Help for Members——-Stay Legal

Even in the best of churches some of our members find themselves in need.  As a church, we feel the need to do what we can to help so we agree to serve as the point of collection for the ‘X’ family.  We let the congregation know of the need, we indicate the church will collect the funds and distribute them.  Is the church legally OK?  Probably not.

If the church members designated the funds for the ‘X’ family, none of the funds are tax deductible.  Since the church turned the funds over to the ‘X’ family which may have exceeded the need, the may have violated the requirement to operate exclusively for tax exempt purposes which would produce ‘personal inurement’  for the ‘X’ family which could place the church’s federal and real estate exemptions at risk.

The IRS has ruled that donor directed funds are not usually tax deductible because if the donor is directing its use the donor has never released control of the funds.

The best solution would be to create a benevolence fund operated by a committee/board of the church leadership and membership.  Written policies should govern the type of individuals who would qualify for assistance, the type of needs that would be pay, the amount and frequency of payments for rent, groceries, transportation, utilities, etc., and the type of documentation needed before payments can be made.

Once the fund is created and policies established, the church can consider an application process members can use to seek funds for assistance.  The application should identify the family requesting assistance, what assistance is needed, a copy of the invoice/bill for service needed/performed, and an indication that the applicant is financially unable to pay the invoice/bill.

The benevolence check may need to be made directly to electric company, landlord or the creator of the invoice/bill to guarantee payment of the amount requested and approved.  Payment to the applicant does not always guarantee payment of the invoice/bill.

The creation of the benevolence fund allows members to contribute to the fund, secure a tax deductible receipt for that contribution and allows members in need to get the help they need.  And also allows the church to comply with IRS regulations so its that exempt status is not at risk.  Looks like a win-win for the church and its congregation.

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