One of the first rules of federal and property tax exemption is that an organization or church may not serve the private interests of a donor at the organization’s detriment. This is a delicate challenge for churches when faced with the desire to financially help church members through a tough time. It’s natural for members of the church body to want to help each other. The best course of action is for churches to establish a policy for a benevolence fund. With a policy in place, the person needing assistance can apply to the fund for financial help. Assign a committee to follow these 5 steps to create a compliant written benevolence policy:
- Define the ‘charitable class’ for which the policy will apply. The terminology must be broad, such as those who are distressed, poor, or ill.
- Determine what specific needs the fund will cover, such as medical expenses, funeral expenses, housing, clothing, or food.
- Designate the documentation required, such as an application for assistance and whether bills or receipts for purchases are necessary. The application should also require proof of need, such as several months of bank statements.
- Decide how the policy will be administered, such as by a committee.
- Gain approval for the policy from the church’s governing body.
When there is a benevolence fund in place, the church can ask members to donate with the assurance that a committee is following a policy to consider requests based on meeting the criteria of the policy.
Aside from applying for benevolence funds, church members may still help one another, but without a tax deduction. In 2015, any person may gift another person up $14,000 (or $28,000 if from a married couple). The gift is not taxable to the recipient, but it is also not a tax deduction for the giver. Similarly, if the donor writes a check to the church, and the donation goes to a designated receiver, the amount isn’t tax deductible. To be tax deductible, donors must surrender control of use of funds.
For more information, talk with one of our nonprofit specialists at Salmon Sims Thomas Accountants and Consultants.