Stewarding Your Church Benevolence Fund

Question:

How should a church handle benevolent giving and what principles should be followed?

Answer:

Many churches have established a “benevolent” or “others” fund to help meet the special financial needs of its members and community. All members of the congregation are generally encouraged to give to the fund to allow the church to respond through an authorization process observed by church officers. While a fund like this can be of great assistance to individuals in need, there are some principles a church can follow to be wise with these funds and to comply with the Internal Revenue Code.

1. A benevolent gift is not disbursed in exchange for goods or services rendered. Therefore, it is not considered taxable income to the recipient, and no reporting (e.g. Form 1099) is required by the church. A gift of benevolence is a gift with absolutely no expectation of repayment or receipt of services. There may be instances when those in need may ask for a loan rather than a benevolent gift. Proverbs 3:27 encourages believers to give when God has provided them the money rather than withholding. Giving should be without expectation of repayment to avoid the recipient becoming "a servant to the lender" (Prov. 22:7).

There may also be recipients of benevolence who desire to respond to a gift in a tangible way. The Apostle Paul in 2 Corinthians 8:12-15 instructs the believers at Corinth about gifts of benevolence. There are times when an individual may need assistance and other times when an individual can and should give assistance.

2. In most cases, benevolent giving should be discreet, protecting the anonymity of the recipient. Occasionally, a church may publicly announce a corporate decision to support a specific individual in need and to subsequently take up a collection. Care must be taken in these instances to avoid situations in which a substantial portion of the collection comes from a source that is otherwise obligated to pay for the needy individual’s costs (e.g. a family member donating a large sum to the benevolence fund to pay for medical costs).

3. Benevolence from the church should be based on actions approved by a responsible group of church leaders, rather than a single individual (e.g. the pastor). Church leaders are well advised to use a committee of trusted and confidential members/leaders to protect the pastor and church from accusations of favoritism. Church leaders should be careful when directing a benevolent gift to employees or volunteers of the ministry as there could be temptation to provide benevolent gifts that are really disguised compensation.

4. Churches must avoid becoming conduits for donors to convert their noncharitable obligations into tax deductible gifts. Generally, gifts given to benevolent funds are tax deductible. However, donors who make an unsolicited designation to single individuals are not considered to have given to the church as an act of benevolence. At times, someone may desire to give an unsolicited, nondeductible gift to a specific individual. In these cases, the church can offer to assist the donor of non-deductible gifts to maintain his or her anonymity. But the church must not issue a tax-deductible receipt.

Benevolent giving should pass a test of reasonableness in which the amount of gifts from the general congregation is more than a “token” portion with the lion's share of the gift coming from one individual.

Let's consider an example of abuse. Rather than a family member making a direct payment to a medical provider on behalf of another family member (step 1) that person makes a "contribution" to the church (step 2) which subsequently pays the medical bill. The “step transaction doctrine” permits the IRS by statute to compress these steps into a single, nondeductible action thus defeating the tax avoidance strategy. 

5. Remember, benevolent distributions are intended to meet a specific need of an individual or family. Generally, we advise to avoid issuing benevolence disbursements directly to the recipient; instead, directing them to the need (e.g. landlord, utility company, hospital). This avoids the unintended consequence of responding to a need and having the recipient misdirect the gift.

Other principles to consider:

• It is not advisable for churches to keep currency on hand to meet benevolent needs. Benevolent collections should be deposited to the bank and disbursed as needed by check.
• Churches should have a process to allow members the ability to communicate a need to a pastor, deacon, or other church leader.