Transparency In Ministry

In the previous post on love offerings, we discussed the definition of a gift. A gift = detached generosity. The following is a common church scenario:

On a weekly basis love offerings envelopes are available for congregants to fill out and include a donation for their pastor. The love offerings are received regularly and systematically and the church makes a payment to the pastor on a monthly basis.

Question: Are these offerings considered a gift to the pastor or taxable compensation?

What are special offerings?

In Banks v. Commissioner, 62 T.C.M. 1611 (1991) special offerings were given to a minister on four separate occasions during the year. The offerings were in addition to the minister’s salary and amounted to more than $40,000 annually. The members of the church who gave the offerings did not take a tax deduction for their contribution because their intent was to give a true gift. However, the Commissioner was able to use the Duberstein case and show that the gifts were in fact for services rendered.

Testimony of congregation members indicated that transfers were designed to compensate the minister for the excellent work the minister had done and to encourage them to remain with the congregation. The court also found that the amounts transferred to the minister were part of a highly structured program for transferring money to the minister on a regular basis. The regularity of the payments from church members to the minister also “suggests that the transfers did not emanate from a detached and disinterested generosity but, instead, were designed to compensate for service as a minister”.

The same type of ruling was upheld in Goodwin v. United States, 67 F.3d 149 (8th Cir. 1995). The court held that the gifts to the pastor and his wife were taxable income based on evaluating the donor’s intent. Although the gifts were anonymous and not coerced, payments were made on a regular basis; were systematically organized and collected by church personnel; were substantial compared to pastor’s salary; and were made to retain the pastor’s services.

So are love offerings, collected regularly and systematically by the church and paid to the pastor, taxable compensation?

YES.

These payments should be included in the pastor’s W-2 and considered as part of the minister’s annual compensation.

Classify this as a Taxable Valentine.

Scenario: On a weekly basis love offering envelopes are available for congregants to fill out and include a donation for their pastor. The love offerings are received regularly and systematically and the church makes a payment to the pastor on a monthly basis.

Question: Are these offerings considered a gift to the pastor or taxable compensation?

Answer: IRC Section 102 stipulates that “gross income does not include the value of property acquired by gift, bequest, devise, or inheritance”. An employee who receives this type of gift, however, shall not exclude from gross income any amount transferred by or for an employer to, or for the benefit of, an employee.

So what exactly is a gift?

Over the past 47 years, several cases have highlighted similar scenarios.

In the Commissioner v. Duberstein, 363 U.S. 278, 285 (1960) case, the courts concluded that whether money or property transferred by an employer to an employee is an excludable gift is based on the reason for the employer’s action. If the employer’s reason for giving is based on a detached or disinterested generosity, affection, respect, admiration, charity or like impulses, the transaction is a gift and excludible from compensation.

However in Borgadus v. Commissioner, 302 U.S. 34, 45 (1936) if the gifts are made or intended to be made for any services rendered or to be rendered, then the gifts would be taxable.

So a donor can give based on a detached or disinterested generosity and it cannot be perceived to be based on services rendered or to be rendered. These gifts are not taxable tothe pastor and the donor does not receive a charitable deduction for income tax purposes.

Gift = detached generosity.

Are the love offerings a detached generous gift?

See the next post as we define special or love offerings?