When discussing with our clients the Internal Revenue Service (IRS) reporting requirements for payments made to individuals, inevitably one of the trustees or deacons will ask if benevolent gifts made to members of the congregation or others must be reported as income.
First let’s define what benevolence is. For example, some churches have attempted to evade taxes by calling payments made to employees of the church “benevolence” or a “love offering.” This practice is very wrong. Generally, when a payment is made to an individual it should be considered as income to them and NOT as benevolence.
On the other hand, one of the primary functions of a church is to extend the love of God to those who are genuinely in need. Benevolence is a gift given to a needy person with no strings attached. Generally, gifts as such are not taxable income to the recipient and are not subject to the usual reporting requirements.
A church should be careful to document its benevolent giving, according to the following IRS guidelines:
If distributions are made to individuals, case histories regarding the recipient should be kept showing names, addresses, purposes of awards, manner of selection, relationship if any to members, officers, trustees or donors of funds to you, so that any and all distributions made to individuals can be substantiated upon request by the IRS.
We recommend that a church establish a benevolence committee to be responsible for making decisions concerning benevolent distributions and make that committee responsible for maintaining proper records of such distributions. What is essential is to establish the fact that there is a genuine need and that the distribution is given out of the church’s function as a charitable and benevolent corporation as set forth in its corporate purposes.
The absolute worst thing a church can do is collect a benevolence offering count the cash then hand it directly to the needy individual. All offerings received from the congregation should be deposited into the Church bank account.