BulldogTom Posted May 20, 2009 Report Share Posted May 20, 2009 A friend of mine passed this by me for my opinion. He knew of a family in his church that was having a hard time. He asked the chairman of the benevolent committee if they would do some thing for the family and they said they would. So he wrote a check for $1000 to the church and gave it to the committee chairman. The committee chaiman told him to put the family name on the check in the memo line, which he did. Then the chairman gave the check directly to the member in need. My take is this is a direct contribution to an individual and not deductible. What do you say? I still want to know how the family was able to cash the check, but that is a different question. And this is not a family member, close friend, or otherwise related party to my friend. Just someone in his church on hard times. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted May 20, 2009 Report Share Posted May 20, 2009 Your take is correct, I believe. My reference is Church & Clergy Tax Guide. Gifts, to be deductible contributions, must have no strings attached or be specifically for an individual. The church committee must have full discretion as to the use of the funds. In this case, the donor could have made known his desire for the use of the money but could not make the gift contingent on it to be deductible. The chances of the money being used for another purpose are quite slim, but not zero. See Rev. Ruling 62-113. Quote Link to comment Share on other sites More sharing options...
ILLMAS Posted May 20, 2009 Report Share Posted May 20, 2009 The check was made to the church right? So the only thing they would need is an acknowledgement letter, they can reference the family it helped out, an acknowledgement letter from the church could be support incase of an audit. Quote Link to comment Share on other sites More sharing options...
jainen Posted May 20, 2009 Report Share Posted May 20, 2009 >>The check was made to the church<< Irrelevant--a technicality whose only purpose was tax avoidance. The substance of the transaction was a personal gift to an individual. That's what was intended, and that's what happened. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted May 20, 2009 Author Report Share Posted May 20, 2009 >>The check was made to the church<< Irrelevant--a technicality whose only purpose was tax avoidance. The substance of the transaction was a personal gift to an individual. That's what was intended, and that's what happened. Except that the friend never told the committee who to give the money to. He merely brought the family to the attention of the committee, and then gave a donation designated to that fund. The church committee chair directed the donor to put a name on the check. I hear what you say, and I think that you are correct, (not about tax avoidance - that was never the motive). I think it was not my friend who made this non-deductible, I believe it is the church that created the problem. How about this for a comparable scenario. Feed the Children has a funds drive and they ask you to sponsor a child. You give $100 per month for the direct support of a needy child. They send you a picture of the child you are supporting. Is this no longer deductible, even though sent to the qualified charity, because it is made for the benefit of a single individual? Is this merely a tax avoidance scheme? Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted May 20, 2009 Report Share Posted May 20, 2009 Feed the Children or Children International or like organizations have full control over the funds and discretion as to the use. I have sponsored several children and even visited one in Ecuador. The amount of my contribution that actually trickled down to the child was just a percentage of the total. The organization uses the funds to further their charitable purpose which includes educating the children. I don't have a specific reference for these situations but am fairly certain they have met whatever criteria are established to make this support deductible. When churches want to sponsor a particular missionary, it has to in furtherance of the mission and only if the church or missions agency exercises full control over the funds and ensures that they are spent in furtherance of the church's mission. I think Feed the Children would be happy to provide the citation for their tax exempt purpose allowing deductibility of contributions. It could be that your friend's contribution would slip through but I wouldn't want to bet on it. And it clearly was not intended for just the mission of the church but for the benefit of the individual. If your friend gave this money primarily for the deduction, well, he only got the benefit of his tax bracket anyway. Worst case scenario is that his true gift to the family was a bit larger than he thought and he can feel blessed that he is in a position to be so generous. Quote Link to comment Share on other sites More sharing options...
jainen Posted May 20, 2009 Report Share Posted May 20, 2009 >>tax avoidance - that was never the motive<< Look, his payment was clearly tied to the committee's promise of targeted help. The donor can now say that was not his original intent, but that is what actually happened above his signature. Even the chairman refused to accept it as a church asset, acting simply as an agent or intermediary in delivering the check. Making the church the first payee on a third party check had no economic substance other than appearing to document a tax deduction. This is a perfect example of why Congress changed the law so that a canceled check is not sufficient proof [section 170(f)(8)]. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted May 20, 2009 Author Report Share Posted May 20, 2009 Margaret, I was not picking on Feed the Children, they are an excellent organization. I hope it did not sound like I was? I was just using them as an example of a donation going directly to the benefit of an individual. Jainen, As for my friend, he is in the top tax bracket and is more concerned about being audited than he is about getting the deduction. He is very generous to his church and gives to this particular fund on a regular basis. His jewels in his crown are more important than the deduction on his tax return. Jesus said, "Render unto Caesar what is Caesar's, render unto God what is God's". I just believe we should take the deduction when we follow this instruction. But, Caesar's rules are also to be followed in taking the deductions. I think the rules were not followed and no deduction. My friend is a good man, a generous man, and this was not motivated by tax avoidance. He never told the church to give to this family, and he never said how much to give. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
Margaret CPA in OH Posted May 20, 2009 Report Share Posted May 20, 2009 I didn't take your mention of Feed the Children to be picking on it. I understood it to be a question as to how it can use what seems to be targeted money and the donor get a deduction. It does seem to be at least a similar situation. You original post seemed to indicate by the sequence you described that the donor specifically wanted to target his donation to this needy family. That seemed supported by your statement that he wrote the family name on the check. It would seem he understood exactly what the result would be. His generosity is to be admired and his crown jewels will shine all the brighter now. Quote Link to comment Share on other sites More sharing options...
jainen Posted May 20, 2009 Report Share Posted May 20, 2009 >>He is very generous to his church and gives to this particular fund on a regular basis.<< That's very admirable. Now please explain why he changed his procedure for this particular gift. I don't know the back story, but I know there is one. Unless you expect us to believe the committee tricked or cheated a major donor, it's obvious he understood this transaction was different and was not going through the church. So if not for a deduction in the top tax bracket, what other reason could he have for putting the church's name on the front of his check when he knew they weren't getting the money? I am not suggesting anybody had a nefarious purpose. Perhaps the committee's internal accounting controls prevented it from acting quickly enough, or the family's need did not meet the technical parameters spelled out in the church's bylaws. But that's the end of it. When he used the church anyway, it had the appearance of a tax dodge. Even conceding the innocence of his inquiry, your answer can only be (as indeed it was), this is not deductible. Quote Link to comment Share on other sites More sharing options...
Jack from Ohio Posted May 20, 2009 Report Share Posted May 20, 2009 >>He is very generous to his church and gives to this particular fund on a regular basis.<< ...Even conceding the innocence of his inquiry, your answer can only be (as indeed it was), this is not deductible. I totally agree with jainen. If the church did not administer the funds, NO DEDUCTION. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted May 20, 2009 Report Share Posted May 20, 2009 Well, Tom, I'm gong to chime in on the other side, sort of. It MIGHT be that the Chairman screwed up, but I'd first want to know how the donee cashed the check. I agree that it should have gone through the church account, to be deductible. But I'd want to look at the endorsements on the check. If the Church, through it's officer, endorsed the check, and the Church gives him a letter acknowledging the gift, then I'd take it. So I'd ask to see the canceled check, and also ask about acknowledgment from the church. Just because he talked to the Chairman about someone he knew needed help is certainly not the same as as controlling where the money went. He made the check out to the Church fund. And only added the name after he was asked to, after he had already committed to the gift without strings. That is not prohibited. Any more than giving to any other Church fund-raising event, where all the donors know what the money is going for. Quote Link to comment Share on other sites More sharing options...
MAMalody Posted May 20, 2009 Report Share Posted May 20, 2009 A friend of mine passed this by me for my opinion. He knew of a family in his church that was having a hard time. He asked the chairman of the benevolent committee if they would do some thing for the family and they said they would. So he wrote a check for $1000 to the church and gave it to the committee chairman. The committee chaiman told him to put the family name on the check in the memo line, which he did. Then the chairman gave the check directly to the member in need. My take is this is a direct contribution to an individual and not deductible. What do you say? I still want to know how the family was able to cash the check, but that is a different question. And this is not a family member, close friend, or otherwise related party to my friend. Just someone in his church on hard times. Tom Lodi, CA For this to be decuctible,the contribution must have no strings attached. Per the posting above, the individual only gave the money after the chairman said they would do something for the family. He then gave the money directly to the individual. It woud appear that the intent is to help the individual, not make a contribution to the benevolence fund that may or may not help the family. Based on the fact pattern expressed above I would say it is not deductible even if the church did give him a letter of receipt. In my opinion (for whatver that is worth): The fact that this man has a generous nature and has helped out in the past, for tax purposes is not relevant. What he actually did is what is relevant. The fact that his is not how he has done it in the past, based on the fact pattern above, is not relevant. What he actually did is what is relevant. Quote Link to comment Share on other sites More sharing options...
Catherine Posted May 21, 2009 Report Share Posted May 21, 2009 Except that the friend never told the committee who to give the money to. He merely brought the family to the attention of the committee, and then gave a donation designated to that fund. The church committee chair directed the donor to put a name on the check. I hear what you say, and I think that you are correct, (not about tax avoidance - that was never the motive). I think it was not my friend who made this non-deductible, I believe it is the church that created the problem. How about this for a comparable scenario. Feed the Children has a funds drive and they ask you to sponsor a child. You give $100 per month for the direct support of a needy child. They send you a picture of the child you are supporting. Is this no longer deductible, even though sent to the qualified charity, because it is made for the benefit of a single individual? Is this merely a tax avoidance scheme? Tom Lodi, CA It could also be presumed that the person made a donation to a restricted fund of the church, put the name of the restricted fund on the check, and the church used the money for the restricted purpose. Churches have many restricted funds -- flowers, Sunday school, music -- this could be another one. Quote Link to comment Share on other sites More sharing options...
jainen Posted May 21, 2009 Report Share Posted May 21, 2009 >>giving to any other Church fund-raising event, where all the donors know what the money is going for.<< There is a difference between knowing where the money will go and directing where it will go. Neither is prohibited, but only one is deductible. I honestly don't understand the argument that he "only added the name after he was asked to." To me that says the chairman knew it was a directly designated gift, refused to accept it until it was openly labeled as such, and simply forwarded the check instead of posting it to the church account. Anything less would be money-laundering. It furthermore emphasizes that the taxpayer knew this was not the normal procedure for a donation. I'm still waiting for someone to explain why it was done this way. I've suggested two reasons--either the church was lying to their major donor about what they would do with his money, or the donor desired to get the church's name on the face of the check before he approached his tax preparer. (The tax preparer's immediate and lasting impression was the same as mine.) Quote Link to comment Share on other sites More sharing options...
Daune/CA Posted May 21, 2009 Report Share Posted May 21, 2009 The check was made to the church right? So the only thing they would need is an acknowledgement letter, they can reference the family it helped out, an acknowledgement letter from the church could be support incase of an audit. The problem lies in the fact that the church never received the funds. If the church is showing receipt of the funds and then showing it distributed to the needy family is could be a charitable donation, it depends on how the church is handling it on their books. If they do not show receipt, it is not a charitable contribution. Daune/CA and former pastor Quote Link to comment Share on other sites More sharing options...
Daune/CA Posted May 21, 2009 Report Share Posted May 21, 2009 It could also be presumed that the person made a donation to a restricted fund of the church, put the name of the restricted fund on the check, and the church used the money for the restricted purpose. Churches have many restricted funds -- flowers, Sunday school, music -- this could be another one. Churches have many "designated funds" that people show where they want the funds to go that they designate. The church is bound to distribute any funds designated to any specific needy family to go to them. They may not withhold any portion even for administrative purposes, which most churches do provide the administrative costs to their operating budget and not frm any designated funds. Daune/CA Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted May 21, 2009 Author Report Share Posted May 21, 2009 >>He is very generous to his church and gives to this particular fund on a regular basis.<< That's very admirable. Now please explain why he changed his procedure for this particular gift. I don't know that this was a change in proceedure. In my own church, I am occasionally approached by members who want to give me donations for the youth group I am in charge of. I accept the checks and forward them to the bookkeeper for recording in our fund account. I am not sure how he normally gives to special funds in his church, but I know he does make many separate checks for various funds outside the general fund. Having been on the inside of the workings of a church finance committee and knowing that the offering is the worst place to make a designated gift (becuase the volunteers are trying to count the cash very quickly and get home on Sunday) I would assume that this was his rational for going directly to the chair with the check. I know he delivered another check this week to pay for a server upgrade at his church (after I convinced him not to buy the server and give it, but to have the church buy it and give them a check for the cost). He took it in during the week and gave it to them. I can't answer your question Jainen, but thank you for confirming my analysis of this transaction. Just a follow up - an elder of his church called me and wanted to know why their was a problem with the way they did this. They trully just thought they were being expedient. The other issue that was brought up was confidentiality. My friend never intended that they knew he knew that they were on hard times. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
taxxcpa Posted May 21, 2009 Report Share Posted May 21, 2009 Churches have many "designated funds" that people show where they want the funds to go that they designate. The church is bound to distribute any funds designated to any specific needy family to go to them. They may not withhold any portion even for administrative purposes, which most churches do provide the administrative costs to their operating budget and not frm any designated funds. Daune/CA I recall a situation in which one employee did not want to contribute to the United Fund because part of the money went to unwed mothers. He said he would be willing to contribute if his contribution could be sent to a Retarded Children's fund which participated in the United Fund. However, if his money went speciffically to that organization, it was subtracted from their share of the general pot, which he found unacceptable. He finally gave in and contributed after constant 'talking tos' by his boss who wanted 100% of the office to contribute. Quote Link to comment Share on other sites More sharing options...
JohnH Posted May 21, 2009 Report Share Posted May 21, 2009 Sounds like your friend learned the most important thing about United Way. It's mainly an enterprise about business politics with secondary charitable purposes. Quote Link to comment Share on other sites More sharing options...
Recommended Posts
Join the conversation
You can post now and register later. If you have an account, sign in now to post with your account.