October 24, 2011

Tax-deductible Support of Missionary by Personal Friends

Question:

A church has a member preparing to go to the mission field. Before she leaves she is required to be debt-free, including college loans of $35,000. If friends give money to the church with the understanding that the funds may be used for the purpose of repayment, are the gifts deductible since they are given to the church?

Answer:

It is a very common experience that missionaries supported by a church have friends in the congregation. These contributions are tax-deductible as long as the church has established a fund and communicated its interest to support the missionary's endeavors. Typically, a church will forward these funds to the missionary's mission agency since it provides oversight in his or her financial matters. Churches that issue this compensation directly to the missionary must comply with the reporting requirements of the Internal Revenue Code--using Form W-9 to obtain the missionary's name, address, and identifying number and using Form 1099-MISC to report the taxable earnings. Yes, regardless of the use of the funds they are considered taxable support to the missionary.

The church's endorsement is very important. The church cannot simply become the conduit for otherwise personal gifts. The missionary must be one whom the church congregation believes is worthy of the support of its members financially and is pursuing a Christian work that it can endorse.

Friends and family who give money directly to the missionary apart from the church's endorsement of the missionary's ministry will not receive a tax deduction, nor are these gifts taxable to the missionary friend receiving them.

October 10, 2011

"Benevolent" Gifts to Volunteers

Question:

At times, a church gives out monetary "thank you" gifts to volunteers regularly involved with ministry. It has considered this to be a "benevolence." Since there is a "service" done, though with no monetary reward in mind, is this still benevolence, or should this be considered a Form 1099-MISC item? Also, if this is done on a regular basis, would this now be considered more of an employer/employee item?

Answer:

These gifts should be considered taxable income. If the "volunteers" are independent contractors, then Form 1099-MISC should be issued to each individual paid $600 or more. Employees should be issued Form W-2 with applicable withholdings.

IRS Publication 3079--Tax Exempt Organizations and Gaming--addresses some of these issues with an example. While I personally am opposed to gaming activities, the IRS position on volunteers can be seen by reviewing portions of the publication.

"Example: ABC Organization operates a private school and sponsors [fundraisers] to raise revenue for the school. Parents who work at the [fundraising] session are given a tuition reduction of $50 for each week they work. This reduction of tuition is compensation to the parents; they are not working as “volunteers.”

"Compensation may also include non-monetary benefits such as free drinks or food if such items are more than a mere gratuity and are intended to be compensation for the workers’ services. On the other hand, a worker who receives merely insignificant monetary or non-monetary benefits is considered a volunteer, not a compensated worker. Determining whether a benefit is insignificant requires consideration not only of the value of the benefit but also:
• The quantity and quality of the work performed;
• The cost to the organization of providing the benefit; and
• The connection between the benefit received and the performance of services."