Donor Cannot “Assign” Income Prior to Receipt to a Church and Thereby Avoid Including It In Gross Income

Attempts by lottery and sweepstakes winners to assign their earnings to churches present legal as

Attempts by lottery and sweepstakes winners to assign their earnings to churches present legal as well as ethical issues. To illustrate, the Tax Court was asked to determine whether the winner of a $50,000 sweepstakes prize could claim a charitable contribution deduction for his assignment of the prize to a church. The taxpayer had attempted to donate the $50,000 to his church prior to receiving it by instructing the sweepstakes sponsor to pay the prize directly to the church.

In denying a charitable contribution deduction, the court noted that the $50,000 had not yet been distributed. And, even if the $50,000 had been distributed directly to the church pursuant to the taxpayer's instructions, the taxpayer "would be required to report that amount as income before claiming a charitable contribution …. A subsequent attempt to assign the winnings to his church would not avoid taxation of the proceeds to him."

Further, the court pointed out that if the taxpayer had received and reported the $50,000 as income and then donated it to his church," his deduction for the year would still be limited in accordance with section 170(b) [of the Internal Revenue Code] to 50% of his adjusted gross income."

In summary, it is not possible for a donor to "assign" income prior to receipt and thereby avoid including it in gross income. This is so even if the attempted assignment is to a church. Taxpayers who assign earned but undistributed income to a church (or any other charity) must include the assigned income in their gross income. Only then are they eligible to claim a charitable contribution deduction (assuming that they otherwise qualify). Neal v. Commissioner, 55 T.C.M. 532 (1988)

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