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The Grassley staff report and “love offerings”

When I first heard that the Grassley investigation was looking into “love offerings” I thought I had misunderstood something. When I was a kid and attending independent Baptist churches we occasionally took up “special offerings” for visiting speakers, missionaries, causes, etc. and these were sometimes called “free-will offerings,” or, in rare circumstances “love offerings.” It was usually made clear to us that this money was leaving the church in the hand of the speaker or being sent to the cause or organization of interest and was separate from our “tithe” which stayed in our local church. Because I was a kid at the time I never thought about the tax implications of these gifts. They were mostly loose cash anyway and wouldn’t have been mentioned on anybody’s Form 1040 Schedule A anyway.

So I was surprised to hear a suggestion that something like this would have merited the attention of a Senator. Needless to say I had it all wrong. The “love offerings” in question are of an entirely different sort; they’re bigger, more organized, and definitely have tax implications for somebody.

Here is the reference to the relevant law from the Grassley staff report [PDF]:

Under section 102(a) [of the tax code], gross income does not include the value of property acquired by gift, bequest, devise, or inheritance. Section 102(c) provides an exception for “employee gifts”: there is no exclusion from gross income for any amount transferred by or for an employer to, or for the benefit of, an employee.

The discussion goes on to list examples of how this section is being interpreted by various ministries:

  • Randy and Paula White were taking “love offerings” in addition to a base salary
  • Eddie Long was taking “love offerings” instead of a salary
  • Gregory Clarke was convicted of tax fraud in 2007; he admitted to taking a $60,000 “love offering” and other gifts instead of a salary

There is also an unquantified note from Larry McSwain, professor at Mercer [link]:

one of the practices of many churches, especially non-denominational and African-American ones, is to provide a love offering from the members to their pastor in place of salary. This technique is, for some, a way of avoiding the reporting of income. (page 45)

There’s also several pages of language parsing what constitutes a “gift,” the difference between an “offering” and a “gift,” and pointing out that language in Section 102 regarding gifts to employees may not apply to ministers, who are considered self-employed in some contexts, employed by a church in others.

Of the issues considered by the investigation this is the thinnest, in the sense that there’s just not much data. It does appear that in some churches and under some circumstances “envelopes stuffed with cash” pass from hand to hand, and the “love offering” language is just a smoke screen to sanctify a practice that may have been appropriate at one time but now is just a tax dodge. It’s hard to quantify, though, when churches aren’t required to file any forms (e.g. the IRS Form 990) detailing how much money they handle and what they do with it.

This is a tough issue; see e.g. some of the clear distinctions and some of the gray areas in McSwain’s 2007 article from Ethics Daily [link]:

It is altogether fair for Sen. Grassley to determine whether such monies were indeed gifts or were checks from churches given by members who were eligible for a charitable deduction on their taxes. If they were, it was not a gift!

There’s a point at which small “special offerings” become salary-sized tax dodges; I’m not sure I know where. I have to admit that I think this is a shady practice at best, but I get the impression from the Grassley staff report that it is not likely to change any time soon under current law. From what I understand this particular issue is not front and center among the issues of interest to the Evangelical Council for Financial Accountability (ECFA); issues such as self-dealing and integrated auxiliaries (of which more later) being better-defined and more important. I guess we will see if and when the ECFA-related independent commission reports [link].

  1. Rob
    March 3, 2011 at 1:29 pm

    DeKalb County News website, Feb 3, 2011, reports on Eddie Long’s New Birth Missionary Baptist Church:

    “Fox 5 said it obtained internal records that showed the church collected nearly $20 million last year, with more than $1 million designated for Long as a love offering.”

    • March 3, 2011 at 1:46 pm

      Thanks Rob. Those are big round numbers; I’d love to know what the actual numbers were.

      Also, I’d hate to be Mr Long’s tax attorney right about now.

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