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A member of my community passed away and I want to arrange a small crowdfunding page for his widow to help her with immediate expenses until the life insurance and paperwork gets done.

To encourage donations, I would like the crowdfunding beneficiary to be our neighborhood church who will then distribute the money to the widow, so that donors can get tax receipts.

Is this legal?

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  • Is the church routinely funds funerals for people? Questions "is it legal" should be addressed to a lawyer.
    – littleadv
    Feb 29 at 0:25
  • @littleadv I think yes, the church routinely gives money to community members who are in need
    – lgshost
    Feb 29 at 16:19

2 Answers 2

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TLDR: Absolutely not unless the person qualifies for an established "support of the needy" program... and it wouldn't help anyway, and they should just give money to the widow directly.

Nonprofit expert here.

As a rule, no...

This is what the IRS calls "private benefit" (or "inurement" if the private party is influential). The nonprofit 501(C)(3) tax system has a long legacy of abuse, and private benefit is the most common fraud. Everybody wants to transfer money to another person without first paying income tax on it!

This is made more perilous for churches because they automatically are entitled to 501(C)(3) charitable tax status. That means the founders aren't told of this in advance, by filing the enormous Form 1023 to apply for tax status and its numerous admonishments; nor do they seek professional help filling out the form, who would set their expectations correctly.

But even for churches, it's so important that IRS dedicates a whole page to it in their guide for churches (Pub. 1828); it's the first major topic they cover.

That said...

Aiding the destitute is a recognized charitable purpose

And churches are allowed to have support programs for the needy. But IRS requires that this be a program established as a matter of policy, and applied even-handedly to those in the community in need.

IRS is very much on the watch for cases where a 501(C)(3) organization "develops a program" for helping the needy, applies it to one single well-connected member, and then never develops the program broadly. Because this abuse is so common, the penalties hit like a freight train, including very punitive excise taxes and revocation of the 501(C)(3) tax status.

It isn't worth it anyway

The average giver can't take charitable deductions anymore due to tax code changes (that "tax form on a postcard" that president #45 created.)

A taxpayer can take the standard deduction, OR, they can fill out 1040 Schedule A and itemize their deductions. Schedule A is where you claim a tax deduction for charitable contributions. If they don't file Schedule A, they don't get any tax benefit for charitable contributions (or a very de-minimis benefit, e.g. $100).

The "Tax form on a postcard" changes, the 2017 Tax Cuts and Jobs Act, perhaps to eliminate two lines, removed the "personal exemption" (then around $5000) and folded it into the "standard deduction" (then around $5500, raised to $12,000). This meant a huge swath of the middle class no longer had to file the Schedule A (good), but also no longer got any tax benefits from charitable giving (very bad for nonprofits).

Unless you're in San Francisco or Manhattan, most likely most of your parishioners wouldn't enjoy any tax benefit anyway by piping the money through the church. They might as well just give it to the widow directly.

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  • 3
    Didn't realize you had a nonprofit background. Thank you for your service to the community!
    – keshlam
    Mar 1 at 2:54
  • Thanks for the detailed answer. How much charity would you have to give for it to make a dent on your tax deduction? This seems to be terrible for charities
    – lgshost
    Mar 1 at 7:46
  • @lgshost I'm not an expert, but I'd suppose all your itemized deductions (for whatever reason, including the charities) would need to be higher than the standard deduction of $12000. Mar 2 at 1:50
  • @PaŭloEbermann: That did not sound right, so I checked my 2022 return, and it turns out that SALT + charity was enough to put me over the standard deduction. Anyone hitting the SALT cap is already at a $10k itemized deduction, so you'd just need another $2k of charity. Of course, not everybody has high state etc. taxes.
    – Kevin
    Mar 2 at 9:56
  • What a great answer.
    – Fattie
    Mar 2 at 13:50
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If the church is simply acting as a conduit with donations specifically designated for the widow, almost certainly not. In this case, the donation is being made through the church to a specific individual, and donations to individuals aren't tax deductible.

However, if the church is adhering to its benevolence policy of distributing funds in a way that aligns with its religious purpose, probably yes. The catch here is that the donations can't be designated for a specific individual, but would go into a general pool that is distributed to any individual/entity meeting the requirements of the policy. The church, not the donor, would make the determination if the recipient is eligible to receive the funds. In this case, the donation is being made to the church, and the church is subsequently using its own discretion to distribute the funds appropriately.

Your church should consult its benevolence policy (if it has one) and legal counsel to ensure everything is structured in a way that doesn't threaten its tax-exempt status.

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  • So a church can never say "please contribute to our fund so we can help out our fellow congregant Mark who is having health issues"
    – lgshost
    Feb 29 at 16:18
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    @lgshost The fund can't just be a pitstop before the money goes to its intended donee. It might be possible to structure something similar to what you suggest, but you MUST have legal/tax representation to ensure things are set up properly.
    – Stan H
    Feb 29 at 18:17
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    @Barmar I don't know if it would technically be a sham transaction, but the IRS could certainly argue that the intent was always to funnel money from donors to a specific donee, and the donors knew this, therefore the donations aren't tax deductible.
    – Stan H
    Feb 29 at 18:21
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    But if the church is helping out a number of congregants, which likely changes over time, you can't consider your donation to be going to any specific one of them. That presumably avoids the problem, even if you know that the one you want to support is among them.
    – Barmar
    Feb 29 at 20:25
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    @igshost well "help us so we can help" is probably fine. "Everything you donate will go to person x" isn't.
    – DonQuiKong
    Feb 29 at 21:31

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