This post was last updated on October 7th, 2022 at 02:23 pm.
This is part 2 of a series regarding how churches respond when other organizations collect donations on their behalf. Last week, we looked at a scenario where people donate to a nonprofit, which in turn sends the total of those donations to the church for one of the church’s functions.
Now let’s put a twist on this scenario. What if the original donors make their donations out to your church and the collecting organization just passes the checks, cash envelopes, etc. right on to your church?
A nonprofit collects donations on behalf of your church and passes the donations on to you
United 2 Serve (from last week, U2S for short) is back to contribute to your church’s Handiwork program, a program dedicated to providing home and auto repairs for needy families in the community. This time, though, U2S is collecting donations that are written out to your church. So they are acting as a pass-through organization that’s just facilitating donations to your church.
That means U2S can’t give these donors any statements acknowledging their contributions; the contributions weren’t to U2S. Your church needs to provide statements to these donors if they are going to be able to claim the donations as tax deductions.
Your church needs to gather the contact information of the donors (from U2S or the donors themselves), record their gifts, and give them contribution statements detailing the date and amount of the contribution.
Also remember that these contributions are for a specific purpose in your church – the Handiwork program. That’s very important. Their donations need to be set aside in a fund dedicated to that cause (maybe called Handiwork Fund) so the money donated will be used according to the donors’ intentions when they contribute.
What if the organization is for-profit
Let’s say that a for-profit organization – Profits ‘R’ Us (PRU) – is somehow collecting donations for Handiwork. Since, PRU is a for-profit, they’re collecting operation needs to be strictly pass-through; the donors need to make their contributions out to your church and PRU will simply pass them on to you. If the donations are made out to PRU, since PRU is a for-profit, those donations can’t be claimed for tax purposes.
So just like the above example, the donors make contributions out to the church, the church collects them from PRU along with any needed contact information, and the church gives contribution statements to the donors.
Again, it’s important that the contributions be set aside in a fund specifically for the work of Handiwork.
Donors wishes, funds, and IconCMO
Our cloud-based IconCMO church management and accounting software provides tools that can be very helpful and important when handling donors’ contributions and ensuring that their intents are respected.
In IconCMO, you can set up a contribution fund specifically for Handiwork. This fund will record – by household – all contributions made to Handiwork. IconCMO generates contribution statements for donors that tell not just how much they gave and when, but what contribution fund they contributed to. So the statement will make it clear that the contributions were for the Handiwork project.
Also, you can include on the statement a thank-you note and a statement for the IRS explaining that it’s for a tax-deductible donation. For more on this, click here.
You can link this contribution fund to your bank account to automatically record the deposit of the donations and also to an accounting fund for Handiwork. This fund designates that the money is dedicated to the purpose of funding the Handiwork project, just as the donors want.
When it comes time to use the money contributed for Handiwork, you can use the Handiwork accounting fund with any of your expenditure or other accounts to record any transactions for Handiwork.
You can also get financial reports specifically for the Handiwork accounting fund and share these reports with constituents, board members and so on. This kind of reporting enforces the fact that your using donors’ resources wisely and according to their intentions.
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