Church as a Conduit for Non-Deductible Gifts

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Question:
 A church has been asked to act as a conduit for a wealthyindividual to give a considerable gift to a needy family in its community. The church has not yet identified this familyas a target of its own benevolent fund nor does it intent to do so. Can thechurch accept the donation from the wealthy individual, granting a charitablecontribution, and serve as a conduit to pass along nontaxable income to theneedy family? Answer: We advise against participating in this situation. A September 9, 2009, blog post gives some helpful insight into this kind of situation.
Benevolent Fund Review
If the church decides to take on the family and support itthrough its benevolence fund, then that is different. This should still pass areasonableness test in which the amount from the church is not a "token" gift to establish some legitimacy to the wealthy individual's tax-deductible gift. Rather, the church must demonstrate that it has truly seen and responded to the need.
 A church must avoid being a conduit particularly forsomeone who may otherwise be expected to assist the recipient regardless of acharitable motivation. For example, a father who donates to a church school seeking for the donation to cover his child's education should not be allowed to do so.
The step transaction rule permits the IRS by statuteto compress two steps into one if in fact the two steps are for purposes of taxavoidance. Accordingly, the step a wealthy individual takes to process a gift through a receptive church only to have the funds go to an individual not viewed by the church as worthy of its charity is truly to no advantage over simply making a direct gift. The rare exception is when a donor simply wishes to have the church maintain his or her anonymity and accepts the fact that no charitable deduction receipt is forthcoming from the church.