Does your organization have staff that raise their own support? Does your organization receive charitable gifts intended for specific staff members? If yes, who has control over the funds? Does your organization and do your donors understand the difference between restricted and donor-preferenced gifts? The following discussion will answer these questions and decode the deputized worker status.

What is the Deputized-Worker Status?

There is a type of employee status frequently used by organizations in the religious sector known as deputized worker or self-supported staff. A deputized worker is an employee that is tasked with the responsibility to raise gifts to provide funds to pay part or all of their compensation, benefits, and organizational expenses. This approach is acceptable and acknowledged by the IRS as a legitimate fund-raising method. The complexity arises in determining the tax-deductibility of contributions due to donor’s intent and control.

There are two general tests to determine the tax-deductibility of contributions:

• The Intended Benefit Test
  • If the intent of the donor is to benefit the organization, it is tax deductible.
  • If the intent of the donor is to benefit a particular deputized worker, it is not tax deductible.
• The Discretion and Control Test 
  • The organization needs to have discretion and control over the funds to be tax-deductible. The following are ways to do this:
    • Establish a budgetary process that sets compensation and expense reimbursement amounts for each staff.
    • Communicate to staff and donors the organization’s control of donated funds in solicitation letters through specific language.
    • Establish and monitor policies of controlling the funds that are communicated to staff and donors.
    • Supervise and review the staff regularly.

Donor-Preferenced Support

Donors may indicate a preference for the work performed by a particular individual. This is called donor-preferenced support, but the donor must understand that ultimately, the organization has the right to determine the use of the funds and the contribution is not restricted only to benefit the individual. The donor is not allowed to earmark the contribution specifically and exclusively for an individual. This issue arises most often when the staff member leaves the organization. They can receive severance payments out of their funds, but any remaining balance stays with the organization. This must also be communicated to staff and donors.

Clearly Communicate with Stakeholders

To avoid potential tax issues and disgruntled staff and donors, clearly communicate these rules and policies early on. The IRS has provided suggested language for communication to donors to aid in soliciting tax-deductible funds and staff support raising:

1. “This contribution is made with the understanding that the charitable organization has complete control and administration over the use of the donated funds.”
2. “Contributions are solicited with the understanding that the charitable organization has complete discretion and control over the use of all donated funds. The charitable organization will attempt to honor gifts preferenced to support particular workers, but the final decision on the use of all funds rests with the charitable organization.”

Navigating the intricacies of deputized worker status and fundraising can be complex, but understanding the nuances is crucial for both organizations and their donors. By adhering to IRS guidelines and implementing clear communication strategies, you can ensure transparency, maintain donor trust, and mitigate potential tax issues.