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Form 1099-MISC and "Bad" Advice

Question:

My husband is a church planter and receives support from various churches throughout the US. Some of these churches we have visited and some we have not. Some have sent onetime gifts while others send us support monthly. In some cases, we have received several gifts from a church on sporadic occasions. I am at my wits end with this only because many other church planters and pastors have advised me differently. What some consider income, others do not. What some consider gifts, others do not. The internet seems filled with many who believe all is taxable and an equal number who are willing to fight that none of it is taxable unless he performed services directly for the church giving the gift. We have not received any 1099s. Some of the support is received through our sponsoring church. Should they be doing one 1099 for the money they receive and pass onto us, or should we get separate 1099s from every church that sends us support? Do you have any guidance or direction for me? My eyes are sore from all the IRS publications I have read these past few days.

Answer:

I can empathize with your dilemma. Many churches do not understand or comply with the Form 1099 rules. They are required by law to prepare a Form 1099-MISC for any individual to whom they pay $600 of non-employee compensation within a calendar year. Regardless of the churches' compliance, church planters are required to report 100% of their support as taxable income. The IRS's mid-1990s Market Segment Specialization Program and every pronouncement since has clarified for its agents that the income described in the question posed above must be reported by a minister.

Many church planters request that their contributors (individual and churches) forward their gifts to a mission agency or sponsoring church (these amounts are not reportable on Form 1099-MISC because they are not paid directly to "individuals"). Then the agency or sponsoring church can disburse the funds to the church planter, often taking advantage of other provisions of the tax code in order to legally minimize one's tax burden. This organization then issues the proper IRS form to the church planter.

Unfortunately, some ministers fail to report income not reported to them on Form 1099-MISC and advice others to do the same.

See my January 22, 2009, blog entry for more discussion on this topic.

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