Skip to main content

Treatment of Funds Raised for Cancelled Missions Trip

By

Question: 

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?

Answer:

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...

Travel for Mission Trip Deductible as Charitable Donation

Disbursing Designated Gifts to Short-Term Missionaries

Short-term Mission Support: Church Policy



Labels:

Comments

Post a Comment

Popular posts from this blog

Rental of a Church Parsonage to a Non-Minister

By
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...
Post a Comment
Read more

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

By Anonymous
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
2 comments
Read more

Housing Allowance and Form 1099-MISC Reporting

By
Question: A church provides its minister a housing allowance but believes it must report the full amount of compensation (including the non-taxable housing allowance portion) on Form 1099-MISC in order to demonstrate the full earnings of the minister. (Starting in 2020, Form 1099-MISC is replaced with Form 1099-NEC for non-employee compensation.) If the church reports his compensation, including the housing allowance, on the Form 1099-NEC as taxable income, will he be able to deduct his housing expenses somewhere else on the Form 1040? Answer: This question brings up a couple of issues. First, most ministers are properly classified as employees who receive Form W-2 , not as independent contractors who receive Form 1099-NEC . Box 1 on Form W-2 reports taxable compensation. It is reduced to reflect the church's designation of a portion of his pay as non-taxable housing. Then, in Box 14 (Other), Form W-2 typically reports as a memorandum item his additional non-taxable, housing allowa...
Read more