I just read a blog post by T.J. Addington that made me want to give him an award. You can tell by the title that his point was simple: Does your ministry budget reflect your ministry priorities? But like many simple points, this one isn’t easy to pull off.
T.J. makes all kinds of other important points, like this one:
Budgeting should not start with the past but with what you intend to accomplish in the future. The starting point is where we want to go, not where we have been. Budgets should help us drive our ministry agendas.
These words are written from hard-earned experience. As a senior vice president with the EFCA, he leads ReachGlobal, the EFCA’s international mission, which has a mammoth 10-year vision: To touch 100 million people with the gospel. Without focusing ministry resources, that vision would be just a pipe dream.
Your budget is a primary tool for aligning your ministry’s money with its mission. If it doesn’t reflect your priorities, then, well, they’re not really priorities. This point is so important that we spent nearly half of our advanced budgeting webinar talking about how to do it. And it was the whole point of David Lee’s session at this year’s Financial Forum for Ministries.
I like the way T.J. thinks. If you do too, you may want to swing by his blog Leading from the Sandbox on occasion.
The Commission on Accountability and Policy for Religious Organizations just published their report, which was presented last week to Senator Charles Grassley. The report is based on two years of work by 80 nonprofit, tax, and legal experts and leaders, including ECCU President/CEO Mark G. Holbrook. It promotes solutions to key policy issues related to financial accountability in the religious and broader nonprofit sector.
The Evangelical Council for Financial Accountability (ECFA) led the effort to form the Commission and has made the 94 page report available for review.
Among its contents, the report covers the following topics and includes 43 recommendations related to:
- Executive Compensation and Excess Benefit Transactions
- Clergy Housing Exclusion
- Churches, Accountability, and Donor Engagement
- IRS Advisory Committee for Religious Organizations
- Independent Accreditation and ECFA’s Model
- Religious Organization Examinations and Third-Party Oversight
- Examinations of Church Leaders
- Love Offerings
- Public Disclosure of Highly Sensitive Information
I think you will find this to be very helpful information which can lead all of us in the nonprofit community to better governance, accountability, and transparency without greater government oversight or regulation. I highly recommend you take a look at the report and let me know what you think.
Seemingly, we can’t go anywhere without hearing about the looming “fiscal cliff” and various potential consequences of what may happen if Congress doesn’t act. Plus, we don’t know exactly what may come out of last-minute negotiations. So how is this situation impacting donors and their decision to give?
According to the Wall Street Journal, many wealthy Americans have begun to give to donor-advised funds (DAF) at record rates, starting in the third quarter of 2012, to avoid potential increased taxes. By using a DAF, a donor receives the tax deduction at the time of the contribution but can decide how to distribute the funds to qualified nonprofits at a later date. What has been reported is that many wealthy donors may wait until 2013 to distribute donated funds. This may mean greater income coming in the final weeks of 2012 or during 2013 than in prior years. Some evangelical nonprofits have reported seeing bigger gifts than last year.
On the other hand, for many other Americans, the uncertainty is causing fear. Many individuals are afraid to make any move, so they are holding on to what they have and feeling paralyzed by the uncertainty. This, along with continued concern over the growth in the economy, has led many Americans to be cautious with expenditures and giving.
According to a poll conducted by the United Way Worldwide, without charitable tax incentives, 30% of Americans would reduce their charitable donations.
So what are you seeing at your ministry? Have you seen an increase in donations? Are stock donations up? Are some of your faithful year-end donors staying on the sidelines?
It’s the time of year we commonly announce and collect special gifts, often called “love offerings,” for our ministry staff. Proper handling of these gifts can be complex. The IRS has ruled on a number of cases that provide guiding principles for both donors (as to tax deductibility of the gift) and recipients (as to whether the gift should be treated as income).
- If a gift is made directly from a donor to a staff member without any involvement by the organization, the gift would not be tax deductible by the donor and not taxable income for the recipient. The key here is that the funds are strictly a personal gift and don’t constitute compensation. The IRS does limit these gifts to $13,000 annually (rises to $14,000 in 2013).
- If a qualified nonprofit receives a gift for a particular staff member which is not intended for use by the organization, the gift is not tax deductible by the donor. However, the funds distributed to the staff are considered taxable income and should be added to their W-2 wages (for an employee) or reported on Form 1099-MISC (for an independent contractor). Section 102(c)(1)(a) of the IRS Code states that “any amount transferred by or for an employer to, or for the benefit of, an employee is not excludable from gross income as a gift.”
- If a qualified nonprofit preauthorizes a love gift fund for staff and maintains adequate discretion and control over distribution of those funds among the staff, the donations are tax deductible. Again, in this case, the funds distributed to the staff are considered taxable income and added to their W-2 wages or reported on Form 1099-MISC. Adequate discretion and control would include determining the distribution of funds among the staff as well as ensuring that the staff does not receive more than a reasonable amount of compensation through a love gift. For example, if the organization received a gift of $1 million in the love offering fund, it would need to ensure that total compensation did not represent unreasonable compensation for the staff. Most likely this would mean not distributing the entire amount to the staff.
See what I mean about this being a complex issue? “Love offering” sounds so simple, until you read the IRS Code. For this reason, I offer the following fine print:
This post is provided by ECCU for educational purposes only. It is not intended to be legal or accounting advice. ECCU disclaims any liability arising out of your use of, or any financial position taken in reliance on, information provided in this post.
I’m often asked questions by people who want to help someone in need through the church’s benevolence fund. It typically starts when a member of the congregation becomes aware of a need and wants to help meet it by making a contribution to the benevolence fund. The member intends for that donation to provide assistance to this needy individual or family. So how should you handle this type of situation to maintain compliance with IRS rules?
The principle I try to emphasize with ministries I work with is to keep the collecting of benevolence funds completely separate from evaluating and disbursing benevolence funds. I use the analogy of not letting the right hand know (or influence) what the left hand is doing. We are all one body in Christ, but we need to keep a distinct line between donors and recipients. Let me explain.
- Any donor or congregation member can let the church staff or benevolence team know of a family or individual who is in need. We certainly want to encourage this behavior. Sharing a testimony, thank-you, or the result of donated funds helps communicate the joy that real needs are met through benevolence gifts.
- The benevolence team should receive requests for help or assistance and process them using discernment and judgment according their benevolence guidelines. These individuals should not be influenced by any donors, but rather by the need of the individual or family.
- Contributions to benevolence funds may be claimed as charitable tax deductions if they are not earmarked for particular recipients. If a donor or congregation member wants funds to go directly to an individual or family, they should give those funds directly to that individual or family. A donor can’t designate that benevolence funds go to a specific person and still receive a tax-deductable receipt. The church must maintain complete control over who receives benevolence funds.
During the holiday season, benevolence requests often increase. Let’s take this opportunity to bless as many as we can with the joy of Christ’s birth while doing so in a manner which also honors and respects the IRS, because we are subject to their authority.
