Wednesday, December 5, 2012

Better get it right in your church's giving acknowledgements

Some of the political discussion these days is on eliminating loopholes to the tax code and thereby raising revenues. Want to read about Richard Land waxing indignant? Try this:

Charitable deduction cap would be 'devastating'

"This [idea of capping the amount of charitable giving that could be deducted by rich folks] would be catastrophic in its impact, particularly on those large gifts that many religious organizations, colleges, universities and ministries, as well as churches, depend upon for continuing operations," Land told Baptist Press Thursday (Nov. 29). "Everything we know from past experience tells us if they cap deductions it will seriously erode charitable giving."

I think Dr. Land also said that the barbarians were at the ecclesiastical gates, churches would die by the thousands, preachers would be begging on the street corners but that did not make it into the Baptist Press article.

But all that is speculation and may not come to pass.

Here is hard reality: If you and your church fails to provide the correct documentation for charitable gifts of any size, then your members may have them disallowed by the IRS.

How about that? You give your money. The church gets it and may even thank you for it but it doesn't count with the IRS unless the church gives you the correct giving acknowledgement.

Donors must receive a contemporaneous acknowledgement along with certain explicit wording. Take it from a CPA who, in this link ( Churches and other NFPs need to send better acknowledgments), covers the case of a donor who lacked the proper explicit wording from the church:

The substantiation requirements for charitable contributions are strict.  How strict ?  Stricter than you probably thought.  You must get a contemporaneous written acknowledgment from the donee for donations over $250. [In another forum someone pointed out to me that the rule is $250 or more, not more than $250].  The acknowledgment needs to detail the value of any ..The acknowledgment needs to detail the value of any goods or services you received in exchange for the donation or explicitly state that you received none (Intangible religous benefits do not count. 

Ticky. Ticky. Ticky, you say?

Costly. Costly. Costly...if your church fails to follow the rules on this.

My state convention says the same thing in this article: 'Church Contribution Credit'

I don't know but would guess that many smaller SBC churches are not providing the necessary documentation to their members for their gifts. I would also speculate that not a few of our church members knowingly or unknowingly are counting as gifts that money paid to their church for books, suppers, study courses, camp fees, etc. Sorry, you don't get to deduct for those fun church camps that cost you so much or for the fried chicken fingers on Wednesday night at the church supper.

Heads up here. You have about a month to straighten out your church's mess on this.

[And I'd bet that most pastors have a story about some church or member working some funny business on giving. Feel free to share it in a comment here.]


Luke Tolbert said...

Our church has always been good about separating payments for ski trips, retreats, etc. from tithes and offerings. We also mail out giving statements that list all our contributions to the church and which ones are tax deductible and which ones are non-deductible.

We thought we were doing well until we found out that our youth fundraisers were not legal according to IRS guidelines. When we had youth yard sales, BBQs, and other fundraisers, we had the students sign in and out and then divided the funds proportionally into individual youth accounts that they could use for trips and activities throughout the year. We found out that this type of fundraising is seen by the IRS as paying wages and is not allowed.

Instead, fundraising activities are supposed to go towards a general event and not to individuals. In fact, according to the IRS, you cannot even limit the funds to those who participate in the fundraiser. So if you have a Yard Sale for youth camp and 10 youth participate but 20 youth end up going to camp, all 20 youth are supposed to receive the money equally.

Moral of the is easy to think you are compliant with the IRS only to find out you are not.

Ed T. said...

Good post, William. As for Land's end-of-the-world comments, I tend to views such predictions along the lines of this: the doom is never as bad as the naysayers predict nor is the benefit ever as good as the proponents predict

I'm sure doing away with the deduction would have an impact, but if tax rates were reduced along with it, I wouldn't have a problem with doing away with the deduction, but I would probably pick the charitable deduction to be done away ONLY after every other one is gone first. It would be one of the last ones to go or one of the very few remaining in any tax reform I would support.

Peter Reilly CPA said...

Thanks for the link. By the way the sentence you quote has an error, that I noted in the actual post. The rule applies to donations of $250 or more, not greater than $250. Subtleties like that always drive me crazy, but they can be important sometimes.

Peter Reilly CPA said...

Thanks for the link. By the way the sentence you quote has an error, that I noted in the actual post. The rule applies to donations of $250 or more, not greater than $250. Subtleties like that always drive me crazy, but they can be important sometimes.

Unknown said...

I got carried away with brevity. I have fixed the quotation.

Dr. James Willingham said...

All a part of the plan to put the clamps on the churches and to bring them to heel to the state. The folks with the great sense of insecurity are now in charge of the world, and, as they grow more insecure, we will find the rules grow more onerous. What4 will really stick in our craw is to find that they think we are using up their resources, and that it is time for us "useless eaters," H.G. Wells' term, to be terminated. The goal is under 500,000,000 population worldwide, according to the Guidestones of Georgia.

William Thornton said...

The GA guidestones are about 45 minutes from me. I will pass on the conspiracy stuff.