevolence?

Question:

A missionary is partially self-supporting and partially supported by donors. A church is considering giving him funds to help subsidize his daughter’s overseas schooling. Will this amount be reportable on Form 1099-MISC as taxable income or could it be considered a benevolence gift for which a Form 1099 would not be required? Would there be a difference if the church made checks out to him vs. making them out to his minor daughter who is receiving the schooling?

Answer:

The missionary is receiving the support targeted for his daughter's education due to his ministerial status. If the child been a needy individual within the church's congregation for which no services were rendered, then there would be no tax consequences. However, it appears that the support is in consideration of the missionary's overseas work. If the payments are directly to the missionary and not through his mission agency, then Form 1099-MISC should be issued. Making the payments directly to his…

Receipt of Benevolent Gift Versus Refund of Contribution

Question:

If a church gave a member a benevolent gift during a time of need should that church then record the gift on the member's giving statement as a negative against which all of that member's future (or past) donations are subtracted?

Answer:

No, the receipt of a benevolent gift is non-taxable nor does it reduce one's charitable giving deduction. This offers another good reason to properly document the nature of benevolent gifts to assure that they are not mistaken for refunds of previous contributions.