Is your church or ministry issuing IRS compliant contribution statements?
Imagine what would happen if your pastor’s tax return or a member’s tax return was audited and the IRS requested supporting documentation for the contributions made to your church.
Your pastor or church member would confidently go through their tax records and give the IRS representative a copy of the letter you provided.
What would happen if the IRS reviewed the contribution statement you gave your pastor or member and denied the tax deduction because of a minor technicality.
This happened to someone I know and the IRS denied over $20,000 worth of contributions. What if the word got out throughout the church?
How do you think your church members would respond? I mean, they are expecting that you’ve dotted the “i’s” and crossed the “t’s” to make sure they won’t have any problems claiming their tax deduction, right?
Here are the four most important things that we look for on your contribution statements to make sure they are compliant with IRS guidelines.
1. Organization’s Name and Address
2. Church Member’s or Donor’s Name (include the address if its available)
3. Contributions listed by date received. Technically, any contribution single contribution of $250 or more must be itemized. A summary by month, quarter or grand total for the year does not meet IRS guidelines.
4. A statement indicating that “no goods or services were provided in exchange for monies received”, or a similar statement will suffice.
Here are a few other optional things you can include:
It’s okay to include a scripture reference or thank you note. Some church database programs include an authorized signature line. I wouldn’t recommend the authorized signature, especially if you have a large congregation.
Wait! There’s One More Thing You Should Know…
Technically, the IRS requires the donor to have proper documentation before their tax return is filed. Quite frankly, this is the “minor” technicality the Pastor I mentioned had problems. He didn’t keep a copy of his contribution statement. So, to respond to the IRS, he had the church secretary re-print his contribution statement. Well, the statement the secretary issued matched all the items listed in my 4 steps. But one thing blew this out the water… The date she printed the report (a current date) was on the printed document. So, the IRS agent could tell the Pastor received his documentation after the return was filed. The end result, the tax deduction was denied.
There are many church and donor management programs that can help you get this right.
1. Review the contribution statement format you’ve been issuing to your church members or donors. Make sure all 4 items that should be on your contribution statements are there. If you’ve passed this test, you’re done. Just make sure you issue these statements each year in the right format by January 31st. Now that’s not an IRS deadline, its just a good business practice to do so.
2. If the contribution statements you’ve issued are not compliant, there is some hope. You can identify the members that are most affected. Any member that made a single donation of $250 or more will need a revised statement. If you are using a church management software, this should be easy peasy. Just set-up the right filters to select only members that made a single contribution of $250 or more (not a total of $250, but a single instance contribution) find the right format, reprint the statement. Send the replacement statement to the member with a sweet note letting them know they may discard the old one and keep the new one in their tax files. I like adding a note that you’ve put processes in place to make sure they will receive the correct statement next year.
3. But what if you had to tally all this stuff on MS Excel or by hand? I’m feeling your pain right about now. You’ll have to review their contribution history through whatever system you have in place. You’ll need to weed out the one time donations of $250 or more. Next, you’ll want to re-issue the contribution statement and include an itemized list of contributions of $250 or more by date and amount. Send the replacement statement to the member with a sweet note letting them know they may discard the old one and keep the new one in their tax files. Again, consider adding a note that you’ve put processes in place to make sure they will receive the correct statement next year.