Beware of Members Bearing Gifts
Verne Hargrave
Church Business, April 1999
What do you think of when you hear the term “gifts of property? Many church leaders' thoughts run along these lines. A church member informs the church that having no children or other close relatives they would like to donate some property to the church.
The church later learns that the property is real estate worth hundreds of thousands of dollars. Visions of all of the things that have been put off and can now be done run through their minds. The new education wing can finally be built. Or, the building repairs that have been delayed due to budget shortfalls can be completed at last. All of our problems have been solved!
Unfortunately, when it comes to gifts of property, this situation is the rare exception. When many church business administrators hear of property donations they sometimes break into a cold sweat, because gifts of property often create more problems than they are worth.
So, what’s the problem?
For starters, gifts of property can create extra paperwork for the church business administrator. Just like cash contributions, the donor must substantiate gifts of property in order to receive a tax deduction. Gifts of property differ in that the church does not place a value of the gift on the form, only a description of what was received.
However, if the value of the gift is more than five thousand dollars a whole new set of rules kicks in. A form 8283 must be filed with the IRS, which an appraiser and the church must sign. This responsibility lies with the donor however, as a service to their members most administrators follow the wise practice of seeing this process through to completion. If the appraised property is sold within two years of receipt, however, the church does have a reporting responsibility. A form 8282 must be filed with the IRS describing the goods sold and the sales price. This information is compared with the amount claimed by the donor as a charitable contribution.
The second problem with gifts of property and by far the most significant is that many gifts of property are “high maintenance” assets. Sometimes, individuals try to both discard one of their headaches and get a tax deduction all at the same time. Unfortunately, the headache does not go away, it is simply transferred to the church.
For example, often the property can’t be used by the church and cannot easily be sold. In some jurisdictions this could trigger property taxes. In my experience as an auditor of churches I have seen many instances of churches that own lake lots that they can’t use but are having to pay for taxes and upkeep such as lawn mowing. Real property contributions can also bring along costly headaches. The church may accept real property gifts that require the church to incur significant expenditures for things like repairs, maintenance and insurance. The church also may be given property that is subject to legal claims or have environmental problems. All of these situations are things that can consume an administrator’s time and are always best handled before the gift is received.
How do I protect myself?
The first thing the administrator should do is to learn the rules that govern gifts of property. This includes the IRS rules and legal restrictions surrounding these gifts. Most churches that get into trouble in this area could easily have avoided problems by taking a few easy inexpensive measures. Most errors are made out of ignorance of the laws and regulations, not willful disobedience.
The church must budget the time to become aware of and stay abreast of the regulations. The church should send its administrators to seminars where these issues are discussed. The NACBA local chapters have monthly meetings that serve as a tremendous resource. The administrator should invest in tax guides and subscribe to newsletters that keeps him abreast of the latest news affecting churches.
The second step is to educate your membership. To avoid painful problems it is essential that the membership is aware of these rules. As a part of the annual stewardship campaign, seminars and town meeting type events can be held where these issues can be discussed in a non-threatening environment.
The process, however, cannot be just a one time special event. The administrator must work to keep his people informed. This is an ongoing process, not a one-time event. There is a great deal of miss-information circulating in the church world about all types of issues that become truth to many people simply because they are repeated over and over again. The only way to combat this is to regularly inform the membership about the rules. Notices in the church bulletin or newsletter are easy ways to keep the church informed.
The third step actually should be the first, because without it neither one of the other two will be effective. To be able to handle these types of situations smoothly, the church should have a management policies and procedures manual with a significant portion of the manual devoted to charitable contributions. One of the main reasons for developing a policy manual is to try to anticipate problems before they arise. When they do arise, they are much easier to deal with when a plan has already been established. For instance, the plan can establish what types of gifts will or will not be accepted. Although it cannot specifically identify every situation that the church may be confronted with, it can establish a framework within which the church can work. This will also give the church the ability to turn down a gift in a courteous way that does not damage relationships.
The policy should also establish who is to make the decision to accept the gift. Placing the responsibility for accepting these types of gifts with a specific committee or other group of people avoids the possibility of members going around the business manager after he has informed them that the gift was not acceptable. Also it can take the business manager or minister off of the hot seat in dealing with an insistent church member. The contribution policy should also establish who is responsible for IRS compliance. This is usually the duty of the business administrator but if it is not documented it may not get done.
In summary, gifts of property can be a windfall to a church. However, the vast majority of all such gifts are of a much smaller value, and can cause significant problems if the church is not prepared.