Q: How does a church handle an anonymous money gift given to a pastor or staff member?
A: In all instances, the church must approve the love gift and take control of the contributions. For example, if Ms. Myway wants to bless Pastor Loving by giving him a love gift through the church, then the church should not accept that gift. Ms. Myway is controlling how the money is spent. On the other hand, if the church decides to bless Pastor Loving with a love gift, it may accept the donation from Ms. Myway. If the church controls how the money is spent, then the donation qualifies for charitable contribution credit. On the other hand, if Ms. Myway is using the church as a conduit to give a personal gift to Pastor Loving, then she does not have a tax-deductible contribution and the church has risked its tax-exempt status.
Love Gifts for Employees
All love gifts are taxable to the employee, even if it meets the requirements to be a benevolent gift described above. However, this is not the end of the analysis. The church has a responsibility to assure that an employee does not receive more than a reasonable amount of compensation through a non-benevolent love gift.
For example: A church takes a love gift on pastor appreciation Sunday and a donor places a check for $1 million in the gift offering. The church should not give the entire offering to the pastor because it may cause his compensation to exceed a reasonable amount. This could cause the church to lose its tax-exempt status. It could also cause the pastor to owe an intermediation sanction up to 200 percent of the amount his compensation exceeded a reasonable amount.
To solve this problem, the church should notify donors that the personnel committee (or other governing body) has set a maximum amount that will be given to the pastor from the love offering. The church should also tell donors that if any amounts are received above the designated amount, the excess amounts will be transferred to the church's general fund.
Occasionally, the size of a gift may be small enough that it doesn't need to be treated as taxable. But this is usually in relation to a small token gift (such as a fruit basket given to an employee at Christmas or other Christmas gifts).
The question regarding the treatment of an anonymous money gift given to an employee is further addressed in the 2013 Church & Clergy Tax Guide, under its section devoted to love offerings.
This article originally appeared as part of the ChurchLawAndTax.com article, "Following Rules for Love Gifts," by Frank Sommmerville.
Andrew Finch is an Editorial Intern for Christianity Today.
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