Restricted Donation Issues at a Church -- 5040-02 ZZchu

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                   TO:  Interested Churches                                                                                           FROM: Jim Bramer, Retired CPA-Auditor
                                                                                                                                                                  FILE:  5040-02/chu

                    RE:  Restricted Donation Issues at a Church                                                         Originated:  November 2003  

          Below is a hypothetical Online Email thread (THRD) between and one of these Ministry Finance Team (MFTeam) members: PAT (Ministry Executive), LEE (Ministry Volunteer Treasurer), and FRAN (Ministry Computer Bookkeeper).   Click Here and go to List of threads (THRDs) at

From:  Pat - 

    When I go to a list of your Truisms, or when I  Click Here , I find that we need to handle tax deductible designated donations a certain way. Please provide me with some more input for such types as below:

    1>  We have a certain church department that is funded within the General Fund (like Music or Junior High, for example) and people want to direct their gift to such an operating department.
   2>  Like Brad explains  Here, we have some self funding Ministries that the General Fund must underwrite.
    3>  We have a Benevolence Fund and people want to specify a certain church family or give to people outside our church.
     4>  People want to give in memory of a certain deceased loved one.
     5>  Assist someone in their Church Event costs or someone's Private School costs.
     6>  Staff Member Love offerings.


     Yes, such issues need to be clearly spelled out within your Church Finance Policy manual -- please  Click Here to access an example.  Please be careful as all such gifts must --

>>  Be given to the Church in furtherance of its tax exempt purpose
>>  Go to a Fund that has been pre-approved by the governing Board.
>>  Be handled so that it is not simply a "pass-thru" as described when you Click Here
>>  Not by-pass tax reporting --  if it is an approved Staff member "Love Offering," etc.

From: Pat --

    Jim, please comment on each of my 6 examples above.

From: Jim

    OK - with the above issues in mind, it is my view that Donors: 

"Can NOT" designate gifts for a certain GPFund operations department that is funded by undesignated gifts.
       2>  Can designate gifts to a certain Self Funding effort.
       3>  Can ask that certain needy Church people be helped, but the Church has the final say, etc. as set forth within the parameters found  Here.
 But "Can NOT" accommodate people outside the Church, etc.
     4>  Can give to pre-approved generic Church Memorial Funds.  Often such funds are broad enough so that the deceased would already have an interest in one of them.  For example,  the family would know that the deceased would have an interest in a Ministry to Young People and make it clear in such announcements.
     5>  Can give to applicable Self Funding effort like 2> above.  But "
Can NOT" donate money to help a specific staff member or young person in their Private School costs.
    6>  Can give to a generic staff Love Offering  ---  like funding a Christmas Bonus, etc.  I do not recommend that it be tied to a specific staff member like the Senior Pastor only, etc.

From: Pat --

    After the Church has articulated their policies, how do we handle money received that meets your above "Can NOT" criteria?

From: Jim

    My view is that the gift is temporarily placed in a  "Holding, or Suspense" account and Lee, as Church Treasurer - or Fran - phone them or write a very positive "Thank You" letter to the donor reminding them of such policies and stating that the money will go into such and such similar fund, or account,  unless you hear from them otherwise in a week, etc.  Do not encourage them to have the church return the gift, but, of course, that is an option.

From: Pat --

    Jim, do you have anything else that might contribute to doing this properly?

From: Jim

    The following is not unique to a Church, Pat, but I trust it is also pertinent and helpful:


    Questions concerning giving to specific individuals via an Exempt Organization, or "personalized giving", continue to surface. We set forth below our position on these matters, based on our understanding of Federal and State laws.


The following issues of tax law must be kept in mind:
    A gift by one person to another person is NOT a deductible charitable contribution regardless of the need.
    A contribution to an individual (sometimes call "Deputized Donations" working in a qualified Exempt Organization in furtherance of its exempt purpose is deductible.
    The interaction of these principles and their correct interpretation renders the answer to many of the "Personalized Giving" questions.
    It is mandatory that contributions to an Exempt Organization be under the control of its corporate trustees. It must not simply act as a "conduit" whereby funds are "passed through, or linked" to an individual as an accommodation to a donor. Exempt Organization staff members for whom the contribution is directed, where applicable, must be bona fide employees, or equivalent, of the qualified Exempt Organization and subject to its personnel and financial policies.    
    In order to be a deductible charitable contribution, the fund raiser can have no personal equity in the funds; it cannot inure to the private benefit of only an individual. The contribution must be to the Exempt Organization for its avowed purpose; which, of course, is primarily carried out by its representatives under the direction and control of its corporate trustees. The contribution must "proceed from detached and disinterested generosity; contain no proprietary selfish interest."

                                            DONOR PREFERENCE

    I recommend that you provide your donors with a copy of your financial policies stating some of the foregoing, and invite the donors to state their preference. We believe the policy should state that seldom will the requested preference NOT be honored, but the Exempt Organization's board reserves the right to use the funds where it believes it can best carry out its ministry.
    We are fully aware that many Ministries (Churches in particular) are careless in the administration of donor preference, or designated gifts, and they might be circumventing the "spirit" of these "personalized giving" regulations.
    Every Board should carefully determine a financial policy with the foregoing principles in mind. We recommend that all expenditures, ideally, be under budget control with a minimum of special purpose gifting. Ideally, donor restricted funds should be limited to those of integrated endeavors/auxiliaries.
    I am of the opinion that, as much as possible, all activities of a Church should be included in the annual budget; this includes all registration proceeds for special "outings" and their related expenses.
    I recommend that constituents send donations directly to Non Church Ministries (Other Exempt Organizations) as they are so led by the Lord. In our opinion, "passing such items" through the Church, defeats the "spirit" of these regulations. If such donations are passed through a Church, such contributions are not necessarily used for the Church's avowed exempt purpose and its Board does not exercise control -- all which are requirements before a Church can issue a tax-   deductible charitable contribution receipt.
    If a Ministry has a Ministry Project and the donations exceed what is needed, then it's declared policy should clearly state something like:  "If the Ministry Project's needs have been met, future designated donations will be used as the Board determines, etc."
    "Love offerings" given in consideration for services rendered by a church staff member (bonus) or by a special speaker (honorarium) should be properly handled for payroll reporting purposes and, as much as feasible, be within the framework of the Church Budget.
    I also recommend that the Church have a
Benevolent Fund to help constituents in financial need. When gracious people want to help a needy family, we recommend that they so indicate this desire when their gift goes to the Benevolent Fund, but they clearly understand that, in compliance with such policies, the Church leadership may or may not use it for the indicated family depending on the Church's assessment of the situation, etc.


    Do not permit your special status as an Exempt Organization to be abused with respect to the direction of donation income and related matters!


      "New Restricted Fund" issues at a Tax Exempt Endeavor with FASB 116 in mind. "Ministries" involved could be:

-- Member Supported Ministries - like a Church
-- Publically Supported Ministries -  like a Non-denominational Mission Agency or a
-- Christian School Ministry -

    In my opinion, the ideal process in establishing a "New Restricted Fund" at such Tax Exempt Ministries involves the following process:

    1>  The Board (of Leadership or it's authorized delegate) sees the need and authorizes the establishment of a named "New Restricted Fund" and then does the applicable fund raising and administration thereof.
    2>  A constituent of any such "Ministry" sees a need and asks the Board to establish this named  "New Restricted Fund". The Board then satisfies itself that the reasons for establishing this
"New Restricted Fund" are in accord with its Tax Exempt purpose and overall objectives.
    3>  Any constituent then sends donations for this
"New Restricted Fund" and the Ministry follows its written Finance Policy and procedures in making sure it is administered like it should be.
    4>  This could include a Church constituent hand writing such information on their giving envelope.  By the way --- this is the reason that most Churches encourage placing only the existing giving options on their Church giving envelope, etc.
    5>  However, if the constituent sends in money to a proposed
"New Restricted Fund"  that does not exist - or the Board has NOT pre-authorized it - then it is handled via the current Donation Finance Policy and Procedures that should include at least the following:

   a> To enact the desired Internal Control, the money is generally deposited into the Ministry's Bank account and it is placed temporarily in the Ministry's "Pending or Suspense" Liability Acct.
   b> The Board may ultimately choose to establish this "
New Restricted Fund" at which time it is transferred from the Suspense Acct to this "New Restricted Fund" now as a donation.
   c> But if the Board does NOT do this, then the donor has the option of re-assigning this as donation income to an existing "
Restricted Fund" or to the Ministry's General Fund, etc.
   d> Or the donor may want their money back. If so then the money is taken out of the
"Pending or Suspense" account and returned to the donor.


    The Tax-Exempt Ministry should NOT allow tax deductible "Pass-throughs", or the Ministry simply deposits the money from this person and passes it on according to this person's dictate and they get a tax-deduction from the Ministry in such a "Pass-through" process.
    Money that is spent by the Ministry
MUST be under their control and used in accordance with the Ministry's tax-exempt purpose, etc. This likely does not happen when money simply goes in and out, or "Passed Through," as described above.
    Not allowing such non-deductible "Pass-throughs", is one reason why a simple "In and Out" account at a Ministry is seldom appropriate.


 From: Pat --

        Very helpful -- thanks, Jim. 

    The bulk of this Publication originated in November 2003 and UPTD: March 09, 2012