January 31, 2013

Disbursements to Foreign Nationals for Missions

Question: 

Last year a 501(c)(3) ministry in Africa collected and distributed funds to two nationals as conduits to their tribes in Africa for drinking water, Bibles, and other essentials.  Does this need to be reported on a Form 1099-MISC or other IRS form?

Answer:

Based on the question as it was posted, it does not appear that the African nationals were providing services to the donor organization. Accordingly, it would not be income reportable on Form 1099-MISC or Form W-2.

However, these types of disbursements can be misread as disguised compensation, raising suspicions that the monies were disbursed as compensation for services instead of for benevolent purposes only. 

Preferably, the funds should be disbursed by the 501(c)(3) donor ministry to another 501(c)(3). For example, a US mission agency that sponsors a missionary in Kenya may disburse these funds to the missionary to be used for the benefit of the tribes in Kenya. This would most likely be viewed as a legitimate business expense of the ministry in Africa and not as disguised compensation.

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