Church members were planning to participate in a church-sponsored mission trip, and the participants have raised funds from various donors. Unfortunately, due to COVID-19 the trip was cancelled, and the church disbursed to the participants the funds that had been raised. Should a Form 1099 be filed for any amount refunded in excess of $600?
While the COVID-19 pandemic may be a rare occurrence, it is not uncommon for individual members to find it necessary to cancel their participation. When members cancel their participation for any reason, including the scenario described above, there are two ways we recommend the church handle the funds raised for the mission trip. The first is that the funds be returned to the original donors. Because the donors had provided their gifts for specific individuals to attend the trip, which is no longer taking place, the funds could be refunded to the donors. The second option is to place the monies in a designated fund for future missions trips. This ensures that the funds will still be used for the purpose the donors intended. In order to avoid misunderstandings, we recommend that these options be communicated to donors at the time of their gifts.
However, in this case, the church has distributed the funds to the participants who raised them. In doing this, the participants are essentially being compensated for raising the funds for the ministry. We advise churches not to distribute the funds to the participants, and instead handle the funds in one of the ways listed above. In this situation, the church should issue Forms W-9 to gather the individuals' information and issue Forms 1099-NEC to all participants who received more than $600.
For more information regarding short-term missions trips see...