Can a congregation give gifts to its employees on a tax-free basis?
Yes and no...
The Rest of the Story:
Internal Revenue Code Section 102(c)(1) prohibits the exclusion "from gross income any amount transferred by or for an employer to, or for the benefit of, an employee." However, IRC Section 132(e) offers an exception for "de minimis fringe" amounts, defined as "any property or service the value of which is (after taking into account the frequency with which similar fringes are provided by the employer to the employer's employees) so small as to make accounting for it unreasonable or administratively impracticable."
A Reveune Ruling by the IRS clarified this for holiday gifts: Gifts of minimal value that are provided by an employer to its employees may be excluded from the employees' incomes if the gifts have little value and are not readily convertible into cash. "The value of a turkey, ham, or other item of merchandise of similar nominal value, distributed by an employer to an employee at Christmas, or a comparable holiday, as part of a general distribution to employees engaged in the business of the employer as a means of promoting their good will, does not constitute wages" (Rev. Rul 59-58).