In a very real sense it is the generosity of a church’s members, and their belief in its mission, that keeps a religious community alive. Donations of various sorts are the lifeblood of countless churches throughout the United States. It matters for tax purposes whether a donor gives the money to the church without restrictions or whether the donor restricts the money they give to a particular benefit to a church. The IRS recognizes (and enforces) a difference between “designated offerings” and “restricted offerings”—and it treats these types of offerings differently for tax purposes.
A donor who makes a “restricted offering” makes the offering fully conditional on a requirement that the offering be used in a particular manner or that it may not be used at all. This sort of offering will not be considered tax-deductible by the donor. (A church should be sure to notify the donor by official and recordable means that this is indeed the case!) Because of the restrictive nature of the offering, a church may still accept the donation but may not use a restricted gift for any use other than that for which it was intended.
A “designated offering,” on the other hand, is treated differently.The donor may still wish their donation to be used in a certain way, but by drafting language visible to donors when they give (a pre-printed envelope, for example) the donation can still be considered tax-deductible by the donor. The church should communicate that the money may end up being used for purposes other than what the donor wishes it to be used for. In order for donations to be tax-deductible by the donor, the church must maintain control over how the funds will be spent even if the donor designates they would like it to be spent a certain way.
Provident Law’s church and nonprofit attorneys can help a church and its members to ensure a donation qualifies for the particular type of offering they desire. In fact, we counsel churches through the process of any transaction. We also stand ready to counsel and serve charities, foundations, private schools, colleges, universities and other types of nonprofit organizations—providing broad transactional and general counsel services in Arizona and surrounding areas. Contact us to learn more.