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February 14, 2013

Are Designated Gifts for Individuals Tax Deductible?

What the IRS has said about these types of contributions.

It's a common scenario at local churches across the country: A member faces a significant medical condition, racking up major debt in the process. Others at the church learn of this challenge and wish to help. Can they donate to the church, designate their gifts for that member, and still receive tax deductions for the contributions?

The Internal Revenue Service has ruled on such situations many times. Such gifts likely can be treated as deductible if (and it's a significant if) donors and churches handle them a certain way. The IRS has stated:

If contributions to the fund are earmarked by the donor for a particular individual, they are treated, in effect, as being gifts to the designated individual and are not deductible. However, a deduction will be allowable where it is established that a gift is intended by a donor for the use of the organization and not as a gift to an individual. The test in each case is whether the organization has full control of the donated funds, and discretion as to their use, so as to insure that they will be used to carry out its functions and purposes. Revenue Ruling 62-113.

Based on this guidance, contributions to a church benevolence fund can be deductible, even if the donor mentions a beneficiary, if the facts demonstrate that

- the donor's recommendation is advisory only;
- the church retains "full control of the donated funds, and discretion as to their use"; and
- the donor understands that his or her recommendation is advisory only and that the church retains full control over the donated funds, including the authority to accept or reject the donor's recommendations.

For more details on these types of contributions to churches, check out "Designated Gifts for Individuals," chapter 8 of Richard Hammar's 2013 Church & Clergy Tax Guide, and Benevolence Fund Basics, a training resource from Church Finance Today.

Richard R. Hammar is an attorney, CPA, and author specializing in legal and tax issues for churches and clergy. He is a graduate of Harvard Law School, and attended Harvard Divinity School. He is the author of several books, including Pastor, Church & Law, the annual Church and Clergy Tax Guide, and Reducing the Risk.

He also is senior editor of Church Law & Tax Report, a bimonthly newsletter reviewing significant legal and tax developments for churches and clergy, and Church Finance Today, a monthly newsletter for church treasurers.

Related Tags: benevolence, contributions, donors, giving, IRS, Richard R. Hammar, tithes


Do these rules also apply to a "love offering" taken for (and given to) a pastor who is leaving the church for a new appointment?

Erin--Thanks for your question. Any "love offering" taken by the church for a pastor is treated as taxable income. For more help, check out:

* Weekly Lesson on Love Offerings (free, via ChurchLawAndTax.com): http://secure.christianitytoday.com/private/youth/lesson.php?25.00

* The 2013 Church & Clergy Tax Guide (resource via YourChurchResources.com): http://store.churchlawtodaystore.com/20chcltaxgu.html

I pray this helps.



Is it ok for a donor at our church to make a tax-deductible gift to the church that they want used for a particular staff member's seminary education tuition? Without this gift, the staff member would be paying for the tuition himself (the church would not be paying for it).

Our church has a "education fund". A child wants to go to a private high school (of the same denomination). The church will accept contributions to the fund. The church will allocate the funds to the children applying for tuition. The contributors do not earmark the contributions to the child.

In practicallity, only the parents contribute to this fund.

This sounds like substance over form and should not be a charitable contribution but i can't put my finger on an exact citation.

Thank you for the insight through your post. I have one question though. Is the benificiary, a needy family, of funds from a church benevolent fund required to report the money given to them as taxable income?

Can I donate my car to my church and they give it to a single mom for free?

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