New Tax Law Sets Religious Groups Scrambling for Donations

Mission Aviation Fellowship, a Redlands-based group that flies missionaries and medicines into remote parts of 30 countries, recently sent Southern California’s 7,000 private aircraft owners a four-page brochure with a likeness of the Snoopy cartoon character aviator on the cover.

“The end is near for aircraft owners . . . ,” the cover warns. Inside, the line continues, “. . . to give in 1986.”

The flyer advises the pilots that they can still get a full tax write-off if they give their planes to the missionary agency by Dec. 31. So far, 27 high-performance planes have been donated, said Walter Thomas, who heads the group’s deferred-giving program.

Scramble Is On

Missionary Aviation’s imaginative campaign is an example of how church-related organizations are scrambling to tell donors what to do to maximize their 1986 income tax deductions--and increase the religious groups’ income--before the Tax Reform Act of 1986 takes effect on Jan. 1.

World Vision, the mammoth Christian relief agency headquartered in Monrovia, is sending out an “End-of-The-Year Gift” brochure to its larger givers and has 24 staff financial consultants each personally tracking 250 major donors, according to World Vision’s chief financial officer, John Jemelian.

“If your present tax rate is 50%,” advises the World Vision brochure, a gift of $10,000 this year reduces your taxes by $5,000, meaning that the gift cost you only $5,000 out-of-pocket. In next year’s . . . 38% top bracket, the same gift would provide a tax deduction of only $3,800.”

Many Are Optimistic

Despite dour predictions by some analysts that the tax act of 1986 will cost U.S. nonprofit charities billions of dollars in lost donations, officials of major religious groups and fund-raising organizations now appear more sanguine about donor support.

“I don’t think we’re going to see a decline in national charitable giving” despite certain adverse effects, Alan Bergstedt, an Arcadia-based consultant for religious groups, told a recent gathering of 170 leaders of churches and church-related organizations.

“We shouldn’t lose sight of the reason why people give--it’s not because of the tax impact primarily, but because they are committed to the organization,” Bergstedt said.

Other experts on the panel, hosted by the Christian Ministries Management Assn., a national professional group with offices in Diamond Bar, agreed with Bergstedt’s assessment. Questions about the effect of tax reform on nonprofit organizations and their employees drew a record crowd to the management group’s bimonthly meeting in Monrovia.

For Itemizers Only

Beginning Jan. 1, only those who itemize their deductions will be able to deduct their gifts to charities. Also, by 1988, taxpayers may deduct a maximum of only 28% of their adjusted gross income for charitable gifts; the current law permits such deductions up to 50%. The federal tax revision provides a tax-rate structure for individuals that will flatten out by 1988 to two brackets of 15% and 28%.

If, among themselves, church financial officers are not overly alarmed about the prospects of decreased funds resulting from tax-law changes, at least one World Vision official seemed to be publicly singing a slightly different tune last summer.

Bill Kliewer, executive vice president of World Vision, said in a press release last August that the new law “will deal a terrible blow to ministries that rely on small donations.” To back up his assertion, Kliewer quoted Harvard economist Lawrence Lindsey, who has said the new tax act will cause a $13-billion-a-year drop in charitable contributions.

Kliewer said estimates from the Independent Sector, a charitable umbrella agency, predicted that charitable giving could decline as much as 20% because of the tax shift.

Pessimistic Outlook

“That translates to a $30-million annual drop for World Vision, based on this year’s income,” Kliewer noted. “That could deprive some 1 million to 3 million people of food, technical assistance, education and an opportunity to hear the Gospel of Christ in World Vision-sponsored projects. The consequences are unthinkable. . . .

“While the federal government clearly wants Christian charities to shoulder more burden for assisting the poor,” Kliewer added, “it is taking away one of the primary tools we use to raise funds--financial incentives to donors in the form of deductions for charitable giving.”

But World Vision’s Jemelian voiced a different opinion at the management forum: history shows that even when tax incentives are curbed, “people have not only continued to give, they have given more generously than before.”

Jemelian said that about 80% of World Vision’s givers are “non-itemizers who give several hundred dollars a year.” They probably won’t cut their contributions next year, he added, because “most donors decide to give first, and ask tax questions later.”

Asked by a reporter about the apparent contradiction between his view and Kliewer’s, Jemelian replied: “I don’t know why he said that.”

Thomas, the Mission Aviation official, echoed Jemelian’s point: “I’m not worried, because most of our (80,000 active) donors would stay with us even if there were no deductions. . . . A lot would give extra if they thought we would be hurting.”

The managers of smaller religious groups said they also believe that donors will stand by financially.

Declared Dennis Holsopple of Through the Bible Radio Network, a program supplier in Pasadena for 600 stations: “I expect a dip in January and February, and then it’s going to come back. Our givers are loyal.”

Financial planners at the Christian management forum said they are encouraging donors to itemize charitable gifts next year so they can qualify for the tax deduction. But John Caldwell, a tax partner with the law firm of Caldwell & Toms in Los Angeles, cited predictions that the current 64% of the nation’s 142 million taxpayers who don’t itemize will climb to 75% to 80% in the next several years because they “will not have any tax motivation to give.”

Housing Deductions

At the same time, experts on the Christian Ministries panel said, the new act will maintain tax exemptions for church pension and welfare boards and restore housing deductions for ministers who are homeowners.

The tax measure revoked an Internal Revenue Service ruling that froze the ability of clergy receiving housing allowances to take deductions on mortgage interest and real estate taxes if they owned their own homes. Beginning next year, ministers receiving housing allowances who failed to claim deductions for interest and real estate taxes paid for 1983-85 are eligible for tax refunds.

“Now they can have their cake and eat it too,” Caldwell said.

Clearly, the religious financial managers’ biggest concern is that the relatively small number of big givers in higher tax brackets will lose significant tax advantages and therefore give less to charitable causes.

Under the new act all capital gains will be treated as ordinary income and therefore taxed at a higher rate. Thus, those making gifts of appreciated property like stocks and real estate would likely benefit by giving them to charitable organizations before the end of the year, consultants advised.

Stumping the Circuit

Advisers like Mission Aviation’s Thomas are stumping the donor circuit, getting out that word before the deadline.

“We have really hit that hard in our mailings and seminars,” he said. “We have had a major outpouring of gifts these days.”

So far, the letters to Southern California airplane owners have fielded donated planes with a net value of about $1 million, Thomas said. In fact, he added, the idea has taken off so well that he has just written another 5,000 private aircraft owners who live in the “oil cities” of Texas and Oklahoma.

If the owner-donors can’t deliver the planes to Redlands by Dec. 31, no problem.

“MAF pilots will go pick ‘em up,” Thomas said.