Contributions made to a religious ministry generally are not tax-deductible if the ministry is not a church and has not obtained IRS recognition of tax-exempt status.

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Charitable Contributions

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Key point: Contributions made to a religious ministry generally are not tax-deductible if the ministry is not a church and has not obtained IRS recognition of tax-exempt status.

The Tax Court ruled that a taxpayer who organized a religious music ministry could not deduct contributions he made to the ministry since it was not a church and was not recognized by the IRS as an exempt organization. A musician and composer of religious music claimed a tax deduction of $5,000 for contributions he made to a religious ministry he founded called "My Father's Son." Through My Father's Son, the musician provides sound services and musical performances to several churches and religious groups with which he is affiliated. The musician claimed to have given sound equipment to My Father's Son, including two speakers, an amplifier, a mixer, condensers, and microphones. He stores this equipment in his garage and transports it to religious services in a van. The musician deducted $550 in transportation expenses as part of his contribution. The IRS audited the musician's tax return and disallowed the $5,000 charitable contribution deduction since My Father's Son was never recognized by the IRS to be an exempt organization. The musician claimed that the $5,000 was tax deductible since he actually performed services for a religious purpose. The Tax Court agreed with the IRS that no deduction was available for contributions to My Father's Son. However, it concluded that the musician was entitled to a tax deduction for his travel to churches in which he performed religious services. The Court noted that an organization cannot receive tax-deductible charitable contributions unless it applies for recognition of exempt status and its application is approved by the IRS. There are limited exceptions to this requirement. For example, churches are not required to apply for recognition of exempt status. However, none of these limited exceptions applied to My Father's House. The Court observed:

However praiseworthy [the taxpayer's] activities may be, he carried them on solely in his individual capacity. The name of his organization expresses the fact that it is none other than himself. My Father's Son is not a corporation, trust, community chest, fund, or foundation. It is not formally organized. The Code makes no provisions for the deduction of contributions to the religious undertaking of an individual as a personal venture where there is no form of organization which conforms to the requirements of the statute. By the same token, the record contains no indication of [the taxpayer's] efforts to apply for recognition of exempt status for My Father's Son, as generally required . . . . We find that My Father's Son is not an exempt organization. Therefore, we hold that [the taxpayer's] claimed contributions are not deductible for federal income tax purposes.

However, the Court acknowledged that the taxpayer "did establish to the satisfaction of the Court that he had incurred transportation expenses in the course of contributing services to his churches" and that the income tax regulations specify that "while no deduction is allowable for a contribution of services, unreimbursed expenditures made incident to the rendition of services to an exempt organization may constitute a deductible contribution, citing as an example out-of-pocket transportation expenses." The Court noted that the taxpayer had presented a log of his mileage showing 2,447 miles driven to religious services, or a total of 58 roundtrips. The Court concluded: "While these expenditures were based on a reconstruction, we do not find them unreasonable. The standard mileage rate for charitable contributions [is] 12 cents per mile. [The taxpayer] is not entitled to deduct registration fees for the van, as the standard mileage rate is allowed in lieu of actual expenses. [The taxpayer] is entitled to a charitable deduction of $293.64 [2,447 miles multiplied times 12 cents]." Stephens v. Commissioner, T.C. Memo. 1993-173 (1993).