Your Church's Responsibility to Donors

Written by Raul Rivera on Jan 14, 2016 in IRS Compliance

Lindsey was exhausted. As the church administrator, she had spent the past month sifting through envelopes, check ledgers, and scraps of papers from the offering basket, trying to make sense of the donations given by church members. The church had never before taken time to develop detailed receipts with EVERY donation from EVERY member. They simply thought that keeping track of the donations and then sending each member a letter indicating the total amount each had given was all they had to do. But they soon learned that they were wrong.

The previous March, a member at Lindsey’s church had been audited, and all of his donations to the church were scrutinized. Because the church’s giving statement to the member had only shown a lump-sum total, the member had ended up needing to go through each of his records to find cancelled checks and debit/credit card statements to prove what he had given.

The church did assist the member as much as it could throughout the process, but what the church learned during this time was that the IRS has many more rules about managing donations and donation statements than the church had realized.

So now, Lindsey was tasked with getting everything in order . . . and it was no simple task.

 

The church’s responsibility to its donors

This story is similar to that of hundreds of churches across this great country. Every day, ministers are learning that what they thought was true about giving and giving receipts is outdated or simply wrong.

There are several aspects that every church should be aware of regarding managing church donations. For example, having an appropriate tithe & offering counting policy is key for accountability and accuracy in managing church funds. Another key aspect of managing donations is providing giving statements to members.

The truth of the matter is that when a donor claims a tax deduction for charitable contributions given to a nonprofit organization, the burden of proof falls upon the donor.

For instance, the Pension Protection Act (PPA) of 2006 increased the requirements for donors to substantiate (or prove) their giving when claiming a charitable deduction on income tax filings. (See section 1217 of the PPA.)

Therefore, in order for one of your church members to technically receive a tax deduction for a donation, he must be able to show one of two things:

  1. bank records (check copies, bank statements, credit card statements), or
  2. a written statement from the organization to whom he gave.

 

Requirements of the giving receipts

Because your church relies upon the contributions of your church members, there is no doubt that you will provide your members with giving receipts. This is one way to say “thank you” to your donors for their contributions, and furthermore, you are helping to alleviate their burden of proof.

There are, however, several “rules” that your church should be mindful of before distributing giving receipts. Let’s take a look at the “rules” below.

Rule #1: Distribute giving receipts on or before January 31st

By the end of January, most taxpayers have received their W-2, 1098, 1099-misc forms, and other tax-related documents. In order for a taxpayer to deduct what he gave to your church, he must receive his contribution statement before he files his tax return.

As a matter of practice, it is usually a good idea to make a public announcement to your church members that their statements will be issued by January 31st and that they should wait on filing their tax returns until they have received their giving statements.

 

Rule #2: The credit card rule

Many churches now accept credit card donations. IRS Publication 526 states that contributions charged to a bank credit card are deductible in the year that the charge is made.

This means that if an individual makes a credit card donation on December 30th, but the church does not actually run the card until January 1st, the donor does not get to write it off until the next year. If your church had this happen, make sure you adjust your records to ensure that the contribution statement is correct.

 

Rule #3: The quid pro quo rule

This rule requires your ministry to keep track of donations made to your church in which the donor receives something in return. An example may be the recording of a Sunday sermon. A church sells a CD of the sermon for $10.00 and the donor gives the church $50.00. Quid pro quo rules allow the donor to get a tax-deductible donation of $40.00 because he received something in return for his donation. This leads to the next rule.

 

Rule #4: The $75.00 rule

Now that you know the quid pro quo rule, tax regulation requires any quid pro quo contribution that exceeds $75.00 to receive a separate, written receipt that states how much was donated and a good faith estimate of the value of the goods or services the donor received in return. Let me give you an example.

Several years ago, I attended a revival at a church in Florida. The traveling evangelist had a table in the lobby where he sold some of his books and CD's. He also had a special table where someone could sign up to become a partner in the ministry. All someone had to do that day was to contribute $100.00 and make a pledge to give $100.00 per month, and in return, that person would get newsletters, prayer cards, and special reports. And to top it off, the individual would also get a beautiful gift basket, worth over $50.00.

Though the baskets had actually been donated to the ministry, when the ministry gave the baskets away to those who made the $100.00 contribution, the receipt could only state  (under the quid pro quo rule) that $50.00 was tax-deductible because the basket the donor received in return was worth $50.00.

Under the $75.00 rule, because more than $75.00 was originally donated (though only $50.00 counts as tax-deductible), the donor must receive a separate, written receipt (in order to to get a tax write off) stating the good faith estimate of $50.00 received back in goods/services. A simple contribution statement will not do in this instance.

 

Rule #5: The $250.00 rule

Like rules #3 and #4 above, this rule requires that any donation of $250.00 or more made to your ministry be treated differently if the giver received something in return. In order for the donor to get a tax write off, he must get a separate, written receipt stating how much was given and that, "no goods or services other than those listed were provided, except for intangible religious services."

However, if the giver did not receive anything in return, you can itemize it into the annual statement with all other donations so long as you include that "no goods or services were provided except for intangible religious services.”

 

Rule #6: The non-cash rule

This rule prohibits churches from giving receipts for donations that are not cash. For example, if a member donates a used computer, the church is prohibited by section 170(f)(8)(B)(i) from estimating the value of his donation and issuing a receipt for that amount. Therefore, if the computer is worth $600.00, the church cannot give the donor a receipt for $600.00.

Instead, the church should issue a contemporaneous written acknowledgment. Those who have attended our conference can find an example of what that looks like in the conference manual.

 

Rule #7: The $500.00 rule

This rule applies to donors and to churches when a person makes a non-cash donation that is valued at more than $500.00. Churches often receive big donations such as computers, desks, pianos, organs, drums, and office equipment. In order for the donor to write off such a donation, he must file Form 8283 with his tax return. The purpose of this form is two-fold: the donor can claim the value for the item given; and the church can sign off on the form to acknowledge receiving the gift.

 

Conclusion

Understanding the “rules” of giving receipts is an important part of understanding the process, but it is only a part. It is critical that you have a method or process that helps you to create proper giving receipts for your donors. We can help you if you do not already have a reliable and safe method in place.

Kingdom Steward is our cloud based (online) program that allows you to easily track tithes, offerings, and attendance without ever worrying about losing that information. Since Kingdom Steward is cloud based, you will be able to access the information from any smart phone, tablet, or computer as long as you have internet connection. I believe that if you give Kingdom Steward a try, you will not regret it!

Please feel free to comment. We always appreciate good dialogue. However, we do moderate each comment to ensure that it is on topic and not derogatory to other participants. We ask that you keep your comments brief and pertinent to the topic so that others may benefit.

Blessings,
Raul Rivera


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