User Support Forum

I just attended a webinar sponsored by the PCUSA Board of Pensions that covered many of the IRS tax changes for 2010 taxes. They went over many issues, but they took the time to emphasize an issue that could cost many contributors their deduction.

I've mentioned this before, but this needs to be pointed out to many churches on what the IRS will expect.

A contribution made out to a church fund that could possibly fund many different ministries within or without the church is tax deductible for the contributor.

A contribution made out to a church fund that funds a single person or family is not deductible.

The IRS reasoning is that the church is only acting as a middleman passing the funds from the contributor directly to the recipient, the contributor could very easily mail a check directly. This type of support is not deductible in any way unless the recipient could be declared a dependent on the contributor's Form 1040.

The tax expert made his point in no uncertain terms. If you list such a 'direct' contribution as deductible on any end-of-year statement, you could be in violation of the tax law.

Neil:

How does the tax guy say the IRS plans on enforcing this?

The thoughts I have are these:
1) if the check is made out to the church, it is presumed to be relinquished, and therefore, eligible for a tax deduction.

2) if no goods or services are returned directly to the donor, which funding an individual certainly would not, then it doesn't qualify as payment for a good or service.

3) the only benefit to the donor is a non-tangible, religious benefit (i.e. they did a good deed), so it seems like it qualifies in every way.

Will the IRS compare the donated amount to the outgoing checks? Is that the way they plan on enforcing this?

John,

the way it was explained. If the check goes to a fund in the church that the church dispenses as it wills, then that is deductible.

Example:

Church has a fund for Support of Missions. The church board sends money to a denominational mission foundation, as well as supports a family doing mission work in Africa. This is not a fund that is solely setup to send money to the family. This is deductible.

However,

The church has a fund for the support of a family doing mission work in Bangladesh. All proceeds are designated for their support, and all the church does is take in the money, and send it directly to them.
This does not qualify as deductible, as the church board has no direct say where the money goes.

I have no idea how the IRS would check on this type of thing, but if someone has an audit, and they give toward the direct funding as in the second example above, the IRS would deny the deduction. Not sure what they (or if they could) do to the church for the misrepresentation of the deduction.

I'm only passing on what was said in the webcast by someone who knows church tax requirements inside and out.

NeilZ wrote:John,

the way it was explained. If the check goes to a fund in the church that the church dispenses as it wills, then that is deductible.

Could it not be argued that, if the church board sets up a fund from which it wills to dispense funds to Family X, and the church board specifies that money contributed during a specific collection of gifts will go to that fund, then the gifts would be deductible?

The "rules" confuse me more and more ....

Eden

Eden Whitehead wrote:

NeilZ wrote:John,

the way it was explained. If the check goes to a fund in the church that the church dispenses as it wills, then that is deductible.

Could it not be argued that, if the church board sets up a fund from which it wills to dispense funds to Family X, and the church board specifies that money contributed during a specific collection of gifts will go to that fund, then the gifts would be deductible?

The "rules" confuse me more and more ....

Eden

Eden,

in this capacity, since the church board has decided that the money collected will go to this family, and the fund is not described as "the Smith Family Support fund", then the money is deductible because the church board can then change its mind and support additional missions from that fund.

Neil,
Thanks for the clarification.

Eden