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 to the missionary? Is it deductible by the donors?
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? And is this also deductible by the donor?
In answering the first part, yes, the offering is taxable as compensation. Essentially, the church is "hiring" the missionary to help accomplish its own Great Commission mission. 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--for example, travel, local transportation, lodging and meal costs on the missions trip. The gift is also deductible by the donors because it is viewed by the IRS as a congregational method of compensating the missionary. The key is initiation of the gift, for if the gift is initiated and controlled by the church, it is deductible by the donors.
The second question is similar, but there is a slight difference. Because the gift is under the control of the church, it remains deductible by the donor. If the gifts 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 taxable gift along to the missionary within the same guidelines as the original gift.