Q: I recently attended a “tax compliance” seminar for pastors and church bookkeepers. The presenter said that members’ charitable contributions are not tax-deductible unless they are submitted in an offering envelope that meets strict requirements. Of course, he offered to sell “compliant” envelopes to the audience for an exorbitant fee. Could you please confirm my understanding that offering envelopes are not required in order for a contribution to be tax-deductible?
How to Substantiate Contributions: What the IRS Requires
Offering envelopes are not required to substantiate contributions for tax-deduction purposes. The IRS now requires all cash contributions, regardless of the amount, to be substantiated by one of the following:
- A bank record, such as a canceled check or an electronic funds transfer statement;
- A written communication from the charity, which must include the charity’s name, the date of the contribution, and the amount of the contribution; or
- Payroll deduction records.
Offering envelopes do not meet these requirements. Therefore, they cannot be used to substantiate cash contributions. The information presented at the seminar you attended was incorrect and should be disregarded.
Why Offering Envelopes No Longer Substantiate Contributions
In the past, offering envelopes were helpful for substantiating cash contributions of less than $250. However, changes in tax law have eliminated their use for this purpose. Now, donors must rely on bank records or written acknowledgments from the charity to claim a tax deduction for cash contributions.
For example, a church member who regularly gives cash in offering envelopes cannot use those envelopes to substantiate their contributions. Instead, they must rely on periodic receipts provided by the church. If the church fails to issue a written acknowledgment containing the required details, the donor will be unable to deduct their contributions.
The Benefits of Offering Envelopes
Despite no longer being valid for tax substantiation, offering envelopes still serve several important purposes for churches, including:
- Helping churches connect cash contributions to individual donors;
- Promoting privacy during the collection of contributions;
- Allowing donors to designate specific programs or projects for their gifts;
- Providing a weekly reminder to members to make contributions and honor pledges; and
- Reducing the risk of offering counters misappropriating loose cash.
Best Practices for Substantiating Contributions
To ensure compliance with IRS requirements and to help donors substantiate their contributions, churches should:
- Issue periodic written acknowledgments to donors, including the charity’s name, the date of each contribution, and the amount;
- Educate donors about IRS rules for substantiating cash contributions;
- Maintain accurate records of all contributions for internal tracking and reporting purposes.
Frequently Asked Questions
What documentation is required to substantiate cash contributions?
Donors must have a bank record, a written acknowledgment from the charity, or payroll deduction records to substantiate cash contributions.
Can offering envelopes be used to substantiate contributions?
No, offering envelopes do not meet IRS requirements for substantiating contributions and cannot be used for tax-deduction purposes.
Why should churches still use offering envelopes?
Offering envelopes help churches connect contributions to individual donors, promote privacy, and reduce the risk of mismanagement of loose cash.
What should be included in a written acknowledgment?
A proper acknowledgment must include the charity’s name, the date of the contribution, the amount, and a statement indicating whether goods or services were provided in exchange for the gift.
