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Contributions, the IRS, and Your Software Program
By: Marla Becker

Contributions may come in to your church from generous donors in many different ways. The church should be aware of the different IRS regulations regarding receiving and reporting gifts.

While this article is meant to provide some guidelines for your consideration, every church should retain a good tax advisor to provide the final word on reporting for these unique situations. Be aware that not every tax person is an expert in not-for-profit specifics.

Let's look at some specific examples, how to handle them in your software, and what the government and contributor expect in the way of reporting.

Although a CPA with a Master's degree in Taxation has provided these suggestions, keep in mind that your situation may be unique. Please check with your own tax advisor for appropriate recommendations.

Cash, Checks, or Other Monetary Gifts
For a single contribution of less than $250, any of the following is acceptable documentation for IRS:

* The donor's bank record with the organization's name, date, and amount of the contribution. Bank records include canceled checks, bank statements, or credit card statements. 

* A receipt showing the organization's name, date and amount of contribution

* A payroll deduction record and pledge card if contribution is made by payroll deduction. 

For a single contribution of $250 or more, in addition to above documentation, the donor needs a written acknowledgement that:

* Indicates the date and amount of the contribution
* States whether any goods or services other than intangible religious benefits were provided and if a good faith estimate of any goods or services was provided
* Includes a statement that the only benefit received was an intangible religious benefit if no goods or services were provided. 

Most churches provide giving statements to all donors at the end of the year. 

To make this job easier at year end, a good software program with these capabilities is essential. Be sure that your software integrates easily with other modules such as Membership, Accounting, and Payroll. This integration will allow contribution data to flow from one module to another, creating efficiencies through the speed of entries, consistency, and data integrity.

Gifts in Kind
The responsibility of complying with record keeping requirements for tax deductibility of in-kind gifts rests with the donor.  However, any help the recipient provides encourages continued giving.

Gifts in kind are non-cash physical goods that may be donated to the church. It is recommended that your church set some policies is this area The IRS has specific requirements that must be followed regarding the deductions for clothing or household items. Used items must be in excess of a minimal monetary value and some items like socks or undergarments are not deductible.

An example of accounting for a gift in kind could be the donation of a drum set to be used in the contemporary service. Once the church has decided to accept the gift of goods, the question becomes one of how to report the gift back to the donor. There are a couple of acceptable ways.

Have a stack of blank receipts printed on church letterhead saying, "Thank you for your gift of (blank)." Fill in the name of the gift and the date, sign it, and give it to the donor.

Or, if the person wants to see the gift on their giving statement at the end of the year, enter a description into the donor's giving record with a zero dollar amount. (We received no cash!) Be specific in your description line so the donor is able to provide substantiation to the IRS regarding the donated item. 

It is not the church's responsibility to place a value on the item. Even if the item is new, the church is not required to assign a value. The donor may wish to retain the receipt for reporting the value of the goods donated.

Gifts of Stock
In the situation where a donor contributes stock to the church, there may be a tax advantage if the giver donates the stock directly to the church. Once again, it is advisable for the church to have a policy in place for the treatment of stock. Many churches have developed a policy to sell the stock immediately on receipt to prevent a change in value from the original donation transaction date. The important factor here is that the donor receives credit for the stock's value on the date the stock is transferred to the church.

Services Provided
Volunteer hours contributed by individual church members are not deductible on individual income tax returns. However, if a volunteer incurred out-of-pocket expenses on behalf of the church, that amount would be deductible in addition to the applicable  mileage rate (current charitable 2011 rate is 14 cents per mile).

A problem arises when a member donates professional services and assigns a dollar amount to the time. With good intentions, this person might say, "Just consider these services as my gift to the church and put it on my giving statement." The IRS would disallow that practice and view the donation as an attempt to "double dip," since this practice would lower the taxable income of the donor and allow a tax deduction at the same time.

Be very careful in these situations and check with your tax advisor. A preferable method is for the church to pay the professional's invoice for service and then have that person to make a donation back to the church in the amount of the service invoice.

Goods or Services Received
In numerous fund raising activities, a donor will receive goods or services provided by the organization (car wash, bake sales, etc.). If part of the payment is a contribution and part is for goods or services received, then a portion of the payment is tax deductible. 

For example, if the youth group is selling Christmas trees for $70 and the actual value of the tree is $50, the donors' giving statements should reflect that they received goods or services in the amount of $50 and $20 could be claimed as an allowable tax donation.

End of Year Donations
In many pledging churches, people may wish to receive a tax donation in the current year, but allocate the pledge to next year. When you identify a date range for the new year pledge, your software can record the giving in the current year, as well as creating a prepaid amount in the next year. The amount is carried over year end on the balance sheet and may be allocated to income in the next year.

Be careful with contribution dates at the end of the year. Individuals may attempt to contribute gifts made in the new year requesting that the donation be posted to the prior year. According to IRS, the check must be received or postmarked by December 31st in order to receive credit on the year end donation statement. Donations by credit card are considered given on the transaction date of the charge. In an effort to assist contributors, many of our customers place a notice in the bulletin regarding the rules for year-end giving.

An integrated software package is essential to creating efficiencies in your church management functions. Wouldn't it be nice if you never had to re-key information?  Each time a number, address or other piece of data is re-entered into a computer system, time is wasted as well as the increased potential for errors. 

This is why effective software packages allow the smooth and automated flow of data between modules of your church management system as well as exporting information seamlessly into other, external programs. 

Marla Becker is a vice president at Computer Helper Publishing, home of Church Windows church management software, www.churchwindows.com.

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