One Fund – Unrestricted
One Fund – Unrestriced
Donations received by ministries take on several forms – cash/checks, grants, services, real estate, vehicles and other hard goods, but despite the composition – all donations are either recorded as restricted or unrestricted for accounting purposes. Unrestricted donations can be used by the ministry for purposes approved by the board of directors while restricted donations must be used for the specific purpose designated by the donor. Clearly; unrestricted donations are preferred since they can be directed to the most strategic ministry initiatives identified by leadership but also they do not have the complex accounting, tax and legal ramifications of restricted donations.
Rather than explaining the procedures necessary to properly account for restricted offerings; I am going to share with you a policy that helps to alleviate the additional requirements placed on a ministry when accepting a restricted donation. The answer is simple – accept only undesignated offerings. This is best accomplished by placing a statement on your tithe envelopes and any other payment method with one of the following statements – or a variation of them:
“Contributions are solicited with the understanding that [Church/Ministry] has complete discretion and control over the use of all donated funds. [Church/Ministry] will attempt to honor gifts preferenced to support particular workers, but the final decision on the use of all funds rests with the organization.” – sample provided by Evangelical Council of Financial Accountability
“Contributions are solicited and received with the understanding that the Board of Directors has complete and final discretion and control over the use of all donated funds.”
“The Elder Board reserves the right to redirect funds to the area of ministry most needed. Designations are considered suggestions.”
“All offerings are tax deductible according to IRS regulations. The board of elders reserves the right to direct funds to the area most needed. We sincerely appreciate your financial support.”
“Donations to ABC Church are tax deductible in accordance with the provisions of the Internal Revenue Service. Donations are solicited with the understanding that ABC Church has complete discretion and control over all donated funds. In practice, ABC Church implements donor instructions whenever possible. In case a gift cannot be used as indicated by the donor, it will be applied to other important functions of ABC Church.”
“The Leadership of ABC Church reserves the right to direct all freewill offerings/gifts to the area of greatest need within the ministry. All offerings/gifts to ABC Church are completely Tax Deductible. Thank you for your financial support to this ministry.”
By placing one of these statements on your tithe envelopes and other payment portals (online payment options); you are putting donors on notice that restricted offerings are not accepted and any designations are merely considered a suggestion. Of course; it is the desire of ministry leadership to honor the intentioned use of donations and in almost all cases those suggestions are honored. However; implementing this policy allows practically all donations to be recorded as unrestricted which removes the requirement to separately account for restricted vs unrestricted donations, avoidance of co-mingling in bank accounts and frees up the ministry to use funds were most strategically needed.
Lastly; donor suggestions no longer run the risk of causing the donation to not qualify as a tax deduction. For instance; the IRS specifically excludes donations made to a tax exempt organization with the requirement that the funds go to a specific needy person. These are called “earmarked” or “pass-through” donations in which the not-for-profit organization functions as an agent rather than the recipient of the donation. In essence; the only reason that the donor made the contribution to the tax exempt organization rather than directly to the needy person was to get a tax deduction. This practice could be interpreted as tax avoidance (evasion) and is illegal for the donor and could have legal ramifications to the ministry.
I recommend that all ministries put their donors on notice that your ministry no longer accepts restricted (donor designated) offerings and that all donations are considered unrestricted because “the board of elders reserves the right to redirect funds as needed”. This does not change the status of any previously accepted restricted offerings, but it will help to remove many potential accounting and tax challenges moving forward.
Please note that donors must be made aware of this policy through all mediums and giving opportunity through a written statement on all giving envelopes, online portals, publications, donor statements, business meetings, etc. Any solicitation of funds from the pulpit or for a very specific purpose in which donors believe they are giving to a specific purpose might not be covered by simply putting donors on notice of this policy.
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