Skip to main content

Designated Gift to a Missionary

Question 1:

A church recently held an ordination service for one of its members, who is planning to go on a foreign missions trip. During the service, a $1,000 special offering was taken. Is this offering taxable for the missionary? Is it deductible by the donors?

Answer:

Yes, the offering is taxable as compensation. Because the missionary is "self-employed" for income tax purposes, the church should issue Form 1099-MISC, and the missionary should closely track and report business expenses to facilitate deductibility of those expenses. The gift is also deductible by the donors, because it is viewed by the IRS as a congregational gift. The key is initiation of the gift: a gift to an individual initiated and controlled by the church is deductible by the donors.

Question 2:

After the offering has been given to the missionary, a friend gives another gift to the church. This gift is designated for the missionary, but "to be used as the church sees fit if the trip is fully funded." Can the church simply give this money to the missionary? Is it deductible by the donor?

Answer:

Because this gift is under the control of the church, it is deductible by the donor. If this gift were simply given by the donor directly to the missionary, it would not be deductible. However, because the church can use the gift as it sees fit, it is a deductible contribution. The church can pass this gift along to the missionary within the same guidelines as the original gift. 

Comments

  1. If a retired missionary is still receiving support from churches and from individuals (through their mission) should that support continue to be reported by the Church or Mission as 1099-MISC income - "Nonemployee Compensation"? If so is this then subject to Self Employment Tax. Or is it possible to have the Church or Mission report the support on the 1099-MISC as "Other Income" and then put this on the 1040 as "Other Income"?

    ReplyDelete
  2. We suggest you type the word "retired" in the search bar above. We believe that this matter was addressed in some of our past blog posts, which you will find helpful.

    ReplyDelete
  3. This comment has been removed by the author.

    ReplyDelete
  4. Can you substantiate what you are saying here in the IRS publications?

    We are taking up a love offering this December for one of our regularly supported missionaries who is experiencing a financial short fall. We were planning on announcing that this cannot be included on year end receipts due to Publication 526 "Contributions to Individuals" Here is a cut and past from 526: "Contributions to individuals who are needy or worthy. You can't deduct these contributions even if you make them to a qualified organization for the benefit of a specific person. But you can deduct a contribution to a qualified organization that helps needy or worthy individuals if you don't indicate that your contribution is for a specific person."

    I suspect what you are saying here is right because we could just direct everyone to give on their own to the individual's mission board and they would no doubt receive a tax deduction. It doesn't make sense that organizing such a gift through the church would disqualify it in some way. So, as I said, intuitively I want to agree with what you're saying here. AND, it seems that several other websites point to this post as the answer to this specific problem.

    BUT, I'm the kind of person that needs a little more info to overrule what is so clearly stated in p526. Can you substantiate what you're saying here?

    ReplyDelete
    Replies
    1. The matter of individual designations and tax deductibility in many instances requires wisdom to evaluation unique situations. But overall the issue is control of the funds. According to Revenue Ruling 62-113, “If contributions to the fund are earmarked by the donor for a particular individual, they are treated, in effect, as being gifts to the designated individual and are not deductible. However, a deduction will be allowable where it is established that a gift is intended by a donor for the use of the organization and not as a gift to an individual. The test in each case is whether the organization has full control of the donated funds, and discretion as to their use, so as to insure that they will be used to carry out its functions and purposes.” In the case above, the organization controls the funds and carries out one of its purposes of supporting people who are doing missionary work. The organization is viewed as taking the initiative to identify a ministry need and to solicit contributions which will enable it to respond in support of the need. Therefore, the organization fully controls the donated funds. It is not simply acting as a conduit for an individual attempting to designate a non-deductible, personal gift.

      Delete

Post a Comment

Popular posts from this blog

Housing Allowance when Bartering for Rent Payments

Question:

If a minister rents his principal residence, but he performs services (mowing the lawn, repairing the roof, etc.) in lieu of rent, can he still qualify the rent amount for a housing allowance tax benefit?

Answer:

Of course, bartering income is taxable. The Internal Revenue Code interprets that above situation as follows: tenant/minister receives taxable income for the fair market value of the services he provides, andtenant/minster pays landlord for renal of residence. The minister in this case reports taxable income for services provided in lieu of rent. It is also likely subject to self-employment tax. He may then claim as qualifying housing allowance expense equal to the amount he "pays" for rent of his personal residence. Essentially, there is no difference than if the minister and his landlord simply traded checks.

See a past MinistryCPA post regarding this topic: http://ministrycpa.blogspot.com/2016/09/services-to-church-in-lieu-of-rent-of.html

Mission Trips Involving Both Charitable and Personal Time

Question:

A church group went on a two-week mission trip, and a few of the members stayed an additional two weeks for personal time. Will the members who stayed the two additional weeks be able to deduct expenses from the trip?

Answer:

IRS Pub 526 covers the topic of Charitable Contributions and, more specifically, travel expenses associated with charitable trips. The publication states that travel expenses will be deductible “if there is no significant element of personal pleasure, recreation, or vacation in the travel.” The publication also states, “The deduction for travel expenses won't be denied simply because you enjoy providing services to the charitable organization. Even if you enjoy the trip, you can take a charitable contribution deduction for your travel expenses if you are on duty in a genuine and substantial sense throughout the trip. However, if you have only nominal duties, or if for significant parts of the trip you don't have any duties, you can't deduct you…

403(b) Contribution Calculations Exclude Housing Allowance

Question:

Should 403(b) contributions and the subsequent match be based on the pastor's total income from the church (including housing allowance) or just from the salary minus housing allowance?

Answer:

According to Richard R. Hammar, J.D., LL.M., CPA, in his book 2015 Church & Clergy Tax Guide, “Section 107 of the tax code specifies that a minister’s housing allowance (or the annual rental value of a parsonage) is not included in the minister’s gross income for income tax reporting purposes. Therefore, it would appear that the definition of includible compensation for purposes of computing the limit on annual additions to a 403(b) plan would not include the portion of a minister’s housing allowance that is excludable from gross income." 

Hammar's Church Law and Tax Report is an excellent resource that many ministries should consider as annual subscribers.