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Nonprofit Law/Church 5013c passing through funds to non 5013c

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QUESTION: A former member of our church has moved to a different state and is now working for a large Christian Television Station.  He has an internet ministry to reach Muslim/Christians.  The church provides a monthly gift to his ministry.  Additionally, one member of our church, two people that attend other churches as well as two churches in our city provide support for this ministry - through our church.  All write checks to our church with a memo indicating support for this ministry as a donation or as housing.  Our church each year sends this non 501c3 person a 1099.  It is my understanding that this ministry has someone "working" on behalf of it in becoming a 501c3 entity.  Is the donations tax deductible for the people providing the support to this ministry.  Is our church jeopardizing our 501c3 status in participating in this arrangement?

ANSWER: It appears, from what you wrote, that your church has made it clear to the potential donors that the church will simply pass on the funds donated to the individual.  The church can not, in those situations give the donors an acknowledgement of a donation.  The church can help those donors by referring htem to the IRS Publication 526 "Charitable Donations" which is available at  http://www.irs.gov/pub/irs-pdf/p526.pdf on page 6 where the IRS lists as not deductible "Contributions to individuals who are needy or worthy. This includes contributions to a qualified organization if you indicate that your contribution is for a specific person."

I have set up ministries that have, within one week, the ability to accept donations that are deductible to the donors.   See page 6 of the  IRS Publication 557 "Tax Exempt Status for Your
Organization" http://www.irs.gov/pub/irs-pdf/p557.pdf which has  under the heading "Effective date of exemption" that the exemption determination is granted retroactively to the date of formation which is normal for 501(c)(3) organizations that apply for exemption within the first 27 months of their formation.
--- Start of excerpt ---
A  ruling  or  determination  letter  recognizing  exemption is
usually  effective as of the date of formation of an organization
if, the organization submitted the application for recognition of
exemption  within  27  months  of  the  date  of  formation and
during the period before the date of  the  ruling  or
determination  letter,  its  purposes  and  activities  were  those
required  by  the  law.
-- End of excerpt ---

Therefore, even though you have conveyed your understanding that this ministry has someone "working" on behalf of it in becoming a 501c3 entity, that person appears not to be understanding the law and procedures. If that recipient wants to contact me for assistance, I am available and I will reply with my fees upon receiving an email directly to my email address below.

Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather more information.

---------- FOLLOW-UP ----------

QUESTION: Thanks for your very quick response, Is the church required to provide a 1099 to this ministry?  It is my understanding that the church may be giving each donor an acknowledgement annually of donations for tax deduction purposes combined with normal tithes/offerings.

Answer
See http://www.irs.gov/pub/irs-pdf/i1099msc.pdf which is the IRS' instructions for form 1099-Misc and the title is "Instructions for Form 1099-MISC Miscellaneous Income" and specifically, the right column of page 1, "Report on Form 1099-MISC only when payments are made in the course of your trade or business."  The church is in the business (although nonprofit business) of spreading the mission and, if the payments are in consideration of the person doing certain work and for that work, then it would be reportable (by form 1099) -- otherwise, not, because a gift is not income (unless the payments are coming from an employer).

The Internal Revenue Code at section 102(a) provides that gifts are not income.  "Gross income does not include the value of property acquired by gift..."
http://codes.lp.findlaw.com/uscode/26/A/1/B/III/102

However, section 102(c) of the Code has "Subsection (a) shall not exclude from gross income any amount transferred by or for an employer to, or for the benefit of, an employee...."

Note, however, that, under your facts, it would be hard to show what the Supreme Court refers to as a gift.  See Commissioner v. Duberstein, 363 US 278 - Supreme Court 1960 - http://goo.gl/9wKubE.

If any of the donors are related to the individual, then certainly donation deductions would be disallowed in any case.

Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather more information.

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Harvey Mechanic

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I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at Harvey108@hotmail.com I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "site:allexperts.com/q/nonprofit" without the quotes and then add your search terms before hitting enter.

Experience

I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.

Education/Credentials

B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.


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