With the best of intentions, churches often want to present a monetary thank-you gift (sometimes called a "love gift") to a pastor who is either retiring or leaving to serve another congregation. Churches must keep in mind that such gifts are subject to special rules.
When it comes to presenting monetary gifts, two issues must be addressed: (1) whether the gift will create excessive compensation for the minister, and (2) whether the gift(s) given by the individual(s) will be deductible.
To properly structure a thank-you gift, you will likely need to engage a compensation expert with lots of experience with nonprofit organizations. You will also likely need the assistance of a nonprofit attorney. I do not say these things lightly. A single misstep can cost three to four times the amount of the gift in tax penalties and legal fees.
It is expensive to structure a thank-you gift correctly. If the gift is relatively small (less than 2 percent of the minister's total annual compensation), you still must meet all the requirements discussed below, though you can reduce the cost by not hiring a compensation expert. As a minimum, budget at least $1,500 for attorneys' fees and other costs.