New IRS Rule on Large Donations Means More Work for Churches
If generosity or guilt moved you to drop a check for $250 or more into the collection plate during 1994, don’t assume that your canceled check will be enough to satisfy the Internal Revenue Service if your tax return is audited.
Before sending their forms to the IRS this year, taxpayers who deduct donations to any charity--religious or not--are required under a new regulation to set aside for review a receipt stating that lump-sum gifts of at least $250 were not in exchange for goods or services.
This is the first year that the law will affect most people, and a recent sampling of religious congregations found that major denominations will have few problems supplying contributors with the proper paperwork.
Some concern was expressed, however, for donors to small, independent congregations, which may be unaware of the requirement.
“This (law) may be a problem for smaller churches that have part-time bookkeepers,” said the Rev. Dan Clark, interim pastor at Encino Presbyterian Church, where computer records of donations are made available on a quarterly basis.
The Encino church also tries to provide a backup system of proof for donations by congregants. “We save all our envelopes for a period of two years,” Clark said.
However admirable an anonymous donation in the collection plate might be, parish administrators such as Karen Tibbitts at St. John Baptist de la Salle Catholic Church in Granada Hills discourage it.
“We legally and morally cannot say you contributed some large amount if we have no record of it,” she said.
Tibbitts said that computers will provide a record of all 1994 donations to the 3,000-family parish on statements that indicate they were not in return for services or goods.
The new law for gifts of $250 or more was requested by Congress to eliminate charitable deductions wrongly claimed. If a person paid $250 to a church or charity to cover the full cost of a conference or trip, for instance, that will not count as a donation.
Mixed gifts are handled differently. Payments of $75 or more that are part charity and part payment for goods and services have to be documented. Thus, if $50 tickets to a church fund-raising concert would normally have been $20 to cover costs, only $30 can be counted by the taxpayer as a charitable deduction.
If the contributor gives an object of value to a church or charity--be it an ice cream machine or computer software--it is up to the donor to determine its worth.
“The religious organization doesn’t place a value on the gift; the owner is responsible for that,” said Max Lile, director of finance and development for the Church on the Way in Van Nuys. “When it is worth more than $5,000, the owner needs to get an appraisal saying that.”
Those requirements have been in the law before, however.
The newest wrinkle in tax law--the requirement pertaining to individual donations of $250 or more--has been widely publicized through mailings by the IRS to religious organizations, said Keith Kimball, public affairs specialist with the IRS office in Los Angeles.
Lile said that the Church on the Way has twice put notices of the change in its church bulletin, reminding people that they should not file their forms until they get printed statements from the church.
But, Lile said, “I’ll bet a lot of people will violate it.”
Church administrators noted that most people donate money in amounts smaller than $250, and that the change in the law does not apply to them, regardless of how high their accumulated contributions were for the year.
However, some congregants tithe--donating 10% of their income--and may send large checks to their churches monthly instead of dropping weekly donations into a collection plate.
At Adat Ari El Synagogue in North Hollywood, where money is raised for a variety of religious purposes, office volunteer Julius Schlesinger said that the new IRS requirement “has given us a lot of work.”
Money contributed for membership dues, the building fund and other special projects will be documented in individualized computer printouts, Schlesinger said. But receipts for donations to reduce the synagogue deficit and to build an endowment fund are being written manually, he said.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
IRS Booklets on Donations
Donors to religious organizations and other charities who want more information on federal tax rules may call a toll-free line (1-800-TAX-FORM) to request two booklets explaining the rules governing religious donations.
IRS Publication 1771 explains the new regulation requiring taxpayers to produce more than canceled checks in order to deduct lump-sum contributions of $250 or more to churches and charities.
Covering more ground, and written in a question-and-answer format, is IRS Publication 1828, “Tax Guide for Churches and Other Religious Organizations.” It is a compilation of federal tax regulations relating to religious bodies.