Unsolicited, Unilateral Gifts Directed to Individuals

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Question:

Financial gifts are given by several persons to ourformer pastor who is now retired. The question is: since they give through thechurch, are their gifts deductible and do we need to give him a Form W-2 at theend of the year or are these gifts not taxable? Answer:

The way the question is worded leads me to believethat the actions of the donors were unsolicited (i.e., the church did not takecorporate action to initiate the collection of funds in order to compensate itsformer pastor). The church is simply acting as a conduit to forward thegifts  to the pastor.To be deductible, charitable contributions must bemade to a qualified organization, donors releasing control of the funds to itin order that it might accomplish its charitable purposes. On occasion, a churchwill encourage contributions to enable it to compensate its employees,including its pastor(s). These contributions are deductible by the donors. Therecipients are generally subject to income and self-employment tax (see otherpostings within this blog for exceptions or strategies to avoid or limit thesetaxes). Payments toindividuals are not considered qualified organizations per IRS Publication 526, even if the organization is used as a conduitto accomplish the donor’s unilateral show of generosity. Individuals whomake contributions to another individual are not able to take a tax deduction,nor is the gift taxable to the recipient.

The members of my Federal Taxation I class at Maranatha Baptist Bible College in Watertown, Wisconsin have taken on the challenge of study and research to answer the posted question. Aaron Oberholtzer of Marinette, Wisconsin gets credit for this one.