Gifts That May Not Qualify as Contributions

Some types of gifts do not result in a tax deduction and no contribution acknowledgment should be provided by the ministry:

  • Beyond due diligence. Some donors to your ministry may want to make sure their gifts are put to good use. As long as your ministry clearly owns the gift, and the donor and ministry agree that it will further the ministry’s purposes, the IRS approves. But they draw the line when the donor demands too much control, intending to benefit a private class of people rather than the public at large. For example, a gift made to a ministry with the requirement that the funds be used to provide scholarships to students from the ministry with the donor’s last name. The IRS would undoubtedly reject an income tax deduction for this type of gift.

  • Passing gifts through to ministries or other employees. A giver may donate a car, a personal computer, or some other asset and specify that the property be given to one of the staff members. The giver expects a charitable contribution receipt and wants the staff member to have the gift without incurring any taxes on the gift. Should the ministry accept the gift and what are the consequences of the gift?

Before accepting such a gift, the ministry must determine if it can exercise adequate control over the gift and if the specified use of the gift would result in appropriate compensation for services rendered to the ministry. If the ministry does not feel comfortable with these issues, the gift should be declined. If the ministry feels that it can properly accept the gift, the fair market value of the assets distributed to the staff member must be included on Form W- 2.

  • Strings attached. A gift must generally be complete and irrevocable to qualify for a charitable deduction. There is usually no gift if the giver leaves “strings attached” that can be pulled later to bring the gift back to the giver or remove it from the control of the ministry.

Example: A giver makes a “gift” of $10,000 to a ministry. The “gift” is followed or preceded by the sale from the ministry to the giver of an asset valued at $25,000 for $15,000. In this instance, the $10,000 gift does not qualify as a charitable contribution. It also raises the issue of private inurement relating to the sale by the ministry.

  • Services. No deduction is allowed for the contribution of services to a ministry.

Example: A carpenter donates two months of labor on the construction of a new facility built by your ministry. The carpenter is not eligible for a charitable deduction for the donation of his time. The carpenter is entitled to a charitable deduction for any out-of-pocket expenses including mileage (14 cents per mile for 2020) for driving to and from the project. If out-of-pocket expenses are $250 or more in a calendar year, the carpenter will need an acknowledgment from the ministry.

  • Use of property. The gift to a ministry of the right to use property does not yield a tax deduction to the giver.

Example: A giver provides a ministry with the rent-free use of an automobile for a year. There is no charitable deduction available to the giver for the value of that use. If the giver paid the taxes, insurance, repairs, gas or oil for the vehicle while it is used by the ministry, these items are deductible as a charitable contribution based on their cost.

 

The Church and Nonprofit Tax & Financial Guide
by Dan Busby and Michael Martin


This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

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