Is my church laundering money?
Dave, a long-time member of Faith Church, approached Pastor Ron with a request. His daughter, Britney, has enrolled in one of the denomination’s Christian schools, which offers a matching scholarship fund. When a church gives a $1,000.00 scholarship to a student, the school matches the scholarship. Dave wants to give the church $1,000.00 and have the church then give the money to the school as the matching scholarship. Is this ok?
No, This Is Not Okay.
A donor cannot give money to the church and direct that the church expends that money on behalf of a particular beneficiary. Once a donor has made a gift to a charity, the gift becomes the property of the charitable organization, and the donor retains little authority over the use or expenditure of the funds.
In this example, Dave cannot give the church $1,000.00 and demand that the church gives the money to the school’s scholarship specifically for his daughter. If he did, he certainly could not receive a tax deduction for it. However, if the church has a scholarship fund, Dave can earmark the $1,000.00 donation to the scholarship fund, but he cannot determine who the recipient of the scholarship will be.
While this may not technically be money laundering, it is an abuse of the church’s charitable status and should be avoided at all costs.
Donor-Directed Gifts and Church Obligations
If the church receives donor-directed gifts to particular funds, it has several obligations:
Use Resources Appropriately: Resources must be used and accounted for in accordance with the donor-intended purposes.
Truthful Communications: Communications must be truthful, current, complete, accurate, and not misleading.
Realistic Donor Expectations: Donor expectations created by the ministry must be realistic and fulfilled by the use of funds.
Organizational Control: All gifts must be under the organization’s control.
Practical Implications for Church Funds
For most churches, the practical implications of these rules concern operating, missions, and building funds:
Operating Fund: Gifts to the operating fund may be used for any legitimate purpose the church deems appropriate, including transfer to missions or building funds.
Missions and Building Funds: Donor-directed gifts to the missions fund and building fund may not be used for the general operating expenses of the church because these funds were received for a particular purpose by the church. These funds must be safeguarded and used for the purposes of the respective funds.
Excess Funds from Donations
What if the church receives more money than it needs for a certain project? Does it have to give the money back to donors? The answer is probably not, but it would be best practice to include language in all appeals, such as:
"All gifts to the Bolivia missions trip fund will be used for that purpose. However, if donations exceed the required budgeted amount, all excess funds will be used for the next most similar project."
Conclusion
In summary, Pastor Ron should explain to Dave that the church cannot accept his $1,000.00 with the stipulation that it be used specifically for Britney’s scholarship. This type of directed giving compromises the integrity of the church’s charitable status. Instead, Dave can donate to the church’s scholarship fund, leaving the decision of the scholarship recipient to the church’s discretion.
Additional Resources
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