Monday, May 6, 2019

Hey Fletch … We occasionally receive love offerings for our senior pastor and other staff members. How should we handle these gifts?

DRF—There are so many questions floating out there about restricted gifts to churches. I’ve consulted with my friend Dan Busby, President of the Evangelical Council for Financial Accountability. Here are his thoughts.

Dan—The phrase ‘love offerings’ does not appear in the federal income tax code or Treasury Regulations. It seldom appears in court cases. Still, love offerings have important tax implications for the church, those who contribute to the love offering, and the individuals who receive the love offering.

Love offerings and gifts to senior pastors (and other staff members) commonly raise two tax issues:

  1. Is the gift eligible to be claimed as a charitable contribution by the giver?
  2. Is the gift taxable income to the senior pastor (or other staff members)?

Attorneys Michael P. Mosher and Ryan K. Oberly highlight the taxable impact to the senior pastor in three common love offering/gift scenarios in their excellent position paper, ‘What’s love got to do with it?’

  1. Individual spontaneously hands the senior pastor $20 or $50 in cash for a birthday. This type of gift is generally excludable from the senior pastor’s taxable income, since the gift likely was made with what the courts call, “detached and disinterested generosity,” and not in gratitude for services rendered. However, if the cash is provided in consideration for services the pastor provided, such as a funeral or a wedding service, the cash is taxable income.
  2. The church facilitates a collection of funds to benefit the senior pastor.  While the church facilitates the offering, the offering is not given directly to the church, but transferred directly to the senior pastor. Based on the facts and circumstances, the gifts might be considered tax-free to the senior pastor.  However, the courts have demonstrated a willingness to treat such transfers as unreported taxable income if the transfers are regularly conducted (greater than three times a year) and are significant in relation to the leader’s annual salary from the church.
  3. The church facilitates a collection of funds, deposits them into the church’s accounts, and then disburses them to the senior pastor. These transfers to the senior pastor are subject to income and social security tax.  Referring to these gifts as love offerings in the hope that the terminology will make them tax free is simply wishful thinking. Staff members who are not ministers are subject to income tax, social security, and Medicare tax withholding. For both ministers and non-ministers, the amounts are reported on the employee’s Form W-2.

So, can givers take charitable deductions for love offerings? Generally, a love offering will not be tax-deductible to the giver. When the giver knows that a gift will go to a specific person, the tax law treats the gift as if it were being made to the specific person. It will be nondeductible, even when handled through a church.

Particularly during the holidays, a general request for contributions for a “Christmas Gift” for all staff members may be made, where the church board determines who receives gifts and how much. The key element of a love offering which makes it nondeductible is the giver’s certainty that the giver’s gift goes to a named person or very limited group of individuals. The larger the number of individuals in the recipient group, with the specific allocation of the offering determined by the church board, the more likely the contributions qualify for a tax deduction.

To learn more about handling love offerings, see The Guide to Charitable Giving for Churches and Ministries.