When should a Form W-8 be used rather than a Form W-9?
The background is that a church sends funds directly to a local pastor in a third world country. Should there be withholding taxes subtracted from these payments by the church? Also, what are the U.S. tax consequences for both the local recipient and also the U.S. church providing this support?
To review, a Form W-9 requests the tax identification number from a payee who will likely be issued a Form 1099-MISC as an independent contractor of an organization. A Form W-8 (in its various forms) relates to the determination whether a US organization must withhold US federal income tax from a foreign individual receiving compensation from a US organization for services provided within that foreign country.
I did some research into this one since I've not run in to it before, but I will not end up being able to provide Internal Revenue Code sections on this one (just some wise advice from a seasoned veteran of foreign missions). Every missionary client I've worked with who provides some level of support to local ministers within the congregations he serves does so out of his own support. At times, perhaps, a church may wish to help foreign ministers but does so under the direction of a US missionary (and sends money to him, not to the foreign individual).
I consulted a client in a third world country who has quite a bit of experience with this type of situation. He strongly recommends against the practice intimated in the question. While not wanting to be judgmental and realizing that some US missionaries may fail in their stewardship as well, he noted that the foreign individual is not typically under the same accountability level as virtually all US missionaries (to local US church, to mission board, to guests on the mission field from the local US church, etc.). Further, the church will not likely be as familiar with the local culture as a trusted missionary on the field who can monitor the situation.
Getting back to the question, if the funds are sent to the US missionary (either through his Board or directly), then the missionary must report the receipt as income, but will also likely have a corresponding deduction for ministry expense in supporting the foreign individual.