Tax-Deductible Giving or Not?

When working with churches and non-profits, we often receive questions about benevolence giving. This can be a gray area at times depending on the specific purpose of the donation. The question arises of whether the donation can be tax deductible or not. When this happens, the question must be asked, “is the gift for the organization or a specific person”?

According to Section (§) 170 of the Internal Revenue Code, contributions or gifts to qualifying organizations can be deducted from taxable income subject to certain limitations and restrictions. The organization must have full control and discretion over the donation, without a commitment or understanding that the contribution would benefit a designated individual. The donor’s intent must be to benefit the organization and not an individual recipient. (See Davis v. U.S., 495 U.S. 472 (1990)).  

A charitable donation tax-deduction is not allowed if the organization is used as a conduit, and a payment to a qualifying charity is “earmarked” or designated for the benefit of a particular individual, even if the individual is a member of the class the charity is intended to benefit. (See S.E. Thomason v. Commissioner, 2 T.C. 441 (1943)).

Now, what does all this mean? Simply put, for a donation to qualify as a tax-deductible charitable gift, it must be given to a non-profit organization in accordance with its exempt purpose. A donor cannot use an exempt organization as a bypass to give to individuals or give outside that organization's purpose for operating a non-taxable entity. The organization must have full control of the donation without any hindrance, for it to be tax deductible.

Example #1: A donor wanted to give to a church, but the donation needed to be made for one of the pastors. Would this be tax deductible?

• No, because the donation was made for a specific person and the church did not have full control of the donation.

Example #2: A donor made a cash donation to a missionary fund that was intended to reimburse missionaries for approved expenses not covered by amounts received from the missionaries’ parents, friends, relatives or by personal savings. The donor’s son was a missionary and was eligible to receive reimbursements from the fund. Most of the son’s support was provided by the donor directly to his son. Would this be tax deductible?

• No, because the tax code states that if contributions to the missionary fund are earmarked by the donor for a particular individual, they are treated, in effect, as gifts to the designated individual and are not deductible. However, the tax code does allow a tax deduction where it is established that the donor intended the gift for the organization and not as a gift to an individual. (See Davis v. U.S., 495 U.S. 472 (1990)). [1] 

For more information, view Section 170 of the tax code from the IRS: Deductions of Contribution to IRC 501(c)(3)Organizations and Other Exempt Organizations

[1] Gross, Karin. “Letter Ruling Request Regarding a Charitable Contribution.” Internal Revenue Service,

200250029, Index No.: 170.12-06, December 13, 2002. Accessed February 13, 2023.