This post was last updated on October 4th, 2022 at 04:27 pm.
Churches (or any non-profit) input their donations in a donation software to ensure donors are provided a statement at the end of the year — not only for tax purposes but to communicate to the donors how their donations were used. Typically the statements are ran for the entire year (calendar year) irregardless what the church uses for it’s fiscal year.
Listed below are some examples of common donation mistakes:
- Missing important information — written communication from churches should include at the minimum — name of the church, date of donation, amount of any cash donation, a description of any non-cash donations, and one of the three statements that are approved by the IRS (see resource #1).
- Non-Cash Donations (2 common mistakes) —
- These are also called gift in kind donations. The donation must fulfill one of the two requirements for this type of donation. The church has to be able to use the donated property as part of their operation or easily sell the donated property and use the proceeds for church operations.
- Aside from the requirements, the other mistake to watch for is that no value is given on the donation statement. Non-cash donations are to have a description of the donated property. It is up to the donor and their accountant to determine the donated property’s value as outlined in the IRS Publication 561 — Determining the Value of Donated Property.
- When a donation isn’t a donation — Let’s use the Coffee Fund as an example. The fund name may be different, but essentially it is when the church collects money for coffee (or other purpose) and the person partakes of that coffee. This is a small nuance, however the person did receive something for their money – therefore it is not a donation. This means it should not show up on a person’s statement.
- Written acknowledgement — Not sending a written acknowledgement to a donor who gives $250.00 or more in a single donation. The IRS will not accept a donor’s records in these cases. The church can either do a single acknowledgement for each donation over $250.00 or a summary at the end of the year.
- Correct verbiage — Not providing the right verbiage on the donation statement can have dire results for the donor. For example, the statement “no goods or services were provided by the church in return for the donation”.
- A case on May 17th 2012, the donors unsuccessfully argued that a donation should be accepted regardless if the the verbiage was or wasn’t on the statement. They forfeited a $25,000 donation because there was no wording on the statement. The church tried to correct the statement after the fact, but the IRS still disallowed the donation and the donors loss that donation. Not only did they lose the donation, but they also had to adjust their taxable income and pay taxes on the $25,000 that they initially donated. Churches must be aware of the correct statements to use in the various scenarios.
- Written disclosure — Not providing a written disclosure for donors who make a payment in excess of $75.00, if the payment is partly a donation and partly for goods and service received. For example the church host a Christmas Party for couples for $100.00, which includes a meal valued at $30.00. The donor can only take a charitable deduction for the portion that exceeds the fair market value of the meal. In this example the charitable donation is $70.00. Even though the the charitable portion is under the 75.00 threshold, the total payment received was over $75.00, therefore a written disclosure is required. Please find these written disclosures in IRS Publications 1771.
1. One of the three following statements should be on a donation statement and were taken from our donation e-book in our e-book resource section.
— “No goods or services were provided by the church in return for the donation.” Or
—“Goods or services that the church provided in return for the donation consisted entirely of intangible religious benefits.” Or
—“The amount of the donation that is deductible for federal income tax purposes is limited to the excess of money (and the fair market value of any property other than money) contributed by the donor over the value of goods or services provided by the church.” This statement should also provide a good faith estimate of the value of the goods or services received by the donor.