MinistryCPA - Corey A. Pfaffe, CPA, LLC

Question: A missionary receives a Form 1099-MISC from a church for which he provided no direct services during the year. His mission agency issues him a Form W-2 or Form 1099-MISC for his full missions support. Is the Form 1099-MISC income reported by the church also taxable? Answer:   It is apparent that the church in the question above distributed money to the missionary, otherwise no Form 1099-MISC would have been issued. There are three likely explanations for a situation of this nature: The first  possibility takes place when the missionary receives income from a supporting church which is remitted directly to his mission agency. The agency will then report the income to the missionary on a Form W-2 or Form 1099-MISC. The second  possibility is similar to the first, except the missionary is the one who receives the money, not the mission agency. However, the missionary does report the income to the agency which will, in turn, report the earnings to him or her on...

Question: 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? Answer: 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 thos...

Question: How should a church properly report Gifts in Kind on its financial statements? Are they included on an income and expense report or only on a donor's contribution statement? These gifts could be intangible--for example, free-rent facilities from a landlord or services from a professional--or tangible--for example, a vehicle. Answer: Most churches do not record these gifts in their general ledgers for inclusion on their financial statements. Only churches undergoing independent Certified Public Accountant financial audits would typically consider reporting these amounts and then only if they are material. According to FASB No. 116 (Page 4), "contributions of services shall be recognized if the services received (a) create or enhance non-financial assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation." Regarding donor acknowledgement, the church sho...