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Are gifts to charity illegal if earmarked for individuals?

Your Legal Questions Answered

Are gifts to charity illegal if earmarked for individuals?

If gifts to a charity earmarked for the benefit of specific individuals are not tax deductible, does that make using them illegal? For example, a donor earmarks $5,000 to a pastor for his salary. The church accepts it and passes it through to the pastor. The pastor uses the money for his general, personal expenses. The donor, in turn, receives a donation letter from the church. Are the church, donor and pastor culpable of wrongfully handling these funds?  

A gift to a charity such as you describe is not “illegal.”  It is simply not deductible as a charitable contribution when made for the benefit of a specified individual.  The church may use it to pay the pastor’s salary and the pastor will have to declare it as income for his own tax purposes.  The church should not be giving a donation letter because it is not a deductible donation.  The church and the donor could get in trouble with the IRS if the donor sought to deduct the $5,000, but the transaction itself is not illegal.

You could probably make it a deductible contribution, however, by making the gift to pay salaries of church employees, particularly if the church has multiple employees.  The church would determine how much to pay the pastor and whether to substitute this gift for other money already in the budget for the pastor and other employees.  As long as an earmark is not set by agreement or a wink and a nod, if the church is making the decision, the gift should be deductible.

Tuesday, September 12, 2017

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