Scrip Sales by a Ministry

Scrip, in the form of a gift certificate or a gift card, is sometimes purchased by a ministry from a merchant at a discount. The ministry then offers to sell the scrip to an individual at the scrip’s face value.

As part of the individual’s purchase of the scrip, the ministry gives the purchaser the option of receiving in cash a “portion of the difference between the face value of the scrip and the ministry’s cost for the scrip.” For example, the ministry buys scrip for $80 with a $100 face value. The individual can buy it from the ministry for $100 or pay the $100 to the ministry and elect to receive a $10 rebate from the ministry.

The IRS has ruled that:

  • The portion of the purchase price the individual pays a ministry for scrip that the individual can either receive back in cash or allow the ministry to retain isn’t gross income.
  • The amount of the rebate the individual can receive in cash but instead allows the ministry to retain is a charitable contribution at the time the individual could have received the cash, to the extent provided.
  • The charitable contribution will be deductible only if all other requirements under Internal Revenue Code 170 (including substantiation requirements) are met, subject to the percentage limitations of Internal Revenue Code 170(b).[1]

The IRS did not express an opinion as to whether the transaction results in unrelated business income tax to the ministry.

[1] Letter Ruling 200945022

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.