To give or not to give? … that is never the question! As Christ-followers, as Disciples of the Word, as the Church Body (…tax exempt non-profit charitable organization…) –we are commanded to GIVE –help the poor and needy, the sick and the wounded.
“He who despises his neighbor sins [against God, his fellowman, and himself], but happy (blessed and fortunate) is he who is kind and merciful to the poor.” Proverbs 14:21 (Amp.)
But the church also must abide by governmental tax rules designed to prevent abuse… and to protect its tax-exempt status. Wisdom calls us to be aware of some of the “traps” of benevolent giving…
- Qualifying the Needy –the recipient of benevolence must lack the resources to meet the need. Do we give without question, or do we have a stated policy that qualifies the need?
- Discretionary Accounts –many churches maintain a minister’s discretionary fund for benevolence. If the minister does not account for this fund or is the sole signer on the account, then all amounts placed in the account are taxable income to the minister.
- Repeat Requests –the IRS grows concerned when the benevolence assistance is regular and continuous to the same recipient. This can be construed as unreported income, or receipt of private benefit, and could potentially jeopardize the church’s tax-exempt status.
- Employee Assistance –The IRC requires all benevolence payments provided to employees be taxed, reported on W-2 and (if non-clergy) payroll taxes withheld. This would include any emergency assistance, such as medical or household expenses.
- One exception… IRC Sec. 139 allows employers to provide tax free assistance to employees who suffer losses as a result of a qualified disaster.
- Gifts Designated to an Individual –problems arise when contributions are specifically designated for a named individual. Did the donor intend to make a contribution to the church, or did the donor only intend to benefit the designated individual using the church as an intermediary in order to obtain a tax deduction for an otherwise nondeductible gift?
How do we avoid the traps? First and foremost –be proactive! Do not wait until confronted with a request for assistance to determine how to handle the situation. Have a stated, written and approved policy in place. Some conditions to be considered…
- Was the offering preauthorized by the church board [or governing body]?
- Are the recipients financially needy and is the need substantial?
- Are immediate family members of the recipient the primary contributors?
- Are multiple and consistent benevolent gifts distributed to the same individual?
IRS has issued a ruling that can also give certain guidelines…
“Section 501(c)(3) organizations …are not precluded from making distributions of their funds to individuals, provided such distributions are made on a true charitable basis…
However, [they] should maintain adequate records and case histories to show the name and address of each recipient of aid; the amount distributed to each; the purpose for which the aid was given; the manner in which the recipient was selected and the relationship, if any, between the recipient and members, officers, or trustees of the organization…” Revenue Ruling 556-304
It is also a good practice to inform donors about the church’s benevolence policy. A sample statement provided by Richard Hammar is as follows:
First Church, in the exercise of its religious and charitable purposes, has established a benevolence fund to assist persons in financial need. The church welcomes contributions to the fund. Donors are free to suggest beneficiaries of the fund or of their contributions to the fund. However, such suggestions shall be deemed advisory rather than mandatory in nature. The administration of the fund, including all disbursements, is subject to the exclusive control and discretion of the church board. The church board may consider suggested designations, but in no event is it bound in any way to honor them, since they are accepted only on the condition that they are merely nonbinding suggestions or recommendations.
Be prepared! The needy we will always have with us (Mark 14:7) … and the command is timeless (Matthew 19:21). The only question remains –are we ready for action?
Resources: “Giving Help the Right Way” by Frank Sommerville; “Before You Give” by Richard R. Hammar; Church and Clergy Tax Guide, www.churchlawandtax.com; “Tax Guide for Churches and Religious Organizations”, IRS Publication 1828.