Skip to main content

Missionary Furlough: Deductible Travel Expenses

Question:

Most commonly, mission agencies treat their missionaries as Form W-2 employees (and, I believe, properly do so). They classify disbursements to them in categories such as cash compensation, housing allowance, and reimbursable employee business expenses.

The question has been asked, "Are there any IRS restrictions to consider in a mission agency's policy for the quantity of trips back to the home country? Because long-term missionaries are employees and eligible for accountable expense reimbursement arrangements, a common practice is to classify travel costs for furlough leave as reimbursable business expenses."

Answer:

This question is addressed by IRS Publication 463. The Publication asks the question, "What Travel Expenses Are Deductible?" then answers it:

"Once you have determined that you are traveling away from your tax home [the foreign mission location, in most cases], you can determine what travel expenses are deductible. You can deduct ordinary and necessary expenses you have when you travel away from home on business. The type of expense you can deduct depends on the facts and your circumstances.

"If a spouse, dependent, or other individual goes with you on a business trip, you generally cannot deduct his or her travel expenses. You can deduct the travel expenses of someone who goes with you if that person: (1) is your employee, (2) has a bona fide business purpose for the travel, and (3) would otherwise be allowed to deduct the travel expenses.

"If a business associate travels with you and meets the conditions in (2) and (3) above, you can deduct the travel expenses you have for that person. A business associate is someone with whom you could reasonably expect to actively conduct business. A business associate can be a current or prospective (likely to become) customer, client, supplier, employee, agent, partner, or professional advisor. A bona fide business purpose exists if you can prove a real business purpose for the individual's presence. Incidental services, such as typing notes or assisting in entertaining customers, are not enough to make the expenses deductible."

In the case of a missionary family, my experience is that both spouses are expected to represent the ministry of the family. Whether the children's presence is "ordinary and necessary" (using the IRS definition) must be determined based on the facts and circumstances of the situation.

There is no maximum number of trips that the IRS will permit. Rather, deductibility is determined based on the above criteria. A missionary returning to the US simply to "drop off" his college student at school seems to fall short of the criteria. At the opposite extreme, doing so during an extended furlough of reporting to churches should only deny deductibility for the excess expenses incurred related to the personal nature of the college trip (i.e., extra mileage, meals and lodging will not be deductible).

Comments

Popular posts from this blog

Church Car Purchase for Pastor

Question: A church would like to purchase a car for the pastor's use. What is the best method to accomplish this goal? Should the car be titled in the pastor's name? What will be the tax consequences of this arrangement? Answer: The church has two main alternatives for this purchase:  Title the car in the pastor's name and reimburse him for business expenses Title it in the church's name and treat personal use as taxable compensation There are fewer immediate tax consequences for the latter. Since both are viable options, we will discuss both situations in this post. If the church chooses to give the car to the pastor and register it in his name, he is free to use it for whatever personal use he desires with no tax consequences. However, the fair value of the car is taxable as compensation at the time it is given to the pastor. Internal Revenue Code section 102(c) clearly states that gifts given to employees by their employers are taxable compensation. The...

Can Form 4361 be filed after the deadline?

Question:   Is it possible to opt out of Social Security after the 2-year deadline? Answer:  Unlike other employees, a licensed or ordained minister has the option to opt out of Social Security and Medicare (FICA). If a minister wants to opt out they must file Form 4361 by the tax deadline including extension, in the second year in which they have received ministerial income of $400 or more. This election is final, and the minister cannot opt back into FICA taxes.  At MinistryCPA, we have received questions from ministers who have exceeded the two year deadline and desire to opt-out. There have been several court cases which provide guidance in answering this question. Some have argued that the minister was unaware of the deadline, had mistakenly believed they had filed a timely election, were given incorrect advice by an IRS employee, or their opposition to participate in Social Security and Medicare did not arise until after the 2-year deadline had passed. In each of th...

Form 941 or 944 - Which Should a Church Use for Payroll Reporting?

Question:   Are churches required to file a Form 944 annually to report their employees' earnings and tax-withholdings? A quarterly Form 941 (rather than an annual Form 944) is required of some employers. Which IRS form, if any, should be filed? Answer: According to IRS Section 1402(c) and 3121(c), ministers are not subject to mandatory income tax withholding. Unless one or more ministerial employees request non-mandatory withholding, church employers with only ministerial employees do not need to file Form 941 or Form 944.  The IRS  Ministers Audit Techniques Guide  explains in further detail a minister's treatments for Social Security, Medicare tax, and income tax withholding.   Form 941 or 944 must be filed when non-ministerial employees are compensated or when ministers request withholding. When can a church file the annual Form 944 rather than filing Form 941 each quarter? The IRS may permit the annual filing of Form 944 for employers wh...