A Graceful (and Compliant) Approach for Churches
It is not a question most pastors or church treasurers expect, but it happens more often than you think.
A donor calls and says, “We’d like our contribution back.”
Whether it is because of a personal financial hardship, a disagreement with church leadership, or a change of heart about the project they supported, requests like this can put your church in an awkward position.
How you respond matters, not just for legal and financial reasons, but also for the health of the relationship between the church and the donor.
Step 1: Understand the Legal and IRS Guidelines
From the IRS perspective, once a donation is made to a qualified nonprofit such as a church, it is the church’s money to use according to its mission. Donors generally cannot reclaim it and still claim it as a charitable deduction.
That said, churches sometimes choose to return a gift in special circumstances, but there are compliance considerations to consider.
- Returning the gift usually means the donor must amend their tax return for that year.
- If the gift was restricted, meaning it was designated for a specific purpose, the church is obligated to use it for that purpose unless the donor agrees to release the restriction.
Step 2: Clarify the Reason for the Request
Before making a decision, listen carefully to the donor’s concern. Is this about:
- Financial hardship? They may need pastoral care as much as financial help.
- Disagreement or dissatisfaction? This could be an opportunity to work on the relationship.
- Change in project or program? Maybe the funds can be redirected to another ministry they want to support.
Step 3: Know Your Church’s Policy
If your church does not have a written policy on returned donations, now is the time to create one. A good policy:
- States that all gifts are non-refundable, except under rare board-approved circumstances.
- Outlines the process for handling requests, including who approves them.
- Includes IRS compliance language about charitable contributions.
Step 4: Respond with Grace and Clarity
Your response should be pastoral and professional. You might say something like:
“Thank you for sharing your concern with us. We deeply appreciate your generosity and want to honor your intent as a donor. According to IRS rules, gifts are generally non-refundable once received. However, our leadership team will review your request and follow our policy. We will follow up with you promptly.”
This approach helps the donor know that they’re being heard, while also making sure you can take the steps needed to stay compliant.
Step 5: Document the Decision
Whether you return the gift or not, keep a clear paper trail.
- The donor’s original request, written if possible
- Notes from your conversation
- The board’s decision and rationale
- Any changes to the donation records if the gift is returned
Bottom Line
While you cannot and should not always say “yes” to refund requests, you can handle them with grace and take all the necessary steps to make sure your church stays compliant with the IRS.
Action Step: Review your church’s gift acceptance and refund policy this month. If you do not have one, draft it and have it approved by your board before the next giving season.
