Paper trail to the pulpit

New IRS regulations require receipts for gifts to nonprofits

April 15, 2007|By Liz F. Kay | Liz F. Kay,Sun reporter

Throwing a few dollars into the collection plate may never be the same -- not, at least, if you want to deduct the gift on your taxes next year.

As Americans finish their 2006 taxes this weekend, these returns mark the last time they can use a personal diary as a record of charitable contributions under $250.

Under new IRS rules, all charitable gifts made in 2007 must be acknowledged with a detailed receipt, canceled check or credit card statement.

These new rules will "impact how kids put money in the poor box ... especially Catholics who have three kids," says Jacqui Scher, who attends St. Patrick's Church in Havre de Grace with her husband and their two daughters and son.

"You always have to have dollars for each of the kids to put one in," Scher says. "Not that I give money to church to deduct it, but I should be able to do that."

Starting in 2007, to deduct charitable donations of money to nonprofits and religious groups, taxpayers will need records such as bank or credit card statements or letters from the recipients. Those documents must include the date of the gift, the name of the charity and the amount contributed.

In the past, the Internal Revenue Service would accept a personal check register, diary or notes as evidence of individual donations under $250.

"I think it's going to be a huge bookkeeping nightmare, especially for charitable organizations," says Cindy Hockenberry, tax information analyst for the National Association of Tax Professionals. "Whether it's five cents or five dollars, you need to have substantiation to deduct it."

She hopes that some of her group's members are reminding their clients this year to keep good records. But the analyst says many religious groups have been sending letters to their regular donors already because of rules that require a receipt for individual gifts greater than $250.

"I think it's going to have a huge impact, not only for taxpayers, but for tax preparers because they will be the bad guys," Hockenberry says. "They will have to say to their client, `You can't deduct that without a receipt.' "

Charles E. Zech, a Villanova University economist and church finance expert who wrote Why Catholics Don't Give ... And What Can Be Done About It, predicts that smaller congregations are likely to be the most affected by the new regulations.

"The necessity to report on this is going to be a bigger burden for small churches," he says. "It's another layer of administrative work that few pastors would welcome."

However, Zech says, most gifts to religious groups aren't motivated primarily by tax deductions -- at least not the cash contributions.

A little more than a third of the 132 million returns filed in 2004 included itemized deductions, according to the most recent IRS data available. Of those, about 83 percent deducted monetary contributions to charity.

"I don't think a lot of folks contribute to their church based on tax deductions. If you're worried about a tax deduction, you'll write a check," Zech says.

That's how Bishop Heber M. Brown Jr., pastor of Shiloh Baptist Church in Edgemere, feels. Most donors "do it out of heart or head without April 15 in mind," he says.

The church, with about 550 members, hasn't changed its procedures because of the new rules. It has given its members receipts for years, which Brown says "helps them to gauge their level of giving.

"It's a commitment to the vision of the church ... it becomes a tool of personal assessment," Brown says.

The Rev. Dick Goodlin of St. Stephen Lutheran Church in Arbutus, who is also a tax preparer, has announced the changes from the pulpit and has been including an explanation of the new regulations in the weekly church bulletin since January.

He says he has seen more names handwritten on "pew envelopes" since then. Members get preprinted envelopes, but if they forget them at home, they can fill out the ones in the pews with their donations. Churches keep track of donations and send out receipts at the end of the year.

Also, if guests give to the church, "we are conscientiously making a record of those things," Goodlin says.

Scher says she's not inclined to write her name on an envelope if she's visiting a church because "then you get solicited for more donations."

"It depends on the poison you're picking," Scher says.

Some smaller groups say the IRS change creates a burden.

Caryn MacLuan, treasurer of CedarLight Grove, a Druid community that meets in Baltimore's Hamilton neighborhood, says she sat next to the collection plate during the group's service last Sunday.

"Every time they came and put money in it, I had to ask if they needed a receipt," says MacLuan, who is an unpaid volunteer.

Only about half of the 20 to 40 attendees at services are regulars, she says, and most of them give cash. She's considering ordering pre-printed envelopes and purchasing database software to track giving.

"I'm looking into how the big churches do it," she says.

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