Title III, Canon 9, Section 6(b6), of the Constitution and Canons of the Episcopal Church (2015) reads: “The Alms and Contributions, not otherwise specifically designated, at the Administration of the Holy Communion on one Sunday in each calendar month, and other offerings for the poor, shall be deposited with the Rector or Priest-in-Charge or with such Church officer as the Rector or Priest-in-Charge shall appoint to be applied to such pious and charitable uses as the Rector or Priest-in-Charge shall determine. When a Parish is without a Rector or Priest-in-Charge, the vestry shall designate a member of the Parish to fulfill this function.”

What are some potential sources of income for the discretionary fund?

• The national canon is generally interpreted to mean that, at a minimum of one Sunday a month, the loose offering at the Holy Eucharist is designated for the clergy discretionary fund.
• Congregations may wish to set aside a budgeted amount for the discretionary fund in addition to or as a substitute for the above method.
• Congregations may designate that all fees or gifts received for weddings, funerals, and baptisms are contributed to the discretionary fund.
• Individuals may also contribute to the fund with occasional gifts.

How can the discretionary fund be set up?

Manual of Business Methods in Church Affairs details the accounting and record keeping of the discretionary fund. The vestry or governing board must approve all clergy discretionary fund accounts. There are two common ways to administer the discretionary account.

• The money can run through the general operating account.

  • Income is deposited into the church’s general operating account
  • Disbursements are authorized by the cleric
  • Disbursements are written by check from the general operating account

• The money can be in a separate checking account

  • The account must be opened using the church’s name and federal identification number or EIN.
  • You should never open the account in your name or use your Social Security number.
  • Income is deposited into the general operating account
  • Transfer (as needed or on regular basis) to the separate discretionary fund checking account
  • No other income should be deposited directly into the separate discretionary fund checking account
  • Authorized disbursements are made from the separate discretionary fund checking account
  • Cleric needs to maintain documentation or receipts
  • Monthly bank statements should be mailed to a person of trust other than the cleric, usually the treasurer or vestry member

The accounts used to disburse discretionary funds should be audited regularly to ensure that the accounts are used correctly.

Does the cleric have complete discretion for use of the funds?

• The cleric does not have complete discretion for the use of the funds.

• The clergy discretionary fund is used to address needs among congregation and community members.

  • Payments for food, rent, utilities, medical bills, and the like for persons in need are typical uses of these funds.
  • An inappropriate use is to meet expenses, which normally should be covered by the operating budget.

• You should never use the discretionary fund to make payments for anything that personally benefits you, as the fund is designated for charitable uses.

  • This includes using the funds for personal clothing, food, books, rent, utilities, insurance premiums, medical expenses, clericals, etc.
  • If you personally benefit from the discretionary fund, the IRS may deem the full value of the discretionary fund as taxable income to you.
  • Remember, the discretionary fund belongs to the church.

• Detailed guidelines for discretionary funds are available in the Manual of Business Methods in Church Affairs.

  • When in doubt about the use of the fund, seek advice from the wardens or vestry.
  • Misusing a discretionary fund may expose you to civil and/or criminal liability and even potentially to disciplinary actions under the Constitution and Cannons.

Is there someone I can call if I have questions?

• Call CPG’s Tax Hotline consultants

  • Nancy N. Fritschner, CPA . . . . . . . . . . . . . . (877) 305-1414
  • Mary Ann Hanson, CPA . . . . . . . . . . . . . . . (877) 305-1415
  • Dolly Rios, CPA* . . . . . . . . . . . . . . . . . . . . (833) 363-5751

  * bi-lingual in Spanish and English