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Showing posts from February, 2017

Non-deductibility of Charitable Use of One's Property

Question:  A church member is allowing one of its missionaries to live in one of her rental properties for a year. Is she able to get a tax deduction for this generous act? If so, what is the church's responsibility to the church member who is providing the free rental? Answer:   This donor would not be able to deduct the expenses in this situation because of the partial interest rule. According to IRS Publication 526 , " Partial Interest in Property Generally, you can't deduct a charitable contribution of less than your entire interest in property. A contribution of the right to use property is a contribution of less than your entire interest in that property and isn't deductible. Example 1. You own a 10 story office building and donate rent free use of the top floor to a charitable organization. Because you still own the building, you have contributed a partial interest in the property and can't take a deduction for the contribution." Hence, the churc

Written Acknowledgement of Donations to 501(c)(3) Organizations

Question: A church official is responsible for providing contribution receipts to the members of his congregation for their tithes and offerings which they have given for the year. Several members of the congregation make their contributions by placing a check in a giving envelope. However, they intentionally do not put their names on the envelopes. Is it required by law that the church official keep track of what they are giving through their checks and give them a contribution receipt at the end of the year? Answer: A charitable organization is not required by law to issue receipts to donors for their contributions. However, in most cases, donors cannot receive a charitable tax deduction without the cooperation of the organization. We suspect that a charity that fails to serve its donors in this respect will soon lose its support. According to IRS Publication 1771  an organization should prepare and send out written acknowledgments to to donors by January 31 following the tax

Substance Over Form--Description and Example

Question: A woman gifted a large amount to a specific church need by recording her restriction of the gift in the memo section of her check. The need had been communicated at a public meeting of the church but no formal designated fund had yet been established. The church's Constitution states, "all contributions made to specific funds or otherwise designated remain subject to the exclusive control and discretion of the [leadership] of the church." Is this gift tax deductible even though it is designated to a need for which no formal solicitation had been made by the church and, therefore, some may argue, not under the control of the church? Does recording the designation on the face of the check remove the "exclusive control" condition? Answer: We believe that although this gift was restricted, the gift is still under the control of the church. Wisely, the church's policy seems to clearly communicate this expectation. The church communicated the

Unusual Expenses Includable in Housing Allowance

Question: A minister purchased a new riding mower and a new chain saw. Also, he had electrical wiring done by an electrician for an outdoor shed and his back porch. Plus, he paid to have a porch cover built for his front deck. May these costs be included in his housing allowance calculations? Answer:   The expenditures, if meeting the following general guidelines for use in connection with the pastor's personal residence, appear to meet the requirements. Although there are not likely court cases or Revenue Rulings citing the exact examples offered here. In a June 2016 post, we shared the following: "A minister’s housing allowance benefit is non-taxable income to the extent that the allowance is used for housing expenses. The three-part test includes consideration of the fair rental value of the home, plus actual costs of utilities (see this  blog post  regarding the three-part test). In addition, the expenses must be incurred relative to the minister’s principal re

Pastoral Compensation in the Church Budget

Question: The following question was posted to our blog: "I want to know if all the tithes collected by the church [are] the income of the Pastor only?" While we are not sure how to take this question, it does bring up two interesting considerations: 1. Are all tithes collected reported as income to the pastor? (a tax question) 2. What processes are advisable in determining how much of a church's income should be used to support its pastor and his family? (a budgeting question) Answer: Unless donor designated, contributions to a church are considered as donated to the ministry's general fund. Only the portion paid to the pastor as his salary out of the general fund is considered as income to him. The church should have an established budget. For example, if the church does not have an established budget and all offerings are income to the pastor, how are the mortgage and utilities paid? Another issue if the church does not have an established budget, how