News You Can Use, from TLC

Church Finance & the Capital Campaign

Saturday, October 26, 2019 - by Stephen S. Mabry, CAE

If your church is considering a capital campaign to accomplish something of vision, preparation, communication, and transparency throughout the process will be key to a successful campaign.

According to Forbes Magazine:
Americans gave $358 Billion in 2014, a 7.1 increase over 2013, a whopping 2% of GDP. Of this, $258 billion was given by individuals, representing 72% of all charitable donations.

Is the church body currently supporting operations? If the case for support is compelling, typically, campaigns will cause an “up-tick” in all funds, rather than making one fund suffer while the other grows. There are some things that donors have a right to expect of leadership before this can be true, however.

Be worthy of support, meaning:

1. Develop and communicate a strong and compelling “Case for Support”
2. Have fiduciary capacities identified and in place before inviting gifts. Who is overseeing funds and are there internal controls/checks and balances that would likely prevent and/or discover fraud?
3. Strong Internal Controls. Have duties been segregated with no one person having both booking and transaction authority/capabilities?
4. Bank accounts are in place and are reconciled MONTHLY and financial statements are produced on a regular basis and without fuss.
5. Is there an Audit or at least a review?
6. Thank you/Acknowledgements
a. A receipt/letter is required for a donor to take a deduction when itemizing, and must include at least:
i. Church’s name
ii. Amount donated, and
iii. A statement that No goods or services were received or a value of the consideration that was received; ie tickets to an event
b. Cash deduction is dollar for dollar up to 50% of AGI, provided the donor can itemize and deduction exceed standard deduction for 2017 (always see your tax advisor for details as latest figures are subject to change):
i. $6,350 for individuals
ii. $12,700 for couples
7. Are there donor files, especially to record and support the administration of restrictions?
8. Keep and enforce donor confidences and never disclose donations w/o donor consent
9. Draft a Gift Acceptance Policy
10. Draft an Investment policy (if marketable securities will not be utilized, this should still be stipulated as your policy).
a. Institutional investing, especially charitable investing, should be much more conservative than individual investing and should reasonably safe-guard the corpus while providing a reasonable return (5%-8% for example). This range is generally ahead of cash and inflation but clearly a lower-tier, risk tolerance.
b. Consider Prudent Investor Laws in your discussion and realize that the injunctive relief that might be considered in a complaint will use “what would a prudent person in your position have done to both invest for return and safeguard the assets” as its measure.

Know Why People Give

There is a hypothesis in charitable giving that states that donors don't give to organizations, they give to people. Stated another way, in philanthropy, people give to people to help people - WHEN - they are asked by the right person. This may not be the case when it comes to the Church as they may very well be giving to the organization out of obedience to God. However, when a church needs to fund something specific, it needs to make the opportunity known and make the "ask". What is true both for charity and churches, is the number one reason people do not give (when they would otherwise be motivated) is that they were not asked. Spiritually, people give to honor God and to put themselves in their proper place with respect to God and money as well as to help people and they are very likely to respond favorably when approached and invited to get involved over and above their regular giving.
In either case:
1. People WHO give HAVE philanthropic goals they hope to achieve by giving
2. As a fringe benefit, those who make estate gifts may be motivated by:
a. Reduction of the size of the estate that will be taxed creating a savings for beneficiaries, and
b. Estate taxes have no limits on dollar for dollar destructibility as they do in life, so a 1 million-dollar gift can be deducted at its 1 million-dollar face value, leaving more to be inherited by way of reducing the taxes due.
- In summary, a sizeable testamentary gift can not only reduce dollar for dollar the amount of taxes owed, but also the size of the estate to be taxed, which can be of substantial benefit to beneficiaries. In such cases, everyone benefits from the gift.

Know the Difference between Donor Restricted vs. Board Restricted Funds

In charitable work, when a donation is received, there are at least two questions that must be concretely answered if the gift is to be properly booked and administered:
1. What restrictions are attached to those funds, if any?
2. Who imposed the restrictions?

Donor Restricted

1. If a donor imposes a restriction, then ONLY the donor can undo the restriction. Once accepted, the organization is bound to administer those funds accordingly to the donor’s instructions.
2. On occasion, a donor may impose a restriction that cannot be met or is contrary to the goals of the organization. In those cases, it is appropriate for the organization to ask that the restriction be amended or removed by the donor (in writing) or decline the gift and return it to the donor.
3. Some donor restrictions may cancel destructibility and charitable purpose.
a. Non-deductible: Here is $500 to help the Jones Family with their medical bills.
b. Deductible: Here is $500 for the Benevolence Fund. I would prefer it be used to help the Jones Family with their medical bills, but the Church may use it for any charitable purpose it deems appropriate. This option would be considered a “Donor-Advised Gift.”

Board/Organization Restricted

1. The Board can impose and cancel restrictions. So, in the case of a Building Fund Campaign, the corpus could be garnered in a number of ways:
a. Church/leadership could restrict surplus operating funds to the Building Fund
i. Single year when available
ii. Regular schedule, ie 20% of net operating surplus for the next five years (skipping years when there is no surplus).
b. Donors could be invited to make a gift to the Building Fund with a non-specific restriction. This can be helpful in the case of a Building Fund as funds can be “ear-marked” and set-aside but also utilized for:
i. Annual Maintenance
ii. New construction
iii. to cope with catastrophic losses that exceed insurance limits

Churches Exempt Status

A non-profit is defined by the fact, that NONE of the proceeds of the organization will inure to the benefit of an individual “share-holder”. By definition, the Non-profit tax structure does not have shareholders; however, it is absolutely appropriate to have “Stake-holders” whose job it is to ensure that funds are used for only appropriate, charitable purposes. So literally, it is not that an NPO cannot have a “profit,” but how those “profits” are used to meet the organization’s charitable purpose and intent.

Moreover, it is Congress and not the IRS that has stipulated that churches who have a religious or educational purpose shall be deemed automatically to be classed as an exempt organization. Churches may elect to take the further step to request classification as a 501(c)(3) charity and/or other type of  Private Foundation from the IRS and once approved then operate according to the requirements of those designations and regulations as promulgated by the IRS. There are arguments to be made for either tax status, depending upon your beliefs and goals.

Things to Consider when starting a Restricted, Building Fund:

1. Don’t create anymore tax/bureaucratic structure than necessary to accomplish your goals; in other words, it is not necessary to create new or separate tax entities to accomplish the creation/operation of a restricted fund.
2. Creating a Restricted Fund
a. Avoid setup and administration by utilizing a local Community Foundation, or
b. Open a separate bank account for Endowment, Quasi-Endowment or Trust funds
3. If keeping funds in-house, Appoint/Elect fiduciaries to over-see the assets (can use existing financial officers/procedure or appoint additional).
4. Enhance internal controls and segregate duties as much as possible. (Your goal is lock-down receiving of funds and force any-and-all activity to happen at the bank where an audit trail is both existent and credible.)
5. Have more than one person receive original bank statements by mail or at minimum, have on-line view permissions of bank activity.
6. Require monthly reconciliations and regular financial statements that agree with bank activity
7. Consider a formal, gift acceptance policy and publicize it
8. Consider launching a campaign or formal drive
9. Segment your donor database and know
a. your Donor’s patterns and giving interests,
b. LYBUNTS (last year but unfortunately not this year) and SYBUNTS (some year but unfortunately not this year).
10. Offer educational sessions with your base:
a. What is a Last Will & Testament
b. What is a Codicil?
c. Estate Giving - Church Win, donor win, survivors win

Methods of Giving

There are myriad ways to make a gift to charity, but by starting with simplest, the Church will be in a position to grow to more sophisticated vehicles as the structure to steward those gifts increases.
1. Simplest for all involved (give and receive) is Cash
a. Deductible up to 50% of donor’s AGI when donor itemizes
b. Can rollover excess to sequential years, up to five years or until exhausted
2. Non-cash property and assets
a. Deductible up to 30% of donor’s AGI when donor itemizes
b. Can rollover excess to sequential years, up to five years or until exhausted
3. Stock, especially appreciated stock –
a. Deductible up to 20% of donor’s AGI when donor itemizes
b. Deduct FMV (if you owned for 1 year or more)
c. Donor avoids paying capital gain because they did not realize it, and charity/churches do not owe capital gains.

There are great things that can be accomplished when people work together. If your church is considering a capital campaign to accomplish something of vision, preparation, communication, transparency throughout the process will be key to a successful campaign. Be worthy of support and "ask" and may God bless your efforts and your outcomes as you follow His direction.

Stephen is President and CEO of Texas Lions Camp, Inc. and recently celebrated 30 years of service to this 70 year-old, 501(c)(3) charitable, organization in August of 2019. TLC, Inc. has a large Board of Directors consisting of 94 voting members and over 300 volunteer members that serve on one of 10 standing committees. As a corporation, TLC has more than 200 full-time and seasonal employees (who are organized into 7 departments) and over 2,000 volunteers per year that are responsible for creating an atmosphere of success for more than 1,500 children with physical disabilities per summer. Stephen is a Certified Association Executive with the American Society of Association Executives, a past Certified Fund-Raising Executive with the Association of Fundraising Professionals. Stephen is a father of three and resides on TLC’s Kerrville campus together with his wife Shawn, who as luck would have it, is a professional editor.
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