The sending church for a retiring missionary has for many years put money into an account that is set up as a missionary investment account (mutual funds in the church's name). It is now paying out a part of the money in the account directly to the retired missionary (i.e., not disbursed to the missionary's mission board and subsequently disbursed to the missionary). How should the church report these payments?
Effectively, the church has established a deferred compensation plan. Whether a qualified or nonqualified plan, I make no judgment. The church should examine Internal Revenue Code section 457(b) plan requirements and Internal Revenue Bulletin (IRB) NO. 2007-19 regarding nonqualified plans.
Nevertheless, at this point in time, certainly the payments are taxable in the same character as the minister's previous compensation. It is, however, eligible for housing allowance designation. The church should issue Form 1099-MISC for the non-housing allowance portion (a designation cannot be made retroactively). Unless the minister has gained exempt status, the full amount (including housing allowance) is subject to Form 1040, Schedule SE self-employment tax.