Should We Accept this Gift?

Establishing Charitable Gift Guidelines for Your Ministry

by Dan Busby, ECFA President Emeritus

Harold makes a check payable to your ministry and requests that the money go to the Smiths, a needy family. He wants a charitable contribution receipt. 

Ruth donates a car to the ministry and specifies that the ministry give the car to the ministry executive assistant. 

William owns an office supply company and donates all the office supplies to the ministry office each year. He asks for a charitable contribution receipt for the retail value of the supplies.

Mary is a secretary who donated one week of her vacation time to work in the ministry office. She asks for a charitable contribution receipt for $400—40 hours times the pay rate at her regular job of $10 per hour.

How would your ministry handle each of these situations? This article covers some basic issues a ministry may wish to consider when drafting charitable contribution guidelines.

  • Benevolence.  Contributions made directly by a donor to needy individuals are not deductible. To qualify for a charitable deduction, contributions must be made to a qualified charity such as a church.

A gift to a ministry marked “to aid the unemployed” is generally deductible if the church has a program to fulfill this purpose. Yet if a gift is designated or restricted for “Harold Brown, who is unemployed,” and the ministry passes the money on to Mr. Brown, the gift is generally not tax-deductible.

  • Gifts of real estate.  Gifts of real estate can bring opportunities and headaches—opportunities because of the potential dollars for ministry, and headaches because of the administrative effort required to process many of these gifts.

A ministry should not accept a gift of real estate without first inspecting the property. A Level I Environmental Site Assessment is often a good prerequisite to accepting real estate as a gift. The ministry should also obtain: a survey, legal description, names of any co-owners and their ownership shares, recent tax statements, recent appraisals, information on any current leases or contracts outstanding, a brief description of current use, and details of any debt on the property.

  • Gifts of inventory.  Ministry donors may donate business inventory to the ministry and ask for a charitable contribution receipt for the retail value of the merchandise. A ministry should never provide such a receipt.

An inventory item can only be deducted once—there is no contribution deduction and also a deduction as a part of cost of goods sold. Acknowledgements issued by a ministry for inventory contributions (just as for all gifts-in-kind) should not state the value of the gift, only the date of the gift and a description of the items donated should be noted.

  • Passing gifts through to pastors or other employees.  A ministry donor may donate a car, a personal computer or some other asset and specify that the property be given to one of the ministry leaders. The donor expects a charitable contribution receipt and wants the leader to have the gift without incurring any taxes on the gift. 

Before accepting such a gift, the ministry must determine if it can exercise adequate control over it and if its specified use would result in appropriate compensation for services rendered. If not, the gift should be declined. If the ministry accepts the gift, its fair market value must be included on the employee’s Form W-2. 

  • The donor’s out-of-pocket expenses.  If a volunteer claims a deduction for unreimbursed expenses of $250 or more, the ministry must substantiate only types of services performed by the volunteer.

  • Services or use of property. No deduction is allowed for the contribution of services to a ministry. Neither does a gift of the right to use property yield a tax deduction to the donor. Receipts should not be issued in either of these situations.

  • Quid quo pro contributions.  A quid quo pro contribution is a payment made partly as a contribution and partly for goods or services provided to the donor by the ministry. A donor may deduct only the amount of the contribution above what the goods or services are worth.

The ministry is required to provide a receipt for all transactions where the donor makes a payment of more than $75 to the ministry and receives goods or services, other than intangible religious benefits or items of token value.

In summary, establishing a clear, easy-to-follow set of charitable contribution guidelines can save you a bundle of headaches. And hard feelings with ministry donors may be avoided simply by deciding problematic situations based on your carefully designed policies.

 

 


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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