Taxes and Love Gifts
Posted: Wed Apr 04, 2012 2:53 pm
Recently an issue has come up regarding gifts to a pastor. The pastor has a serious rare medical problem that requires treatment at an out of state clinic. This is not covered by his insurance. The pastor, at the urging of the elders, announced his condition and predicament with the insurance company to the congregation, saying that he would be going to get treatment as soon as finances could be arranged, and that he and his wife were "saving their pennies". He began receiving donations almost immediately.
The church sent out a letter stating that "this is not a solicitation for donations" and that people should make donations directly to the pastor, bypassing the church, so that the funds would not be considered taxable income to the pastor, and would not be deductable for the donor. This seems problematic; the pastor's announcement and letter seem to imply a solicitation regardless of the disclaimer.
I immediately had a concern, as a member of the church benevolent committee, with the taxability issue. Research I have done indicates that to be tax free, the gift must be given "spontaneously with detachment and disinterest". What I understand this to mean is that the person given the gift must not be a person who provides any service or anything of value to you. You can gift your family or close friends but not a counsellor, contractor, etc. From a court cases and other information it appears that a pastor is considered as a person providing a service to the members of the congregation.
In one case I read a summary of a pastor who was in serious trouble with the IRS for not reporting love gifts as income. A person who had been her personal friend for twenty years had given her a gift of money as he left the church. She had been his pastor for the last three years but they claimed the gift was based on their friendship. The IRS won in court which ruled that since the pastor provided counsel to the giver the funds were taxable income.
This is an issue that seems to be ambiguous due to lack of clarity on the part of the IRS. Some sources of info for churches say that if the gift is given outside the involvement of the church it is non-taxable but many others disagree. One said that it is almost impossible for any funds given to a pastor by church members to be considered tax free.
I had advised the elders that they should set up a "Medical Expense Reimbursement Plan" funded by the church (donations could be made to the plan) which would cover expenses not covered by insurance. This kind of plan must include all full time employees and is approved by the IRS. It can even pay for documented over-the-counter medications. An elder I mentioned it to felt it was too late in this case.
Has anyone had any experience in these issues and how they are handled? I suspect many churches do not handle love gifts and benevolent donations properly out of ignorance of this matter.
The church sent out a letter stating that "this is not a solicitation for donations" and that people should make donations directly to the pastor, bypassing the church, so that the funds would not be considered taxable income to the pastor, and would not be deductable for the donor. This seems problematic; the pastor's announcement and letter seem to imply a solicitation regardless of the disclaimer.
I immediately had a concern, as a member of the church benevolent committee, with the taxability issue. Research I have done indicates that to be tax free, the gift must be given "spontaneously with detachment and disinterest". What I understand this to mean is that the person given the gift must not be a person who provides any service or anything of value to you. You can gift your family or close friends but not a counsellor, contractor, etc. From a court cases and other information it appears that a pastor is considered as a person providing a service to the members of the congregation.
In one case I read a summary of a pastor who was in serious trouble with the IRS for not reporting love gifts as income. A person who had been her personal friend for twenty years had given her a gift of money as he left the church. She had been his pastor for the last three years but they claimed the gift was based on their friendship. The IRS won in court which ruled that since the pastor provided counsel to the giver the funds were taxable income.
This is an issue that seems to be ambiguous due to lack of clarity on the part of the IRS. Some sources of info for churches say that if the gift is given outside the involvement of the church it is non-taxable but many others disagree. One said that it is almost impossible for any funds given to a pastor by church members to be considered tax free.
I had advised the elders that they should set up a "Medical Expense Reimbursement Plan" funded by the church (donations could be made to the plan) which would cover expenses not covered by insurance. This kind of plan must include all full time employees and is approved by the IRS. It can even pay for documented over-the-counter medications. An elder I mentioned it to felt it was too late in this case.
Has anyone had any experience in these issues and how they are handled? I suspect many churches do not handle love gifts and benevolent donations properly out of ignorance of this matter.