March 6th, 2012 | Comments Off on Designated Benevolence Giving

Questions often arise about whether a gift given through a benevolence or “Good Samaritan” fund to a specific individual may be tax deductible. The gift is not illegal, the only question is whether the donation can be deducted by the donor. The IRS has addressed this issue the several tax rulings, including:

  • 2002 Letter Ruling 200250029
  • 2005 Letter Ruling 200530016
  • 1987  Letter Ruling 8752031

In sum, if a gift is designated for a specific individual, it is not tax deductible even if it first flows through a benevolence type fund set up by a tax exempt organization.  This is why gifts made to specific person after a disaster or as a “purse” to a departing pastor are not deductible. Gifts that flow through a benevolence type fund have the best chance to be tax deductible if that gift is intended for the use of the organization and not as a gift to an individual. The test in each case is whether the organization has full control of the donated funds, and discretion as to their use, so as to insure that they will be used to carry out its functions and purposes.

The more difficult question is whether a deduction is allowed if the gift eventually goes to a beneficiary that is “suggested by the donor.” In some cases it may be possible for a donor to deduct a designated contribution to a benevolence fund if the circumstances clearly demonstrate that the designation was a mere suggestion or recommendation and that the donor intended the donation to be to, or for, the use of the community and subject to its control rather than to the control of the designated individual.  

A community can adopt a written policy that will increase the chance that a deduction may be deductible. This written policy should state that the organization makes the final decision about the beneficiaries of the fund regardless of any suggestions.  This is a tricky area and a community should never guarantee that a gift that flows to an individual is tax deductible.