Responding to an inquiry by a constituent of U.S. Senator Johnny Isakson (D-GA), the Internal Revenue Service in 2009 addressed the tax consequences of a church member’s contribution to his local church when the donor designated the contribution to help pay for the pastor’s health bills. After noting that the church “must have full control of the donated funds and discretion as to their use” for a contribution to be deductible, the IRS cited a 1979 Revenue Ruling which held that payments to a religious organization that were earmarked for particular students were not deductible charitable contributions.
Following that line of thought, the IRS in their response to Senator Isakson contended that an individual’s contribution that is designated for the medical bills of his pastor is not deductible under the Internal Revenue Code (Section 170) as a charitable contribution. The IRS’s response became public in INFO 2009-0038. At this link you can read the IRS’s complete response, only with the constituent’s name redacted.
Most troubling about the response is that the IRS seemed to answer a question that was not asked, i.e. are all offerings designated for a pastor, given through the local church, considered to be non-deductible charitable contributions? The only question in controversy involved the deductibility of a contribution given to a church to help pay a minister’s bill for previous health expenses, not a simple situation where a gift was given to the church just to bless the pastor. However, the IRS’s response seems to be a broad sweep that covers any designated gift through the church to a pastor.
Dan Busby, President of the Evangelical Council on Financial Accountability, in an article on this subject noted that this interpretation may effectively limit all designated contributions to pastors from being deductible charitable contributions. Mr. Busby, a noted Certified Public Accountant and the author of the Zondervan Minister’s Tax Guide, suggests that a church member who wishes to provide funds for a pastor should be encouraged to make the gift directly to the pastor. He notes that efforts to “run gifts for pastors through the church” are the basis for headaches for both the church and the pastor.
We will continue to closely watch to see if the Internal Revenue Service offers additional clarification on this issue in future revenue rulings.