Another Charitable Donation Situation

[Burke]

Client gives several thousand dollars to an organization that qualifies for 501(c)(3) (not a church). However, he donates money with the direction of such funds to a needy individual (who has no association with the organization, but does with the donor). Treasurer of organization, who TP says is a CPA, states that it is deductible because the "finance committee" had a meeting and directed that the money be given to this individual, and that makes it eligible. When I asked donor if money would have been given to this individual by the organization if he had not made the donation, he said no. I say no, too. Any thoughts?

[BP.]

From pub 526, p. 6:

http://www.irs.gov/pub/irs-pdf/p526.pdf

"Contributions You Cannot Deduct
Contributions to Individuals
You cannot deduct contributions to specific individuals, including the following.
Contributions to individuals who are needy or worthy. This includes contributions to a qualified organization if you indicate that your contribution is for a specific person."

[erchess]

Agree with BP

unless charity made decision to collect funds for that individual before the donation was made there is no deduction because of the rule cited in the Pub referenced. Doesn't matter who the beneficiary is.

[Possi]

So the lesson learned is...

unless charity made decision to collect funds for that individual before the donation was made there is no deduction because of the rule cited in the Pub referenced. Doesn't matter who the beneficiary is.

Attend the church meetings and establish the need and the contribution designation before you donate.

And don't write the designee's name on the check.

But DONATE, always donate.....

right?

[erchess]

The decision to collect funds for the recipient

must be made by the relevant decision maker or makers of the organization. Who they would be depends on the organization. It may or may not be convenient or even possible for the donor to attend the relevant meetings..

[taxea]

prior knowledge

did the client know when he made the donation that it was going to one particular person?
If client's answer is yes, then the correct answer to you question is he cannot take the deduction. taxea

[JohnH]

Interesting discussion about a subject which comes up often in churches. I'm not sure I'd go so far as to use "prior knowledge" as a basis for disqualifying a legitimate contribution, because that defeats the criterion that the recipient must be determined by those who select recipients of benevolence according to some reasonable criteria (benevolence committe, etc). However, there's little question that the act of entering the recipient's name on the check to "memo" the designated nature of the designation would likely torpedo the deduction.

I know of churches that refuse designated contributions of ALL types. After serving several years as a church treasurer, I'm inclined to think that's a best practice and I wish more churches would adopt it. People who make designated contributions are often angling to force, control or influence certain outcomes that they are not comfortable trying to bring about through the normal functioning of the organization. They take it upon themselves to overrule the judgement of the leadership or the entire body with respect to their pet project. (ie "Mama said all her life we need a new pipe organ, so here's a $100 memorial gift to jump start a fund. Never mind that it costs $100,000 to actually do the project - it's up to you guys to figure out how to raise the rest of it)

Seems to me the prudent course of action, and an act of responsible stewardship, would be to make any sort of contribution only through churches or other organizations which the giver trusts to make wise use of the funds. Satisfying that test will make all the other considerations irrelevant.

[Carlos]

How does this effect contributions where the donor is asked by the organization to earmark the check to a specific person or cause?

[MAMalody]

Interesting question. While I do agree that this is a "questionable" deductible contribution, there are a couple of questions that I would have tried to discern. Asking this of the donor, I am not sure you could get the answer. First question would be, did the organization have the right to direct the funds to any purpose they chose to do so, regardless of the designation. If yes, that could help make it deductible. Second question, does the organization normally or as a portion of their function, typically direct funds the individuals in similar types of situations. If so, that could help make it deductible. The fact that the donor would not have made the contribution is not really relevant (well, maybe not) because many donors don't give unless there are specific cause they are interested in and can give to, such as specific benevolence issues, building programs, equipment issues, specific ministry help, etc. Just some thoughts.

[Jesse]

We have a foundation in our area that is set up for as 501(c)(3) nonprofit organization for this reason. You donate funds and can request where you would like the money to go to. It helps with parks and youth projects, neighbors in need, if there is a fire you can request it go to the family, medical emergencies, etc....

Some area Corporations would only donate to a nonprofit organization and wanted to help out the community so they originally got together with a very wealthy family in the area to set up this foundation to receive some major corporate contributions for parks and youth programs in the area and it grew from that.

They issue receipts and I have always taken a charitable deduction and have never asked if it was requested for a certain person/project as I don't think that matters. I suppose once the donation is made it is complete and although you request where you want the funds to go once it leaves your pocket if you have no recourse to receive a refund if the money is not used for that purpose it still went to a charity.

[JohnH]

Jesse: I think the fine line with respect to deductibility centers around contributions designated for individuals rather than designated for clearly charitable causes or projects.

[Possi]

Well Said!

Interesting discussion about a subject which comes up often in churches. I'm not sure I'd go so far as to use "prior knowledge" as a basis for disqualifying a legitimate contribution, because that defeats the criterion that the recipient must be determined by those who select recipients of benevolence according to some reasonable criteria (benevolence committe, etc). However, there's little question that the act of entering the recipient's name on the check to "memo" the designated nature of the designation would likely torpedo the deduction.

I know of churches that refuse designated contributions of ALL types. After serving several years as a church treasurer, I'm inclined to think that's a best practice and I wish more churches would adopt it. People who make designated contributions are often angling to force, control or influence certain outcomes that they are not comfortable trying to bring about through the normal functioning of the organization. They take it upon themselves to overrule the judgement of the leadership or the entire body with respect to their pet project. (ie "Mama said all her life we need a new pipe organ, so here's a $100 memorial gift to jump start a fund. Never mind that it costs $100,000 to actually do the project - it's up to you guys to figure out how to raise the rest of it)

Seems to me the prudent course of action, and an act of responsible stewardship, would be to make any sort of contribution only through churches or other organizations which the giver trusts to make wise use of the funds. Satisfying that test will make all the other considerations irrelevant.

A minister's wife once told me that our church had so many people trying to control things with designated contributions that it was as if she were going grocery shopping for her 5 children... she had $5 for mac and cheese for suzie, $2 for juicy juice for tommy, etc. It reflects the control people are looking for, and the distrust they have for the organization. Before I heard what she said, I too, was designating some of my contributions. Not after that. Several years later, that same church is folding largely due to the "controlling" forces with money. They have choked the Holy Spirit right out of there.

Taxes or not, your motivation is the real judge.

Thanks for the quote. You really said it well.

~possi

[JohnH]

(With my apologies to anyone who objects to religion being mentioned on this Forum)

Speaking of motivation, there's a story that Ruth Graham used to tell about a trip she & Billy Graham made one Sunday many years ago. They stopped at a small country church in the NC mountains to attend service, but after the offering plate was passed around, Billy began fumbling for something in his pockets.

Ruth asked what the problem was, and Billy whispered "I had a $20 bill and a $5 bill in my pocket. I meant to put the $5 in the plate but I think I accidentally put the $20 in there. We may not have enough money for lunch and gas to get back home."

Ruth replied, "Well, you may as well go find the usher and swap out the bills. If you intended to put in $5, that's all God's going to give you credit for today."

[Possi]

love it!

"Motivation" is the key! Great story!

[Larmil]

"Motivation" is the key! Great story!

Ruth Graham was a great woman.