Designated Donation Creates Havoc for the Church

5/17/2018

Pastor Johnson was elated when those counting the tithes and offerings brought him the news that someone had donated $50,000 to the Church that Sunday. An attendee wrote a check to the Church, but specifically instructed that the donation was to be used to establish a Senior Citizens’ ministry in the Church. With the money in hand the Pastor thought it may be a great idea to pursue it even though there were no senior citizens who regularly attended.

Generous Gift Causes Trouble for the Church

One problem that would later surface was the fact the gift to the Church had strings attached and therefore was not considered by the IRS as an acceptable tax deductible contribution. Another problem was the designation.

Pastor Johnson’s Church in Illinois did not have a Senior citizen ministry because he had no Seniors. The money sat in the bank waiting for the Church to find the right person to spearhead that to which the money had been designated. In the meantime the Church suffered a setback that needed to be addressed immediately.

This Church was about to have their church condemned because the parking lot was not up to local building codes. In order to keep the church from being closed they would need to immediately resurface the parking lot, but had no money to do so. During the Board Meeting one of the Deacons suggested that they use the $50,000 that had been designated for Seniors’ ministry and pay it back over a six month period. Everyone agreed this was the quickest and best solution to their dilemma.

Family Files Suit Against the Church

Pastor Johnson’s Church did not have a disclaimer on the giving envelopes that would make any donors aware that the Church, with an approval by the Board, could redirect all funds to the area of ministry most needed. When the family of the donor (now deceased) discovered what the Church had done, they sued the Church. The Church lost the lawsuit and had to obtain a high interest loan to reimburse the family for misusing the donor’s designated gift.

When the information hit the news networks it triggered an IRS investigation of the woman’s donation. She had given it with strings attached but the Church had provided her paperwork to deduct the gift as a tax deduction. The Church not only had to repay the woman’s family, but had to pay penalties to the IRS for providing tax-deduction credit for a non-allowable donation.

Donations May Be Designated when Proper Protocol is Followed

Many Churches list different departments on a giving envelope so the donors can see the areas in need of funding, in hopes the donors will give to support the different ministries offered by the Church. There is nothing wrong with those donations when they are given to an area in which the Church is seeking contributions.

However, Church accounting departments and donors should be aware of certain pitfalls that may be encountered because of these types of donations.

When donating to an area where the Church is seeking donations, those donations would be tax deductible. But, when donations are designated for other areas, the donation then has strings attached and is not deductible.

If donations are designated they must meet four requirements to be tax deductible.

- The Gift must be at arm’s length distance
- The Gift must not have strings attached
- The Gift must be corporate in nature
- There must be a lack of influence connected to it

Designated gifts must also be used in the area for which it was designated unless there is a disclaimer on the envelope. If there is a disclaimer the Church may redirect the funds to the area of ministry most needed, with the exception of money designated to Building Fund. Monies designated to purchase or construct a building must be used for that purpose.

Why You Need to Attend the Next Conference

This is why you and your Church need us NOW!!! Church Management and Tax Conferences are conducted monthly across this nation by Chitwood & Chitwood. With 80 years of experience we are the ultimate Church Management Group in the USA.

At our conferences we go into great detail concerning the situations mentioned above in addition to many other requirements necessary for a Church or non profit to be in legal compliance.

It would behoove every Pastor, Pastor’s spouse, and every Church Leader to attend the next Conference. To register, please call 800-344-0076 or visit us online at www.cmtc.org. This will probably be the best investment you and your Church make this year.