Earmarked Charitable Contributions

The IRS recently responded to a Senator’s inquiry related to contributions to a church that were made to help the church’s minister pay previous health expenses. The issue of the inquiry was whether members could take a contribution deduction and whether the minister has to include such donations in income.

IRS said that for a contribution to a church to be deductible under the tax code, the church must have full control of the donated funds and discretion as to its use. This ensures that the organization will use the funds to carry out its functions and purposes.  Additionally, the donor must intend to benefit the charitable organization and not an individual recipient.  Thus, contributions earmarked for a specific individual aren't deductible as charitable contributions.  As a result, an individual member's contribution to the church that is designated for the benefit of the minister is not deductible as a charitable contribution.

With regard to the taxability to the minister, the IRS noted that generally a taxpayer’s gross income includes all income from whatever source derived.  However, the value of property acquired by gift is excluded if it: comes from a detached and disinterested generosity; is made out of affection, respect, admiration, charity or like impulses; is not made from any moral or legal duty, nor from the incentive of anticipated benefit of an economic nature; and is not in return for services rendered.  Thus, if meeting the criteria of a gift, the amounts would not be taxable to the minister.

If you have further questions regarding earmarked contributions, please give this office a call.

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