Discretionary Funds: Best Practices To Help The Community
In recent weeks, I have had a number of emails and calls about clergy discretionary funds. My hunch is that this is purely a coincidence. When I read an article a few days ago in the Los Angeles Jewish Journal, I started to wonder.
On a more serious note, a few years back a friend told me a story. His rabbi had performed a baby naming for his child and my friend made a contribution to the rabbi’s discretionary fund. In January of the following year, he had received a statement from his synagogue that detailed all of his contributions throughout the year that he could use to complete his tax return. He noticed that the contribution he had made to the rabbi’s discretionary fund wasn’t included. A call to the temple administrator led him to call the rabbi and ask him this question. The rabbi responded that the discretionary fund was separate from the synagogue and not subject to any IRS requirements for substantiation.
In the story above, there are certainly a number of issues of concern. If the fund is separate from the synagogue, does it belong to the rabbi? How was the fund created? By the synagogue board with a resolution? Or did the rabbi just go to the bank and open up a bank account titled “Rabbi’s Discretionary Fund” using his/her own social security number? If it is the rabbi’s fund, and not subject to IRS reporting requirements, might the rabbi be obligated to pay income taxes on this fund?
The purpose of a discretionary fund is for a rabbi or a cantor, to use at his or her discretion, to help the community. It is not to be used for personal use. This of course is also true for other houses of worship. The discretionary fund is a fund of the synagogue that in terms of its usage is under the control of the rabbi or cantor.
Everything I have read tells me that a discretionary fund ultimately belongs to the synagogue. Contributions to the fund are tax deductible. The same IRS substantiation requirements for contributions apply. At the end of the day, the synagogue board of trustees has a fiduciary responsibility – as it does for all synagogue funds – to insure that a discretionary fund is managed and utilized appropriately.
The best thing for both the clergy and the synagogue board is for the discretionary fund to be audited on an annual basis. A report can be made to the board as to how the funds were distributed noting amounts by category (people in need, $5,000; community organizations, $1000). Confidentiality regarding recipients is certainly important.
There may be questions as to the proper use of a discretionary fund. Using funds from the discretionary fund to attend professional conferences is sometimes a questionable expense. The discretionary fund guidelines from the Episcopal Diocese of Central Florida states that payment for attendance at such conferences should come from “professional expenses” in the operating budget. Synagogue budgets today often have very little wiggle room and the allocation for professional expenses are often quite small.
The guidelines offered by the Central Conference of American Rabbis (“CCAR”) suggest treatment of various expenses – purchases of books and educational materials, professional conference attendance – for clergy and synagogue leaders to follow. Guidelines from the Reconstructionist Rabbinical Association (“RRA”) are quite similar. Both professional organizations suggest that the discretionary fund guidelines become the policy of the synagogue through the passage of a board resolution and reflected in the board minutes. The RRA offers a model contract (see item #7) that includes a paragraph regarding discretionary funds.
The discretionary fund policy of Temple Emanuel of the Merrimack Valley, in Lowell, MA hits all the right notes and is a good model to follow.
The Union for Reform Judaism has a webinar in its archives on this topic that, if you can set aside an hour, is very helpful.
Of course you should consult with your own Certified Public Accountant and legal advisors regarding your synagogue’s treatment of discretionary funds.
David, there was a recent exchange of views on Templechat on this subject. As to IRS treatment, Professor Ellen April is the gold standard and she has a reference to the URJ pamphlet on taxes in her posts.
I have pasted below the post that Dan refers to from Ellen Aprill that is on the URJ’s TempleChat listserv. I have also noted the link to Ellen’s description of Discretionary Funds.
I must disagree. The discretionary funds are absolutely the property of the congregation – the rabbi is simply the congregation’s agent in disbursing them. If the funds were not the property of the congregation, donors to the fund would not get a tax deduction and the rabbi would have income. If the rabbi were to use the funds for a political campaign, the congregation would be violating the prohibition on campaign intervention required for tax exemption – we just had such an issue here in southern California, I was recently told by a Jewish Journal reporter. The congregation must exercise oversight on the funds. If a rabbi leaves the congregation, any remaining discretionary funds stay with the congregation, not the rabbi.
Often, discretionary funds are run through a separate bank account. Oversight of the fund does not require disclosure of the names of individuals helped.
I attach my Synagogue Tax Manual, which discusses discretionary funds as Attachment G, in both Word and as a PDF . In Word, the guide is designed to have separate issues discussed on separate pages.
The URJ booklet, To Do Justice, also makes clear on page 14 that the discretionary fund belongs to the congregation. (I worked on this booklet with the URJ, so there is overlap with my synagogue tax guide).
Ellen P. Aprill
John E. Anderson Professor of Tax Law
Loyola Law School
919 Albany Street
Los Angeles, CA 90015
Here is the link to Ellen’s description of discretionary funds: https://synagoguestrategies.com/wp-content/uploads/2012/09/Clergy-Discretionary-Fun
The link to the Ellen Aprill article is not working. Could you possibly repost this? Our congregation is having the discussion right now of the appropriateness of paying CCAR dues out of the RDF. We are inclined to allow this as we feel that while it may be of personal benefit to the rabbi, it is also of benefit to the congregation (we currently pay the dues out of a different synagogue fund). The CCAR Guidelines Category D language is vague about “questioned by some tax experts”. What does this mean? Ultimately what matters is what the IRS thinks.