Private School Tuition and Tax Deductions

[ken_sylvania]

I would also believe that if your church uses a "number system" for donors where donations are tracked only by donor number with no identifying name, that would lend itself favorably to an argument that church donations are not tuition.

So if a person uses such a number system and makes tuition payments through the church's school offerings, it is basically a matter of conscience and their personal code of ethics, given that they are unlikely to ever have these donations challenged in an audit. Is that about right?

I would guess that is the case. I was thinking especially that the anonymity of such a system would lend support to any claim that patrons are not being pressured to "give" their tuition through the offering as no-one would have any way of knowing whether or not they are doing so. I think that if patrons truly are not being asked to give a certain amount, then they can claim the charitable deduction with a clear conscience.

[Josh]

I’ve always been curious how an envelope system meshes with donations by check.

[ken_sylvania]

I’ve always been curious how an envelope system meshes with donations by check.

The deacon can figure out whose number is whose if the donor is using checks (if you try hard enough you could probably also get a peek at the number on the envelope your neighbor is putting into the basket), but in general he will likely try to not look at the names on the checks or consciously pair them with donor numbers. Some folks fold their checks in half and might even write the dollar amount of the check in pencil at the top of the endorsement area so that it's not necessary for the deacon to actually see the name on the check. If a check bounces or is lost then sometimes it simply becomes necessary to figure out whose the affected number is and take care of business.

[Ken]

I’ve always been curious how an envelope system meshes with donations by check.

The deacon can figure out whose number is whose if the donor is using checks (if you try hard enough you could probably also get a peek at the number on the envelope your neighbor is putting into the basket), but in general he will likely try to not look at the names on the checks or consciously pair them with donor numbers. Some folks fold their checks in half and might even write the dollar amount of the check in pencil at the top of the endorsement area so that it's not necessary for the deacon to actually see the name on the check. If a check bounces or is lost then sometimes it simply becomes necessary to figure out whose the affected number is and take care of business.

Churches I've been involved in the treasurer of course knew because he cashed the checks and kept the books. But he was expected to maintain strict confidentiality. I'm not actually sure why that was important (maintaining confidentiality) but it most certainly was. And a treasurer who blabbed about who gave how much would likely not be long in the position.

People who dropped checks into the offering plate would fold them in half so that the name and amount was not visible, or else use envelopes. And I notice that some churches use these velvet bags rather than offering plates, which tend to conceal whatever is dropped in.

Now days there are some who just do monthly electronic transfers. I know that is how my parents do it. They just have a regular repeating electronic transfer set up. I don't know how common that is.

[ohio jones]

I’ve always been curious how an envelope system meshes with donations by check.

The deacon can figure out whose number is whose if the donor is using checks (if you try hard enough you could probably also get a peek at the number on the envelope your neighbor is putting into the basket), but in general he will likely try to not look at the names on the checks or consciously pair them with donor numbers. Some folks fold their checks in half and might even write the dollar amount of the check in pencil at the top of the endorsement area so that it's not necessary for the deacon to actually see the name on the check. If a check bounces or is lost then sometimes it simply becomes necessary to figure out whose the affected number is and take care of business.

The other wrinkle in the number system is cash contributions of $250 or more, which are supposed to be itemized on a receipt that includes a name. At least if the contributor wants to itemize, and I don't intend to ask everyone about that (and they may not even know until they wrap up their taxes). Of course there are creative ways of maintaining anonymity in that situation, but it adds another step or two to the process.

[ken_sylvania]

I’ve always been curious how an envelope system meshes with donations by check.

The deacon can figure out whose number is whose if the donor is using checks (if you try hard enough you could probably also get a peek at the number on the envelope your neighbor is putting into the basket), but in general he will likely try to not look at the names on the checks or consciously pair them with donor numbers. Some folks fold their checks in half and might even write the dollar amount of the check in pencil at the top of the endorsement area so that it's not necessary for the deacon to actually see the name on the check. If a check bounces or is lost then sometimes it simply becomes necessary to figure out whose the affected number is and take care of business.

The other wrinkle in the number system is cash contributions of $250 or more, which are supposed to be itemized on a receipt that includes a name. At least if the contributor wants to itemize, and I don't intend to ask everyone about that (and they may not even know until they wrap up their taxes). Of course there are creative ways of maintaining anonymity in that situation, but it adds another step or two to the process.

The IRS does require that the receipt includes a name, but I believe that according to regulation the name required is that of the organization providing the receipt, not that of the donor. Can you point me to any IRS requirements that the donor's name be included on the receipt?

[ohio jones]

The IRS does require that the receipt includes a name, but I believe that according to regulation the name required is that of the organization providing the receipt, not that of the donor. Can you point me to any IRS requirements that the donor's name be included on the receipt?

Hmm, maybe not. It's more implicit than explicit, but do you think an auditor would allow a statement addressed to "Contributor No. 13" rather than to the taxpayer by name? Not sure I'd want to test that if a substantial amount is at stake. I may of course be remembering wording (or assumptions) from when the regulation was first implemented (and $250 was worth a lot more than it is today) that has since been revised.

The IRS does say "It isn't necessary to include either the donor's Social Security number or tax identification number on the contemporaneous written acknowledgment." (Pub. 1771, p. 3) If the donor's name were also optional, it would seem logical they'd include that.

[Ken]

The IRS does require that the receipt includes a name, but I believe that according to regulation the name required is that of the organization providing the receipt, not that of the donor. Can you point me to any IRS requirements that the donor's name be included on the receipt?

Hmm, maybe not. It's more implicit than explicit, but do you think an auditor would allow a statement addressed to "Contributor No. 13" rather than to the taxpayer by name? Not sure I'd want to test that if a substantial amount is at stake. I may of course be remembering wording (or assumptions) from when the regulation was first implemented (and $250 was worth a lot more than it is today) that has since been revised.

The IRS does say "It isn't necessary to include either the donor's Social Security number or tax identification number on the contemporaneous written acknowledgment." (Pub. 1771, p. 3) If the donor's name were also optional, it would seem logical they'd include that.

If you are audited you would very likely be asked to prove the provenance of the funds. Which would mean bank records showing a check or withdrawal in the same amount at about the same time. You can't take a tax deduction for a contribution that someone else made, even if they made it in your name. So you should be able to prove that you made the donation and where the funds came from.

[ken_sylvania]

The IRS does require that the receipt includes a name, but I believe that according to regulation the name required is that of the organization providing the receipt, not that of the donor. Can you point me to any IRS requirements that the donor's name be included on the receipt?

Hmm, maybe not. It's more implicit than explicit, but do you think an auditor would allow a statement addressed to "Contributor No. 13" rather than to the taxpayer by name? Not sure I'd want to test that if a substantial amount is at stake. I may of course be remembering wording (or assumptions) from when the regulation was first implemented (and $250 was worth a lot more than it is today) that has since been revised.

The IRS does say "It isn't necessary to include either the donor's Social Security number or tax identification number on the contemporaneous written acknowledgment." (Pub. 1771, p. 3) If the donor's name were also optional, it would seem logical they'd include that.

I actually do think an auditor would allow a statement addressed to "Contributor No. 13" without a name. Standard practice at our church is that anyone who wants a year-end receipt uses numbered envelopes. The deacon tracks contributions by envelope #, then after the end of the year sets out the receipts allowing each contributor to pick up the receipt corresponding to his or her number.

The IRS does say "It isn't necessary to include either the donor's Social Security number or tax identification number on the contemporaneous written acknowledgment." (Pub. 1771, p. 3) If the donor's name were also optional, it would seem logical they'd include that.

That does seem logical, although to me it seems just as logical that if the donor's name were required it would be listed under the "required items".

[RZehr]

I got this on Tuesday:

So sorry! I was flooded with email after you sent this for year-end tax planning and I never circled back to it to give an answer. I just read something that suddenly reminded me about your question.

I am not entirely sure of the answer. Let me run it by my not-for-profit team to see what information they can provide.

For what it’s worth, this is from a partner at SingerLewak out of Los Angeles. A top 100 accounting firm in the US based on revenue. Not a fly by night accountant who tactfully navigates deduction boundaries with creativity.

And this guy was reading Mennonet?

I got an answer forwarded from SingerLewak’s nonprofit team this morning.

“Finally! I found the right partner to discuss your question with. This is embarrassing how long this took! I promise to do better.

(Name) specializes in Not for Profits and works with some very large ones in LA.”

Forwarded email:
“HI (name of partner) - So long as the donation is not earmarked for the benefit of a specific child attending the school, the donation shall be tax deductible as a general donation to the church (which is intrinsically a 501(c)(3) organization). The church can turn around and use the money for whatever purposes it deems necessary (within its own purpose, of course). Furthermore, they also do not accept tuition from non-members to attend the school, so that factor doesn’t weigh into this case.”

This confirms that the way my church school is funded, is in fact tax deductible.