A question has been posed regarding gifts to ministers, a topic I addressed in detail in a December 15, 2008, posting. A tax preparer has counselled a church that gifts from individuals to individuals are non-deductible (to the donor) and non-taxable (to the recipient). Does this condition also apply to gifts from an employer to an employee? Specifically, when a church congregation (the employer) collects donations to give to its pastor (the employee) are these gifts treated in the same manner as individual-to-individual gifts?
Here's the conditions behind the current question: "the church solicits them from the congregation and asks to have checks made to cash or to give cash to the church and then it is divided up to the pastor, youth pastor, etc."
Fortunately, the pipe wrench I bought my wife for Christmas at Ace Hardware is not taxable to her. Unfortunately, I cannot take a tax deduction for it. (Just kidding -- really!)
The same is true when an individual member gives a gift to another member of the church who happens to be the pastor.
However, it's entirely a different story when an employer (the church congregation acting as a corporate body) takes a collection and gives it to its employee (the pastor). As a 501(c)(3) organization, a church is a qualified charitable organization. Gifts to it are tax-deductible. Compensation paid to an employee (in any form other than those I specified in my earlier blog entry) is taxable.
Some tax preparers may confuse tax law related to individual-paid gifts (part of the gift and estate tax code) and employer-paid gifts. All I needed to hear in the above question was "the church solicits..." and I knew we were addressing compensation issues, not gift issues. Making checks out to cash accomplishes nothing to defeat both the letter and spirit of the law.