Pass Thru Contributions

[NorwalkUMC]

Situation: receiving contributions for purchase of local retailer discount card. Contribution module posting to FA module as Liability - Pass Thru - Local Retailer. When Treasurer pays for the cards, the treasurer is offsetting the liability. Ex: church purchases 5 - $100 in discount cards from retail at a discounted value. Church now has a payable of $475 (500-5% discount). Church 'sells' a card to a church member for $100. When member 'pays' for the card it is coming thru our Contribution module as recorded by the finance office. When posting Contributions to FA, the transaction posts to the Liability - Pass Thru. The Treasurer prepares a journal entry from this posting to recognize an income to the church of $5.00 and relieving the liability of $5.00.

How are others handling these type of transactions involving fund raising efforts?

[NeilZ]

Situation: receiving contributions for purchase of local retailer discount card. Contribution module posting to FA module as Liability - Pass Thru - Local Retailer. When Treasurer pays for the cards, the treasurer is offsetting the liability. Ex: church purchases 5 - $100 in discount cards from retail at a discounted value. Church now has a payable of $475 (500-5% discount). Church 'sells' a card to a church member for $100. When member 'pays' for the card it is coming thru our Contribution module as recorded by the finance office. When posting Contributions to FA, the transaction posts to the Liability - Pass Thru. The Treasurer prepares a journal entry from this posting to recognize an income to the church of $5.00 and relieving the liability of $5.00.

How are others handling these type of transactions involving fund raising efforts?

In this case, this is not a pass through contribution. A pass through contribution is one that the church collects and then is given directly to another charity. That is, if you're collecting for an outside ministry, then deposit that money, afterwards the church writes a check for the entire amount to the charity.

In reality, this is more of an Funds Accounting issue, rather than a Contributions issue. I'm not sure why the Treasurer is setting the cards up as a liability. The church has already paid for the cards, they become an asset, when you sell the cards, you are offsetting the asset by $95, returning that money to the bank account then claiming the $5 as income.

Personally, I'd use the Accounts Receivable module, setting up a dummy person as the buyer. The system can then handle all the Funds Accounting transactions automatically.

[NorwalkUMC]

Thanks for the insight. However, we do need to report a Contribution for the purchaser of the discount card at the value of the income to be reported in the AR transaction. The only income we show is the discounted value, not the total payment by the purchaser of the card.

[tborgal]

Am I understanding correctly that you are crediting a contribution to the person purchasing the card? If someone is giving the church $100 for a gift card worth $100 you can not credit them with a deductible contribution.

That said I would create two contribution funds for this purpose and point one to the liability account you used to buy the card and the other to the income fund you are using. Credit the Liability fund the $95 and the income fund the $5 when the $100 is received, and the treasurer will not have to go thru the process he is currently using.

[NeilZ]

Ouch, Tom you're very correct. The IRS rules for contributions states that if someone is getting something worth the money they donated, its not a contribution, therefore the church cannot claim it is, and the person buying the card cannot claim any deduction.

From IRS Pub 526:

If you receive or expect to receive a financial or economic benefit as a result of making a contribution to a qualified organization, you cannot deduct the part of the contribution that represents the value of the benefit you receive.

Even though the church is receiving a $5 income from the sale of the card, the purchaser is getting the full amount they paid for the card back in the value of the card. The church must not show a charitable deduction for this type of transaction, or it would be in violation of the law.

From IRS Pub 557:

No disclosure statement is required if any of the following are true .....

3. There is only an intangible religious benefit provided to the donor. The intangible religious benefit must be provided to the donor by an organization organized exclusively for religious purposes, and must be of a type that generally is not sold in a commercial transaction outside the donative context.

However, many financial advisers are suggesting that you put such a statement on any contributions statement to emphasize that they are getting nothing substantial back in return.

In your case, they are getting something substantial back in return.

[tborgal]

I should have mentioned that the contribution funds that I would create would be numbered outside the normal fund numbers and marked as non-deductible. This way they can be left off contribution statements if you wish to do so. I have many contribution funds like this numbered well above the deductible funds and do not list them when producing offering statements.

[NeilZ]

I should have mentioned that the contribution funds that I would create would be numbered outside the normal fund numbers and marked as non-deductible. This way they can be left off contribution statements if you wish to do so. I have many contribution funds like this numbered well above the deductible funds and do not list them when producing offering statements.

FWIW, in Version 11, there is a new checkbox on the Contribution Funds setup that allows you to select whether or not you want to include the fund on statements.

[tborgal]

Did not see that. I am not sure I have set up any new funds since the upgrade to v11.
Thanks Neil

[NorwalkUMC]

Thank you all. Our Finance Committee has discussed your responses and we do agree with them Our plan is to 'purchase the cards' from the retailer; set up an AP record to pay for the cards (at the discounted value) and an Asset account to hold the discounted value of the card.

When the member of the congregation buys a card, the Finance Office will record two 'For Goods/Service Received' non-deductible contributions; one linked to the Asset account for the discounted value of the card and one linked to an income account for the difference between the value of the card and the discounted value of the card.

This will allow us to maintain and reconcile the cards remaining in the safe and record income to the church.

D