A recent question came from a relatively large church that is considering raising funds to cover legal support related to property. Are these types of contributions allowable and deductible?

Allowable and deductible can mean 2 different things?  First to the donee and then to the donor.

As long as the qualified charitable entity maintains control or “use of the funds” and uses these to further their exempt purpose, the contributions are allowable for the organization and deductible by the donor.

Donors may designate a program, ministry, event, project, endowment etc., of the qualified charitable entity as long as the church controls the funding. Be careful in not designating a specific individual as the recipient, this often disallows the deduction for the donor and the church is then required to report the funds as an “agency” transaction.

So the church can solicit contributions for general, administrative and fundraising functions? Yes, as long as the church retains control or “use of the funds” and the church is operating within its exempt purpose, as designated by its IRS code.

Questions? Give me a call or post a comment.

Situation:  You are interested in setting aside a pool of assets for use in current and future charitable giving.  You aren’t certain to whom contributions will be made. You would like to receive a tax deduction for the funds you set aside. How can you accomplish your objectives?

Short Answer:  A private foundation (PF) or a donor advised fund (DAF).

Question:  Which one should I choose?

Deeper Answer:  It depends. 

Both a PF and a DAF meet the primary objective of generating a charitable deduction in the year of transfer, even though no funds may actually reach a charitable organization that puts those funds to use in their particular charitable endeavor. There is one primary reason that a PF may make sense for a donor – control. The donor of a PF will determine the initial members of the foundation’s board, and usually serves on the board. The board controls the ultimate distribution of funds to outside charities and controls the selection of all investments made by the PF. With a DAF, the donor can recommend charities to receive disbursements of funds, but the final decision rests with the management of the DAF. Also, depending on the DAF, available investment choices may not allow for investments that meet the donor’s wishes.

For assistance in determining your best alternative, contact us.