Answer: Conduit for non-deductible contributions

Question: What do you call a situation when an independent organization that is not tax-exempt wants a church to process gifts so donors get a tax-deductible receipt?

The MinistryCPA blog has a great post, Parachurch Ministries Under the Authority of a Church, which explains how a church should respond when an independent ministry asks the church to run their donations through the church so that donors to the separate ministry will get a tax-deductible receipt.  The independent ministry is neither under the authority of the church nor tax-exempt itself.  Read the post for an answer and great explanation.

One concept in tax exempt law that many people don’t understand is that for a tax-exempt organization to give a deductible receipt for a contribution, the funds must be used for the purpose of that tax-exempt organization and the funds are under their control.  (It’s okay to not understand that idea.  You have to work in the NPO world a while to get your arms around the practical application and understand just how far out of line such a practice is.)

This means it is not possible to lawfully “just pass my contribution along” to another organization.  You can’t give money to your church, ask them to pass it to someone else, and take a charitable deduction.

2 Responses to Answer: Conduit for non-deductible contributions

  1. Melissa Newby says:

    I have been searching for an answer to this question for several days now. We have a situation at our church where a member has started a ministry locally and he is trying to have people give through the church in order to get a tax deduction. He is not a 501(c)(3) as of yet. I have tried to tell him that this will not work and could potentially put our own tax exempt status in jeopardy since we would in essence be “laundering” money through the church in order to give tax credit. Am I right in this statement? Do you know of any IRS code to back this up?

  2. Jim Ulvog says:

    That is a good question.

    I don’t know the circumstances of what kind of ministry is involved or what oversight your church is providing. Let’s discuss two different scenarios.

    If your church leadership wants to make this new ministry a part of your church, providing oversight and supervision of the program (‘headship’ is a word used in certain traditions) along with financial oversight (which would start with reviewing the proposed budget and approving the funds that are spent), that is one situation. In this case, the new ministry is essentially the same as a department of your church. If you provide that oversight and accountability, this ministry is little different from your men’s ministry or women’s ministry. My guess is that those other programs need to raise their own money through special events and ticket sales to fund their events.

    On the other hand, if this person is running his program without any input from your leadership, is not accountable to your governing board, and you do not review & approval expenses of the program, there is a problem. In fact, depending on what the program efforts are and how the whole arrangement is structured, that could be a wide variety of big issues. As the starting point for why this can be a problem, look at the ‘conduit’ discussion described above.

    So in the best tradition of CPAs everywhere, my answer is “it depends”. If this person and your church leadership want to structure the arrangements appropriately and set up proper accountability, it is possible to make this work. If this person insists on being a lone ranger, it gets messy.

    Hope that helps. Thanks for asking.

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