Are Designated Gifts for Individuals Tax Deductible?

It's a common scenario at local churches across the country: A member faces a significant medical condition, racking up major debt in the process. Others at the church learn of this challenge and wish to help. Can they donate to the church, designate their gifts for that member, and still receive tax deductions for the contributions?

The Internal Revenue Service has ruled on such situations many times. Such gifts likely can be treated as deductible if (and it's a significant if) donors and churches handle them a certain way. The IRS has stated:

If contributions to the fund are earmarked by the donor for a particular individual, they are treated, in effect, as being gifts to the designated individual and are not deductible. However, a deduction will be allowable where it is established that a gift is intended by a donor for the use of the organization and not as a gift to an individual. The test in each case is whether the organization has full control of the donated funds, and discretion as to their use, so as to insure that they will be used to carry out its functions and purposes. Revenue Ruling 62-113.

Based on this guidance, contributions to a church benevolence fund can be deductible, even if the donor mentions a beneficiary, if the facts demonstrate that

- the donor's recommendation is advisory only;
- the church retains "full control of the donated funds, and discretion as to their use"; and
- the donor understands that his or her recommendation is advisory only and that the church retains full control over the donated funds, including the authority to accept or reject the donor's recommendations.

For more details on these types of contributions to churches, check out "Designated Gifts for Individuals," chapter 8 of Richard Hammar's 2013 Church & Clergy Tax Guide, and Benevolence Fund Basics, a training resource fromChurch Finance Today.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is published with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations."

Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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