Skip to main content

Church Donor Designations to Foreign Ministries

Question:

Some members and non-members of a church direct funds to a ministry overseas, partly because they want to get a tax deduction by giving it through the church versus giving to the overseas ministry directly. The church has elected to include the foreign ministry in its missions budget, albeit with a much smaller amount than what is being designated by other people. Does this pose any problems that the church should be aware of?

Answer:

With the church as the organization overseeing the support of the overseas work (it obviously endorses it by virtue of its own giving), it's almost certainly better to contribute in this manner than by individual donors trying to make wire transfers (I suppose) to a foreign ministry.

In my experience, the typical concern the church must have is that it does not become a conduit for the otherwise non-charitable obligations of individuals who are not really donors.

Let me illustrate. Imagine that a parent is obligated to pay on the college loans of a child who because of his or her mission activity has little income to pay the loans. By "donating" to the church the parent gets a tax deduction. Yes, the income is taxable to the child, but if he or she is a low-income (or, more likely, a high deduction) taxpayer then the "gift" may produce little or no tax to the child. The church has unwittingly become a conduit for the parent's otherwise personal obligation. That's why I believe it is important that churches carefully monitor excessive contributions to funds that benefit their family members.

Comments

Popular posts from this blog

Rental of a Church Parsonage to a Non-Minister

Question: A church owns a parsonage, but the pastor does not use it as he owns his own home. The church rents the parsonage to a tenant other than a minister or employee of the church. Will the church be responsible for paying income tax on these monies as Unrelated Business Income (filing a Form 990-T) even if the money is used to carry on the business of the church? Answer: Whether the money is used for church purposes is irrelevant.  IRS Publication 598  states: "If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business." Fortunately, in the case of rental income from real property, such income is "excluded in computing unrelated business taxable income" (Publication 598). Caution: see content below regarding debt-financed property.  However, a second concern not a

Review: Form 1099 Payments to 501(c)(3) Organizations

Question: A church rented space from another church last year. Should it request a completed Form W-9 and issue Form 1099-MISC? Answer: Payments from one 501(c)(3) organization to another 501(c)(3) organization are not subject to Form 1099-MISC reporting. The IRS Instructions for Form 1099-MISC state that "payments to a tax-exempt organization" are exempt from reporting a Form 1099-MISC.  The following are typical examples of payments of $600 or more by a church which are subject to reporting a Form 1099-MISC: Rent paid to an individual (non-corporation) Payments for services rendered by individuals who are not employees (e.g. janitorial service, facilities, snow removal, guest speakers) Support sent directly to missionaries

Form 944 or 941 Filing for Churches

Question:   A new church filed for an employer identification number (EIN) recently. It received notification from the IRS about the EIN, stating that the church must file Form 944 by the following January deadline. The church has no non-ministerial staff members. Since income tax withholding is elective by ministers and none of the pastors has elected to request non-mandatory withholding is the church required to file Form 944 annually? Also, 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 Technique Guide  explains in further detail a minister's treatments for social security, Medicare tax, Fed