Church W-2 to Minister

[Burke]

Member of church gave $1,000 to church with the stipulation that it go to the minister. He did this so it would be deductible by him. The church deposited the funds and drew a check to the minister. Of course, we know that it will not be an eligible deductible contribution by the donor in that case.

So, is it treated as a gift to the minister directly from the donor with no inclusion in the minister's income and non-deductible by the donor? Or is it like a payment to any other type of employee where it is treated as taxable income.

If I include it in the W2 of the minister, would that change the character of the contribution?

[Snaggletooth]

I think so

Burke, so long as it were included in the W-2 of the minister, I would have no qualms about deducting the contribution.

An "earmarked" contribution should be deductible so long as the earmark is within the purpose of church and its programs. Part of the business of the church is paying the preacher.

[erchess]

Snags do you have a cite for that?

I would agree that if the church decided to take a special offering because they wanted to give money to the pastor because of his need or because they were behind paying him or wanted to give money to pretty much any one even a member for pretty much any reason it's a deductible contribution. Likewise if they take up a donation to give to some denominational cause or to use on the facilities or whatever. What is critical is that in these cases the church decided to raise money for something and then and only then did the donor decide to donate to a specific fund instead of making no donation, donating to another specific fund or donating to the general fund of the Church.

But suppose someone says "I will give $$ to the church if the church will agree to give the money to so and so. or to do such and such" I don't think the donation is tax deductible and I don't think it matters who the person is or how reasonable and understandable it is that the donor thought the church was doing its job by spending money that way. I realize we're on a slippery slope. For example a church might vote to set up a fund for giving to needy people and appoint someone to be in charge of doling out the money. Donations to that fund would normally be deductible. But can that someone come across a needy person at a time when the fund has no money and decide to make a deductible donation to the church fund and immediately disburse it to the needy person? I would say they would be a lot safer in an audit if someone else had to sign off on giving it to the needy person after they had made the donation and were not entitled to ask for it back.

Now don't get me wrong. I know perfectly well that the rule you laid out is often followed by people who have no idea they are breaking tax laws and placing in jeopardy the 501 (c) (3) status of their churches. But those who use tax professionals should be told better unless you have a cite I don't know about. A comparable situation would be with pastors who do not report monies received for things like weddings and funerals and they tell themselves that they can just donate these monies to the church and not try to deduct the donations and it is ok. It isn't ok and everyone who uses this board knows that. The law is what it is and there are consequences for being caught breaking it and if we go along there are consequences for us also.

[Snaggletooth]

No

No.........

[Burke]

My thinking is the same as Erchess. However, my immediate problem is: should I put it into the pastor's W-2 as income, since he was paid by the church? I am inclined to think yes. Just like the Christmas bonuses they paid to the employees and ministers, which they never thought about. The financial committee chairman has already notified the donor that this sort of contribution is not deductible in the manner he thought, and should he wish to do this in the future, to simply give it directly to the pastor (which would also make it a non-deductible contribution). The church is not giving him a receipt as a charitable donation for this payment, so how the donor treats it on his taxes is not really my concern. I don't do his return. (I don't even know who it was.)

[erchess]

Yes

It goes in the W2. As to the other difference of opinion I would like to hear from MAMalody..

[Burke]

Me too. I sent her a PM.

[veritas]

How is it

you as the preparer have all this extraneous information?

My clients tell me what their contributions are and I usually see the receipts. What more do I need to know?

Those type of contributons go on in every church I would imagine.

[erchess]

Situation

Burke does not know the identity of the donor and he does not know who is doing the donor's return. He is doing the payroll of the Church atm which is why he was told everything he knows. He was specifically told that the church does not think the donor can deduct the $1K in question and that the church has communicated this to the donor along with not putting that money on the donor's receipt for contributions.

As for me I always point out to the client that gifts with strings attached and especially those directed to a particular person are generally not deductible and should be discussed with me on a case by case basis. I do that because I want to help keep out of trouble those who wish to follow the law and because I do not want to be dragged along by those who are determined to try to skirt the rules.

[veritas]

Ok

Now I undestand.

[Black Bart]

...Now don't get me wrong. I know perfectly well that the rule you laid out is often followed by people who have no idea they are breaking tax laws and placing in jeopardy the 501 (c) (3) status of their churches.

I'd say this size issue's chance of revoking status range from zero to a reprimand. Plus the ticked-off donor's future donations probably end (too bad he feels that way but, nevertheless, the money stops flowing).

... A comparable situation would be with pastors who do not report monies received for things like weddings and funerals and they tell themselves that they can just donate these monies to the church and not try to deduct the donations and it is ok. It isn't ok and everyone who uses this board knows that.

Yeah I know it's not okay and rules are rules, but what's the pastor gained? He did a funeral for some soul and handed the money over to the church. SE's already killin' him since he can't put mileage on a C anymore and even if he did declare it and claim a donation (the dirty, rotten scoundrel), probably not much would survive the run through gauntlet "A."

The law is what it is and there are consequences for being caught breaking it and if we go along there are consequences for us also.

True enough and we all draw the line somewhere, but these guys are trying to do some good in the world. Do we need no-quarter tax police slapping them around?

A little heart and soul please....

[erchess]

Reflections on Heart and Soul

1. The collective willingness of tax professionals to help clients we happen to sympathize with cut corners on their taxes is the reason the IRS is ratcheting up preparer penalties. We grouse but we have brought it on ourselves. I personally will no longer do a return unless I believe that a reasonable court knowing all the facts would surely have to uphold my work. Now I don't ask to see the records of anything except charitable contributions and deductible mileage but I do explain what records the client could be asked for and only proceed with the deduction if assured that the records exist and even then only if I believe the client in light of the total situation including all I have seen and heard from all sources.

2. SE is killing the pastor because he or she keeps accepting monies for services performed as a cleric beyond the basic salary and housing allowance paid by the house of worship. The simple thing to do is not accept gratuities any more than a Doctor or Lawyer or Accountant would. They should ask people to donate to the Church and ask the Church Lay Leaders to pay them a living wage or cut back on expectations so that they have time to serve more than one Church or to work secular jobs.

[Snaggletooth]

Forget It

Do we need no-quarter tax police slapping them around?

Bart, quit wasting your breath on this guy.

Fact of the matter, I've been through nearly the exact scenario with a local congregation where donor's tax preparer wouldn't take the deduction. Infuriated donor went to the IRS (of all people) where an agent upheld the deduction since the earmark was for a purpose encountered in the normal functionality of the church. My cousin attends there and I was drug in for my opinion.

I supported that deduction, but another earmark was outside the scope of what the church does, and was simply a device to give money to a family and deduct it. I didn't support the latter deduction.

[erchess]

Purpose of the Church

I guess for me it comes down to one thing. I don't see why paying the preacher is any more the business of the church than is giving money to other worthy causes including say to a family in the community that is having a rough time financially because the wage earners are both sick. I can't for the life of me see why the two cases are different. Am I perhaps mistaken in my belief that if I brought such a case to the leaders of my church and asked that they take a contribution from me and give it to this family I could not claim that money as a charitable deduction? Can anyone seriously argue that the rules are different for the two cases?

[MAMalody]

Designated contributions are those made to a church with the stipulation that they be used
for a specified purpose. If the purpose is an approved project or program of the church, the designation will not affect the deductibility of the contribution. However, if a donor stipulates that a contribution be spent on a designated individual, no deduction
ordinarily is allowed unless the church exercises full administrative control over the donated funds to ensure that they are being spent in furtherance of the church’s exempt purposes. It should be treated as compensation to the individual receiving it. Generally, deductibility is hinged upon the right of the church to control the funds.