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Paper trail to the pulpit

The Baltimore Sun

Throwing a few dollars into the collection plate may never be the same -- not, at least, if you want to deduct the gift on your taxes next year.

As Americans finish their 2006 taxes this weekend, these returns mark the last time they can use a personal diary as a record of charitable contributions under $250.

Under new IRS rules, all charitable gifts made in 2007 must be acknowledged with a detailed receipt, canceled check or credit card statement.

These new rules will "impact how kids put money in the poor box ... especially Catholics who have three kids," says Jacqui Scher, who attends St. Patrick's Church in Havre de Grace with her husband and their two daughters and son.

"You always have to have dollars for each of the kids to put one in," Scher says. "Not that I give money to church to deduct it, but I should be able to do that."

Starting in 2007, to deduct charitable donations of money to nonprofits and religious groups, taxpayers will need records such as bank or credit card statements or letters from the recipients. Those documents must include the date of the gift, the name of the charity and the amount contributed.

In the past, the Internal Revenue Service would accept a personal check register, diary or notes as evidence of individual donations under $250.

"I think it's going to be a huge bookkeeping nightmare, especially for charitable organizations," says Cindy Hockenberry, tax information analyst for the National Association of Tax Professionals. "Whether it's five cents or five dollars, you need to have substantiation to deduct it."

She hopes that some of her group's members are reminding their clients this year to keep good records. But the analyst says many religious groups have been sending letters to their regular donors already because of rules that require a receipt for individual gifts greater than $250.

"I think it's going to have a huge impact, not only for taxpayers, but for tax preparers because they will be the bad guys," Hockenberry says. "They will have to say to their client, 'You can't deduct that without a receipt.' "

Charles E. Zech, a Villanova University economist and church finance expert who wrote Why Catholics Don't Give ... And What Can Be Done About It, predicts that smaller congregations are likely to be the most affected by the new regulations.

"The necessity to report on this is going to be a bigger burden for small churches," he says. "It's another layer of administrative work that few pastors would welcome."

However, Zech says, most gifts to religious groups aren't motivated primarily by tax deductions -- at least not the cash contributions.

A little more than a third of the 132 million returns filed in 2004 included itemized deductions, according to the most recent IRS data available. Of those, about 83 percent deducted monetary contributions to charity.

"I don't think a lot of folks contribute to their church based on tax deductions. If you're worried about a tax deduction, you'll write a check," Zech says.

That's how Bishop Heber M. Brown Jr., pastor of Shiloh Baptist Church in Edgemere, feels. Most donors "do it out of heart or head without April 15 in mind," he says.

The church, with about 550 members, hasn't changed its procedures because of the new rules. It has given its members receipts for years, which Brown says "helps them to gauge their level of giving.

"It's a commitment to the vision of the church ... it becomes a tool of personal assessment," Brown says.

The Rev. Dick Goodlin of St. Stephen Lutheran Church in Arbutus, who is also a tax preparer, has announced the changes from the pulpit and has been including an explanation of the new regulations in the weekly church bulletin since January.

He says he has seen more names handwritten on "pew envelopes" since then. Members get preprinted envelopes, but if they forget them at home, they can fill out the ones in the pews with their donations. Churches keep track of donations and send out receipts at the end of the year.

Also, if guests give to the church, "we are conscientiously making a record of those things," Goodlin says.

Scher says she's not inclined to write her name on an envelope if she's visiting a church because "then you get solicited for more donations."

"It depends on the poison you're picking," Scher says.

Some smaller groups say the IRS change creates a burden.

Caryn MacLuan, treasurer of CedarLight Grove, a Druid community that meets in Baltimore's Hamilton neighborhood, says she sat next to the collection plate during the group's service last Sunday.

"Every time they came and put money in it, I had to ask if they needed a receipt," says MacLuan, who is an unpaid volunteer.

Only about half of the 20 to 40 attendees at services are regulars, she says, and most of them give cash. She's considering ordering pre-printed envelopes and purchasing database software to track giving.

"I'm looking into how the big churches do it," she says.

Zech says the IRS rules change may push more congregations -- and congregants -- to opt for electronic methods of giving, such as automatic withdrawals from bank accounts and credit cards.

Many of the 175 people attending the typical service of Mount Olive Holy Evangelistic Church in Edmondson Village pay by credit card or electronic fund withdrawal, says the church's executive pastor, the Rev. Thomasina M. Wharton.

For about four years, ushers have handed out envelopes for worshipers to fill with cash or enter their credit card or account information, she says. Members can also contribute online with a credit card.

"Normally, I don't carry around a lot of cash, and it's easier for me to carry a card," Wharton says. "We can miss offerings or miss opportunities to give when we don't offer those options."

Credit card companies charge about 2 percent to 3 percent for those transactions, but many religious leaders say the convenience is worth it.

"While there is a cost for using credit cards, there's also a reduction in the time it takes to process things by hand," says Martha Knight, director of stewardship at the Baltimore-Washington Conference of the United Methodist Church. "We hope that will reduce their administrative tasks at the local church so they can spend more time in ministry."

Churches need to become more comfortable with the way society is changing, Knight says. "If you're not ready to move that way with the population, then you quickly become out of step with parishioners."

Companies that help facilitate electronic church donations are even finding ways to relieve the peer pressure that comes with the weekly collection basket. Zech has consulted for one company, ParishPay, which gives its customers coupons to toss into the collection basket. And Zech says some envelope suppliers print a check box on theirs to indicate an electronic gift.

Not all religious leaders are comfortable about electronic donations, worried that their members might be going into credit card debt to make contributions. "For many parishioners it does not 'feel right' to use a credit card, possibly incurring debt, for church donations," wrote Ellen Chatard, director of development and communications for the Episcopal Diocese of Maryland, in an e-mail.

"I am a proponent of less credit," says Brown of Shiloh Baptist.

"We all recognize within our society the temptation is to overuse and abuse credit," he says. "We find that it would not be consistent in trying to empower people and get them out of poverty and struggling Friday to Friday" to encourage them to pay with something they don't have.

Keeping record

According to the Internal Revenue Service, if you plan to itemize monetary contributions to a religious or charitable organization when you file your taxes next year, you'll need to keep one of the following:

Bank or credit union statements that state the name of the charity, the amount paid and the date of the gift.

Credit card statements that show the nonprofit's name and the posting date of the transaction.

A pay stub, W-2 form or other document indicating the total amount withheld through automatic payroll deductions, along with a pledge card for the organization.

A written letter or e-mail from the charity with its name, the date of each contribution and the amount of each.

The IRS states that for most taxpayers who file on a calendar-year basis, these changes apply to all donations made after Jan. 1, 2007.

The IRS still requires acknowledgment of individual gifts of $250 or more as in previous years, but one letter that details all gifts will suffice.

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