Q: What should ministry leaders know about donations that are directed by the donor to go to a specific individual or program?

A: To be tax-deductible for the donor, gifts generally must be made to the ministry or a specific ministry program, rather than an individual. Creating a policy to govern donations is a good way to clarify how donations will be received and used.

To avoid deductibility concerns, it’s best to create and follow a policy that clarifies the types of gifts your ministry will accept. Two conditions of a well-written policy are:

1. All donations will be under complete control of your ministry and may be used at the ministry’s discretion.
2. Donations may be directed to a specific program of the ministry, such as foreign missions or a benevolence fund, but may not be directed to a specific person.

These policies can help ensure that the ministry only accepts donations that are tax-deductible for the donor. Indicate your policy on all giving platforms (electronic and paper).

What if your ministry would like to help meet the needs of an individual? The ministry’s board could decide—before requesting donations—that funds for a certain program will be used to assist specific individuals. This decision should be recorded in the board’s meeting minutes. This step helps specify that it was your ministry’s decision to use ministry funds to assist a person, rather than a person simply passing money through your ministry to another individual.

If a donor makes a donation to a particular project and the ministry later cancels the project, the donor may be able to force your ministry to refund the donation. 

Gifts Given for a Specific Program or Project

A donor may designate a gift for a specific program or project by writing it down explicitly or implying it through the circumstances. For example, if a donor makes a contribution to the ministry’s building fund, ministry leaders may only be able to use those funds for that purpose. If your ministry later cancels the building project and decides to use the funds for a different purpose, the donor may be able to force your ministry to refund the donation.

However, there are ways to remove restrictions from donated funds:

1. Obtain permission from the donor to remove restrictions.
2. If your ministry is unable to identify the donor of a restricted gift, you may be able to appeal to a local court to release the ministry from the restriction of the donation.

Once the restrictions have been removed, ministries are typically free to use the funds for any purpose and are not obligated to return donations.

Additional Information

Be sure to consult with your ministry’s attorney and tax professional before putting donation policies into practice. For additional information on this subject, see the following resources:

• IRS Publication 526 on charitable contributions.
• Refunds of Charitable Contributions by Church Law & Tax
• Proper Care of Donor-Restricted Gifts by the Evangelical Council for Financial Accountability

*Important information: Brotherhood Mutual is pleased to provide Legal Assist as a complimentary resource. The services we offer through Legal Assist are intended to provide general legal information to our current and prospective policyholders.

The information we provide is intended to be helpful, but it does not constitute legal advice and is not a substitute for the advice from a licensed attorney in your area. Accordingly, no attorney/client relationship is created through this process, and no legal advice will be provided. We strongly encourage you to regularly consult with a local attorney as part of your risk management program.