Written by Dan Busby, President, ECFA
Before you know it 2016 will be over and it will be time to prepare to issue charitable gift acknowledgments received by the church this year. Properly issuing these gift acknowledgments confirms to givers the church’s credibility. Improper gift acknowledgments may leave givers with questions as to whether the church is a good steward of gift.
So, let’s review the basics.
Individuals seeking a federal income tax charitable contribution deduction must produce, if asked, a written receipt from the church if a single contributions’ value is $250 or more. This applies to any type of donation, including gifts of cash.
What information to be included in the receipt?
The following information must be included in the gift receipt:
- the donor’s name,
- the amount of cash contributed,
- a statement explaining whether the church provided any goods or services to the donor in exchange for the contribution,
- if goods or services were provided to the donor, a description and good-faith estimate of their value and a statement that the donor’s charitable deduction is limited to the amount of the payment in excess of the value of the goods and services provided,
- the date the donation was made, and
- the date the receipt was issued (not required but an excellent addition for recordkeeping purposes).
When should receipts should be issued?
Donors must obtain their receipts no later than the earlier of the due date, plus any extension, of their income tax returns or the date the return is filed. If a donor receives the receipt after this date, the gift does not qualify for a contribution deduction even on an amended return.
If a church is issuing receipts on an annual basis, it should try to get them to its donors by at least January 31 each year and earlier in January if possible. This will assist donors in gathering the necessary data for tax return preparation.
The receipts or acknowledgements can be issued gift-by-gift, monthly, quarterly, annually, or any other frequency. For ease of administration and clear communication with donors, most churches provide a receipt for all gifts, whether over or under $250.
Is there a specified form for gift acknowledgments?
No specific design of the gift acknowledgment is required. The IRS has not issued any sample receipts to follow. The receipt can be a letter, a postcard, or other form. A receipt can also be provided electronically, such as via an email addressed to the donor.
Separate gifts of less than $250
If a donor makes separate gifts during a calendar year of less than $250, there is no receipting requirement since each gift is a separate contribution. The donor’s cancelled check will provide sufficient substantiation. However, most churches receipt all gifts with no distinction between the gifts under or over $250.
Request to receipt a taxpayer other than the donor
A donor may ask a church to issue a gift receipt to a taxpayer other than the one making the gift. Issuing a charitable contribution receipt to anyone other than the donor is generally inappropriate. In U.S. tax law, the taxpayer (individual, corporation, trust, etc.) that makes the payment is generally the taxpayer entitled to an expense or charitable deduction.
Contributed services and use of facilities
Churches often receive contributed services from volunteers to help accomplish their mission. Additionally, a church may be given use of a building or other facilities either at no cost or at a substantially reduced cost. However, donations of services and use of facilities do not qualify for the charitable contribution deduction. Therefore, donors of services and facilities use should not receive a charitable gift acknowledgement for these contributions.
Gifts to church staff
Gifts to staff require special review to determine their impact for income tax purposes. Here are the basics:
Gifts made by an individual to the church but earmarked by the donor for a particular staff member and the gifts are not intended for use by the church. If contributions are earmarked by the donor for a particular individual and not intended for use by the church, they are not tax-deductible as charitable gifts. This level of gift earmarking by donors suggests that the church lacks the discretion to use the funds to carry out its functions and purposes. The use of terminology such as a “love gift for an individual” or a “desire to bless an individual” does not change the non-deductibility of such a gift.
Gifts to staff members from ministry funds
Often gifts are made from church funds which are not required by contract or a typical employment plan. The gifts may be given in appreciation near a holiday, a birthday, or an employee anniversary. The gifts may be given in relation to personal medical or financial crises.
Gifts to staff members from church funds are taxable and subject to payroll tax treatment and reporting unless they meet one of the following exceptions:
De minimis gifts
These gifts are impracticable of specific valuation, and are generally less than $25 in value. IRS rulings have emphasized that the difficulty in valuing a de minimis gift is just as important as the small value. Cash, gift cards, or other cash equivalents are not de minimis gifts, regardless of how small the value.
Employee achievement awards
To avoid taxation, achievement awards must meet specific tax law requirements. The law generally requires a written, nondiscriminatory achievement award program, which provides awards either upon attaining longevity goals or safety standards and meets other requirements for gift type and amount limits.
Understanding the rules for handling charitable gifts is a must for those involved with church finances. It is a very important part of the faithful administration of the funds we steward for God’s Kingdom.