By: Raul Rivera 

Lindsey, the church administrator, was exhausted. She had spent the past month sifting through envelopes, check ledgers, and scraps of papers from the offering basket trying to make sense of the church donations.

The church never developed detailed receipts for every donation that it received. Instead, the church thought that it only needed to keep track of the donations and to send a letter to each donor indicating the total amount that he/she donated.

Lindsey soon learned that the church’s method of tracking donations was wrong.

A church member had been audited the prior year, and all of his donations to the church were scrutinized. The church’s giving statement to the member only listed a total amount donated for the year. As a result, the member needed to go through his records to find cancelled checks and credit card statements to prove what he had donated.

The church assisted the member throughout his audit. During the process, the church learned that the IRS has many more rules about managing donations and donation statements than it had realized.

Lindsey was now assigned the task of getting all of the church donations in order, and it was not simple.

The church’s responsibility to its donors

This story is familiar to hundreds of churches across the country. Every day, ministers are learning that what they thought was true about donation receipts is outdated or wrong.

There are several aspects that every church should be aware of when managing church donations. For example, providing giving statements to donors and having an appropriate tithe and offering counting policy are key for accountability and accuracy in managing church funds.

The truth of the matter is when a donor claims a tax deduction for charitable contributions given to a nonprofit organization, the burden of proof falls upon the donor.

For instance, the Pension Protection Act (PPA) of 2006 increased the requirements for donors to substantiate (or prove) their giving when claiming a charitable deduction on income tax filings. (See section 1217 of the PPA.)

Therefore, in order for one of your church members to receive a tax deduction for a donation, he/she must be able to show one of two things:

  1. Bank records (check copies, bank statements, credit card statements); or
  2. A written statement from the organization to which he gave.

What you need to know about donation receipts

Since your church relies on the contributions of your church members, there is no doubt that you will provide your members with donation receipts. Doing so is one way to say “thank you” to your donors for their contributions, and you are also helping to alleviate their burden of proof for the IRS.

There are several “rules” that your church should be mindful of before distributing donation receipts. Let us take a look at the rules below.

Rule #1: Distribute contribution statements on or before January 31st

By the end of January, most taxpayers have received their W-2, 1098, 1099-MISC, or other tax-related documents. In order for a taxpayer to deduct a church donation, he/she must receive a contribution statement before filing a tax return.

It is usually a good idea to make an announcement that your contribution statements will be issued to church members by January 31st. Ideally, members should wait on filing their tax returns until they have received their statements. 

Rule #2: The credit card rule

Many churches now accept credit card donations. IRS Publication 526 states that contributions charged to a bank credit card are deductible in the year that the charge is made.

This means that if an individual makes a credit card donation on December 30th, but the church does not actually run the card until January 1st, the donor does not get to write it off until the next year. If this happens to you, adjust your records to ensure that the contribution statement is correct.

Rule #3: The quid pro quo rule

This rule requires that your ministry keep track of donations to your church when the donor receives something in return. An example may be the recording of a Sunday sermon. A church sells a CD of the sermon for $10.00, and the donor gives the church $50.00. The quid pro quo rule allows the donor to get a tax-deductible donation of $40.00 because the giver received something in return for the donation.

Quid pro quo requires your church track donations when a donor receives something in return.

Rule #4: The $75.00 rule

Tax regulation requires a donor, who gives a quid pro quo contribution exceeding $75.00, to receive a separate, written receipt that states how much was donated. The receipt should include a good faith estimate of the value of the goods or services the donor received in return. Let me give you an example.

Several years ago, I attended a revival at a church in Florida. The traveling evangelist had a table in the lobby where he sold some of his books and CDs. He also had a special table where someone could sign up to become a partner in the ministry. All that someone had to do that day was to contribute $100.00 and make a pledge to give $100.00 per month. In return, that person would receive newsletters, prayer cards, and special reports. To top it off, the individual would also get a beautiful gift basket (worth over $50.00).

Though the baskets had actually been donated to the ministry, when the ministry gave the baskets away to those who made $100.00 contributions, the receipt had to state that $50.00 was tax deductible (under the quid pro quo rule) because the basket that the donor received in return was worth $50.00.

Under the $75.00 rule, because more than $75.00 was originally donated (though only $50.00 counts as tax deductible), the donor must receive a separate, written receipt (to get a tax write off) stating a good faith estimate of $50.00 received back in goods or services. A simple contribution statement will not suffice in this instance.

Rule #5: The $250.00 rule

Like rules #3 and #4 above, this rule requires that any donation of $250.00 or more be treated differently, if the giver received something in return. In order for the donor to get a tax write off, he/she must get a separate, written receipt stating how much was given and that “other than those listed, no goods or services were provided except for intangible religious services.”

However, if the giver did not receive anything in return, you can itemize it into the annual statement with any other donations so long as you include that “no goods or services were provided except for intangible religious services.”

Rule #6: The noncash rule

This rule prohibits churches from providing receipts for donations that are not cash. For example, if a member donates a used computer, the church is prohibited by section 170(f)(8)(B)(i) from estimating the value of the donation and issuing a receipt for that amount. Therefore, if the computer is worth $600.00, the church cannot give the donor a receipt for $600.00

Instead, the church should issue a contemporaneous written acknowledgment.

Rule #7: The $500.00 rule

This rule applies to donors and to churches when a person makes a noncash donation that is valued at more than $500.00. Churches often receive big donations such as computers, desks, pianos, organs, drums, and office equipment. In order for the donor to write off such a donation, he must file Form 8283 with his tax return. The purpose of this form is twofold: (1) the donor can claim the value for the item given; and (2) the church can sign off on the form to acknowledge receiving the gift.

Understanding the rules of donation receipts is an important part of understanding the process, but it is only a part. It is critical that you have a method that helps you to create proper donation receipts for your donors, and helps you to keep track of donations.

raul-riveraRaul and Genel bring unique voices into the church planting arena.  Their journey began in the 1990s when they successfully started and pastored their own church from the ground up.  Then God inspired Raul and Genel to pursue a different type of ministry:  equipping pastors and ministry leaders with the legal knowledge necessary to build life-changing churches and organizations.  In the two decades since they answered God’s call on their lives, Raul and Genel have taught thousands of pastors and church leaders how to start right, stay right – and sometimes how to get right!
Raul and Genel have 5 children and live in the Metro Atlanta area. When they are not helping plant churches, they go to their farm and raise cattle, swine, sheep and poultry.

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