5 Important Lessons on Handling Donations
In September of 2014, amidst internal controversy involving his leadership, Mark Driscoll resigned as founding pastor of Mars Hill Church in Seattle, Washington. One month later, it was announced that the mega-church would dissolve effective January 1, 2015. Fast forward 18 months from his resignation, and Mark Driscoll is once again finding himself within the headlines of Christian media.
Former members of Mars Hill Church have filed a lawsuit against Driscoll and the then general manager and executive elder of the church, John Sutton Turner. Both Driscoll and Turner are being accused of misappropriating a total of $92,700.00 between the two plaintiffs who filed suit.
The plaintiffs in the case claim that both Driscoll and Turner defrauded them, along with thousands of other church goers, by telling them that certain funds collected were for one purpose, such as overseas missions, and then used for other purposes. The suit claims that Driscoll and Turner used church funds that were solicited for specific purposes to support and promote a personal book endeavor of Driscoll’s.
As of today, the courts have not yet issued a ruling; however, there are some valuable lessons we can learn from the matter at hand involving a church’s responsibility with the donations it receives. We will examine and discuss 5 invaluable lessons pertaining to donations for every pastor and church leader no matter the size of your ministry. But first, let us make sure that we are all on the same page in our understanding of misappropriation.
A quick disclaimer
Before we proceed, I would like to note that in no way through this post am I validating or invalidating the allegations brought against Mr. Driscoll and Mr. Turner. Rather, my intention through this type of post is to extract lessons that can be learned from such incidents and to present them to pastors and church leaders so as to benefit them and their churches.
Now, let us move on to examine misappropriation.
Misappropriation, what does it mean?
The legal definition of misappropriation is “the intentional, illegal use of the property or funds of another person for one’s own use or other unauthorized purpose, particularly by a public official, a trustee of a trust, an executor or administrator of a dead person’s estate, or by any person with a responsibility to care for and protect another’s assets.”
Misappropriation can occur when donations are solicited for a specific reason and then used for a completely different reason without informing the donors.
As noted in the case involving Driscoll, donors gave as a response to the church’s request for specific projects and purposes. The donors claim that their donations were misappropriated because the church then used those donations for other purposes than what were initially presented to them.
This is where many churches and ministries can find themselves in a messy situation. The key here is for you to have a clear understanding about handling the donations your church receives.
How to avoid misappropriating funds
There are 5 invaluable lessons that every pastor and church leader can learn from the lawsuit that was filed against Mr. Driscoll. Those lessons are as follows:
Lesson #1: Know the difference between designated, restricted, and solicited funds.
- Designated donation: when a donor gives, noting a desired intent for his/her donation. These are donations given with a suggested use from the donor. Designated donations may be claimed as a tax-deductible donation by the donor.
- Restricted donation: when a donor gives with a required intent for his/her donation. In other words, a donor requires that his/her donation must be used for a specific purpose and for that specific purpose only. Restricted donations are not tax-deductible to the donor because the nonprofit does not have control over the use of the funds.
- Solicited funds: funds given at the request of an organization, for a specific purpose. Donors of a solicited fund may still receive a tax deduction for this gift because the nonprofit is choosing to restrict how that fund will be used, not the donor.
The best way to handle donations depends upon how you solicit the donations and the donors’ intent when they give.
Lesson #2: Understand donor intent.
The key in understanding whether a donation is considered designated or restricted, and therefore tax-deductible or not tax-deductible, is to determine donor intent. The following is a excerpt from IRS PLR-200250029:
“The organization must have control and discretion over the contribution, unfettered by a commitment or understanding that the contribution would benefit a designated individual… The donor’s intent must be to benefit the organization and not the individual recipient.”
In essence, this means that in order for a donor to claim a tax deduction on a donation given to your church, he must relinquish control, thus giving your church the ability to use the donation at your discretion.
Lesson #3: Inform your donors of the necessity to relinquish control of their donations in order to claim a tax deduction.
This can be done by adding certain language to your offering envelopes or to your website for when donors give online, or at giving kiosks. This wording can be as simple as the following:
“This church is a qualified 501(c)(3) organization. All tithes, offerings, or donations of any kind are deductible under IRC section 170(c)(2). Unless otherwise noted and in accordance with IRS regulation, you agree to relinquish control of the donated funds to the discretion of this church.”
It is also best practice to inform any donor who restricts his donation(s) to a specific use that his donation is considered a restricted donation and is not a tax-deductible contribution.
Lesson #4: Clearly indicate whether or not a solicited fund may be used for another purpose.
One mistake Mars Hill Church may have made was not making donors aware that when necessary, funds may be directed to other needs of the ministry. When your donors are fully informed and aware of how their donations may be used, a certain bond and trust is built between your church and its donors. This is an invaluable attribute for churches to have.
Lesson #5: If donations for a solicited fund are no longer needed or the project is closed, notify the donor.
There may come a time when your church receives a donation for a project that has been completed or terminated. What should you do in this instance?
In a situation like this, your church has the responsibility of informing the donor that the fund no longer exists and then offering to the donor one of two options.
1. Offer to redirect the donation: The first thing your church needs to do is inform the donor that there is no longer a need for that specific fund or purpose. You should then ask if he would like to redirect his donation to the general fund or to another ministry program.
2. Offer to refund the donation: If the donor does not want to redirect the funds, the church is under legal obligation to offer a refund because it is a program that the church set up and asked people to support. These funds are restricted and can only be used for their intended purpose.
If the donor wants a refund for the donation, it is important for the church to send the refund with a letter explaining that if the taxpayer claimed a tax deduction on his tax return, he may need to amend the tax return using Form 1040X.
Simple steps that can protect your ministry
By implementing what you learned from the 5 lessons mentioned above, you will be holding your church to a high standard of financial integrity and stewardship that can only benefit both your church and donors in a positive manner. Furthermore, the implementation of these lessons can help prevent the type of situation that Mark Driscoll finds himself in today.
About the Author
Church Planter. Speaker. Author. CEO. Raul Rivera has had ample experience in the church planting world. His current venture, StartCHURCH, has helped 1000’s of churches to start right. Raul has compiled an array of manuals and software tools that help churches stay compliant with the IRS. He also hosts over 35 national conferences per year, training pastors on how to launch their churches. Raul is married to his wife Genel, and they and their five children live in Atlanta, GA.