"Erroneous" Form 1099-MISC Issued to Missionaries

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 Form W-2 or Form 1099-MISC.

But how does a missionary avoid double taxation if a Form 1099-MISC is issued to him by the church when the mission agency has also reported the income on Form 1099-MISC or Form W-2?

In this case, the missionary should report the Form 1099-MISC income on Schedule C (Part 1, Line 1). He or she should then deduct an identical amount as a ministerial expense, providing name and Employer Identification Number (EIN) of the agency to whom the income was forwarded or reported.

The third possibility occurs when the missionary receives the money directly, but does not report it to the mission agency. Under these circumstances, the missionary is responsible for the income and must record it as taxable.