June 29, 2009

Taxability of Benevolent Gifts to the Recipients

Question:

A church member who had been a frequent volunteer serving in its ministry decided to attend seminary. Because of the financial burden this created for him and his family the church has designated them as deserving of benevolence gifts. Will these benevolence gifts (certain to exceed $600 in the year) be subject to Form 1099 reporting requirements?

Answer:

As long as the support provided him is neither in retroactive or anticipatory consideration of serves he has or will perform for the church, this benevolence represents non-taxable income. Unlike a missionary, for example, who is formally recognized as performing the work of the church to advance the worldwide cause of Christ on its behalf, the former volunteer in not an employee, nor independent contractor of the congregation.

I suggest a re-reading of my March 7, 2009, blog posting which brought a few cautions about some benevolent activities.

Benevolence Fund Receipts and Disbursements

Also, I've recently been pursuing some resources from the Evangelical Council for Financial Accountability (www.ecfa.org) -- I read its Accounting and Financial Reporting Guide, plus e-mailed a question -- and find them to be very helpful. The ECFA seems to have been a leading voice in a few IRS deliberations regarding benevolent gifts.

June 27, 2009

Form I-9 for Guest Speakers

Question:

Do Bible camps and churches need to have their speakers and missionaries, as independent contractors, complete Department of Homeland Security: U.S. Citizenship and Immigration Service's Form I-9?

Answer:

The form is intended for employers to receive verification from employees of their employment eligibility. Self-employed persons are not required to submit the form.

June 26, 2009

Retirement Funds for Self-Employed Individuals

Question:

A foreign missionary is compensated by many churches and individuals whose contributions are managed and distributed to him by one church, which issues him a Form 1099-Misc at the close of each year. Can he set aside retirement funds in a Internal Revenue Code (IRC) section 403(b) retirement plan though he is being paid as in independent contractor (rather than as an employee)?

Answer:

IRC section 403(b) plans are funded from two sources--employer contributions and employee "elective deferrals" (amounts are withheld and then passed on to an investment firm that manages the plan). Since the missionary is not being treated as an employee, it seems that a self-employed plans offer the only alternatives (e.g. individual IRAs are the simplest form). IRS Publications 560 and 4547 provide additional information.