How Secure are Your Church's Giving Records?
By Raul Rivera
Back in January of this year, I received a phone call from a pastor in the Charlotte area. He was in a bit of a panic because as they were getting ready to print out the giving receipts for his congregants, the church’s computer crashed. He informed me that they were using a program that tracked the tithes and offerings his church received on a weekly basis. The problem was that he had installed the program on the church’s computer, which was nearly 5 years old, and they did not have a backup anywhere else. Concerned that the church would not be able to give its members their giving receipts, he wondered if there were any tax implications a church could potentially face for losing its giving records.
The church today cannot operate the way that it did 50 years ago, much less 10 years ago. With today’s tax laws being filled with potential pitfalls, the church’s administrative responsibilities have increased incrementally. Many of the tax laws today affect the way churches, ministries, and other nonprofit organizations handle money. Everyday, our office fields hundreds of phone calls from pastors and church administrators just like you with questions about these very laws. Perhaps the two most common areas that we receive questions about, relating to tax laws and how churches should handle money, are how to properly handle tithes and offerings and the giving receipts that churches need to give to their donors. I want to use this blog post to touch on both of these areas, and then I will explain how we were able to help the pastor in Charlotte that afternoon.
How to properly handle tithes and offerings
Money is one of those sensitive topics within the church today. We have all heard stories of churches mishandling funds or of pastors running off with hundreds of thousands of the church’s money, leaving the church high and dry. While stories like these break my heart, I do believe it is possible, and necessary, for the church to implement precautions that will help prevent situations like this from happening. Let us look at 2 ways every church can do this.
1. Implement necessary policies and procedures
If your church has not already, it should implement policies and procedures that detail the method of receiving and counting tithes, offerings, and other donations. Churches need to set in place a series of checks and balances to protect those involved in handling tithes and offerings so that no single person could be falsely accused of, or actually commit, embezzlement. A policy should be put into place and signed by all staff and volunteers who are a part of the process. The following are guidelines to create a secure system of counting tithes and offerings:
- Have multiple, trustworthy money counters.
- Have more than one person counting at a time.
- Ensure that there is a secure, locked room in which donations are counted, with someone to guard the door.
- Require a form to be filled out for counters to record tithes and offerings received.
- Ensure that all donations are counted on the same day that they are received, not after.
Once the money is counted, individuals involved in the process should sign a deposit slip and deposit the funds into the church safe, under the treasurer’s supervision. The treasurer should then provide the counters with a deposit receipt confirming the amount deposited. Having a written policy and set procedure in place ensures consistency and accountability in the process.
2. Establish smart methods for receiving tithes and offerings
In order to create proof of contributions received, we recommend that you create, and encourage, the use of envelopes or electronic donations for tithes and offerings. Envelopes should include the following information:
- Name of the church
- Space for the donor to include his/her contact information
- Space to pay with a credit card
- Space for designated funds
- Space to total designated funds (For more information on designated gifts, please click here)
- A disclaimer stating that the donor relinquishes control of the funds in order to receive a charitable deduction.
We recommend that your disclaimer state something along the following lines:
“This is a qualified 501(c)(3) organization. All tithes, offerings, or donations of any kind are under section 170(c)(2) of the IRC. Using this envelope constitutes your agreement to relinquish control in accordance with IRS regulation.”
I honestly believe that when you implement the necessary precautions, especially when dealing with money, you are protecting your church from what could happen. Next, let us look at how your church should handle giving receipts.
The church’s responsibility to its donors
When a donor claims a tax deduction for charitable contributions given to a nonprofit organization, the burden of proving that the organization is indeed a qualifying charitable organization lies upon the donor. It is for this reason that we encourage all churches to apply for 501(c)(3) tax-exempt status so that they may receive a favorable determination letter (FDL) from the IRS as proof of compliance to their donors. Doing so not only protects donors and their charitable contributions, but it also gives them confidence in making donations to the church.
In addition, the Pension Protection Act (PPA) of 2006 increased the requirements for each donor to substantiate their giving when claiming a charitable deduction on income tax filings. Section 1217 of the PPA amended IRC section 170(f)(17) to say:
“No deduction shall be allowed under subsection (a) for any contribution of a cash, check, or other monetary gift unless the donor maintains as a record of such contribution a bank record or a written communication from the donee showing the name of the donee organization, the date of the contribution, and the amount of the contribution.”
Therefore, in order for one of your congregants to legally receive a tax deduction for his or her donation, he/she must be able to show bank records (check copies, bank statements, credit card statements) or a written statement from the organization to whom he/she gave in order to claim a charitable deduction.
Requirements of the giving receipts
When your church decides to give its members a contribution statement/giving receipt, there is more to it than simply providing them with a letter from the church stating how much they donated the previous year. There are several “rules” as well as “do’s and don’ts” of which your church should be aware. Although we are not able to discuss all of the ”rules" and “do’s and don’ts” of giving receipts in this post, I strongly encourage you to read my blog “7 Rules For Giving Receipts” and “10 Do’s and Don’ts of Tax Deduction Receipts”. I will, however, mention a few of the rules below.
Rule #1: Receipt Not Required
This may take you by surprise, but there is nothing in the law or regulations that requires a church or nonprofit to issue receipts or contribution statements. However, if you choose not to give contribution statements, many of your donors will choose not to give any more of their tithes and offerings. When issuing a receipt or contribution statement, it is vital that you do it correctly. When you issue contribution statements that have incorrect information about tax deductibility, you risk legal and tax trouble for your ministry and for the donor; therefore, it is important that you get it right.
Rule #2: The $250.00 Rule
This rule requires that any donation of $250.00 or more made to your ministry be treated differently if the giver received something in return. In order for the donor to get a tax write off, he/she must get a separate written receipt stating how much was given and that, "no goods or services other than those listed were provided, except for intangible religious services.” However, if the giver did not receive anything in return, you can itemize it into the annual statement with all other donations so long as you include that "no goods or services were provided except for intangible religious services.”
Again, these are just 2 of the 7 rules that your church should be mindful of, so I encourage you to read the blogs mentioned above.
Another thing on your “To Do” list
I know what you must be thinking: “Great. Something else to add to my plate!” Trust me when I say that I know how full and overwhelming your plate can be as a pastor. And that is why part of our vision here at StartCHURCH is to make life easier for you as pastors.
That day back in January, I was not able to help the pastor in Charlotte retrieve the information that his church had lost, although I did suggest that he take his computer to someone who specialized in retrieving information from computers that crash. Thankfully enough, a specialist of that nature was able to help him get what he needed. But that day, I shared with him how we at StartCHURCH could help ensure that something like this never happen to him and his ministry again through Kingdom Steward.
Kingdom Steward is our cloud (online) based software that allows you to easily track tithes, offerings, and attendance without ever worrying about losing that information. Because Kingdom Steward is cloud based, you will be able to access the information from any smart phone, tablet, or computer as long as you have an Internet connection. In addition, you will be able to generate the giving receipts and issue them to your congregants via email the very same day that you enter in the information.
Because I believe in making your life as a pastor easier, I am offering a free 30-day trial of Kingdom Steward. Simply enter your name, email address, and phone number by clicking on the Kingdom Steward ad located within this blog's email. Once you have submitted that information, a representative will set up your account and call you within 2-3 business days to let you know it is ready. Allow us to help ease your administrative burdens so that you can concentrate more on building the Kingdom of God.