Handling Benevolence Gifts According to IRS Guidelines

I recently read an article that is worth sharing.  With today’s economic conditions our churches are being called upon even more to help in times of crisis.  This is a wonderful time to show the love of Christ in a practical way and often yields itself for the opportunity to share the Gospel.  It is important in doing so that you take safe guards in protecting the church and the person you are helping.  In many cases the church is not aware of IRS violations that may be taking place.  Please take the time to read this article written by Keith Hamilton and take a close look at how you are handling benevolence needs and there agreement with IRS regulations.

"I cannot believe the IRS would not allow us to help the Jones!' exclaimed Pastor Steve. Last spring was a terrible time for the Jones' family. Just like it was yesterday, Pastor Steve recalled the night the Jones' home burned to the ground. He had received the phone call at 2:14 AM. Deacon Frye had called him to come and help comfort the Jones after they had lost everything in their home in an early morning fire. And now the IRS was not allowing their church members a contribution deduction! Pastor Steve could not believe what he was hearing from Deacon Frye. "Surely Deacon Frye has his facts wrong,' thought Pastor Steve. During a recent IRS audit of his charitable contributions, the IRS disallowed Deacon Frye's gift for the Jones. Pastor Steve thought he had done everything right. He recalled how he had called the church together on that Sunday night and had special prayer for the Jones. At the close of the service, Pastor Steve called the church together to take up a special offering for the Jones to help them with their expenses. He had everyone make the check out to the church and put on the memo part of the check the wording, "Jones Family Benevolence Needs,' so the checks would go to the right place. This is how the church had always done it in the past.

Pastor Steve did not realize the mistake he had made until he read in the IRS Publication 526. "You cannot deduct contributions to specific individuals, including contributions to individuals who are needy or worthy. This includes contributions to a qualified organization like a church if you indicate that your contribution is for a specific person. But you can deduct a contribution that you give to a qualified organization that in turn helps needy or worthy individuals if you do not indicate that your contribution is for a specific person.' Pastor Steve simply shook his head in disbelief. Did he really understand what this meant to his church? This would change the way his church would help the needy. It was clear: The IRS stated in Publication 526 that the donor can deduct contributions for relief only if the contributions were not earmarked for a particular individual or family.

Pastor Steve had his work cut out for him and his church. He needed to develop a designated fund policy to meet the benevolence needs of others. He needed this policy yesterday. After contacting several leading resources in church tax matters, he was able to bring the following policy to his church for adoption.

The church has established a designated fund for the benevolence needs of others. By helping others, the church believes it has helped fulfill part of the church's purpose found in the Holy Scriptures. The benevolence committee or church has total control over the money in this designated fund. The benevolence committee or church will disburse the funds according to its wishes and desires. The benevolence committee or church may consider suggestions to help others from anyone, but the committee or church is not bound in any way to honor the suggestions. Only designated contributions to the benevolence fund will be allowed in this fund.

In the unlikely event the church decides to close this fund, all money in the fund at that time will go towards the general church budget.¹

Pastor Steve also discovered the IRS required the following documentation when the benevolence committee or church helped the needy individuals or families:

• A complete description of the assistance
• The purpose for which the aid was given
• The charity's objective criteria for disbursing assistance under each program
• How the recipients were selected
• The name, address, and amount distributed to each recipient
• Any relationship between a recipient and officers, directors, or key employees or substantial contributors to the charitable organization ²

This new benevolence policy solved his problem! No longer would his church accept contributions for specific individuals or families for benevolence needs. The church would only accept contributions to the church's benevolence fund. All other checks would be returned to the donors. Of course, the church would be happy to hear suggestions of who needed help, but the benevolence committee would have the final approval on who would receive assistance and how much assistance they would receive.

Pastor Steve was relieved to discover that if the church helped the needy according to their new guidelines that the church's assistance would not be taxable income to the person or family the church was trying to help. Finally, Pastor Steve was excited about the opportunity to interview everyone needing financial assistance so the benevolence committee might share Christ with them during their time of crisis.

¹ Sample benevolence fund policy that a church could adopt to meet designated benevolence fund requirements.
² Required Internal Revenue Service documentation for benevolence distributions to needy individuals or families.

If you would like a copy of the “Benevolence Request Form” please email us @ tba@tbanc.org.  It contains all of the required information by the IRS for your records.