Timing of Contribution Deduction

[JohnH]

My church is considering something which raises a question in my mind about the timing of a contribution. We plan to allow people to sign up for overseas mission trips 2-3 years in advance. (Participants must pay their own way for transportation, lodging, and other trip costs, and a typical trip costs about $3,800) They would then be able to pay toward the trip in installments, with the money being held as Restricted Funds until the exact trip date is set.

The understanding would be that they will be notified when the exact date & schedule is set. They can then decide whether they want to participate in the trip at that time. If they choose not to participate, they would receive a refund of all the money paid.

So the question becomes deductibility of their contributions. Since the funds are restricted, and possibly refundable, they cannot receive a tax deduction at the time the payments are made. Of course, no deduction would be available if they elect to not participate and receive their refund. On the other hand, when they commit to the trip, the restriction is lifted but the money has been paid in prior years.

I'm thinking they would be entitled to the tax deduction when they make the choice to participate and the funds are committed to the trip, regardless of when the money was paid into the fund. Anybody have any other thoughts on this timing question?

[taxxcpa]

Can a deduction for travel expense be considered a contribution regardless of what the participant does on the trip?

Or is it more like a vacation?
Prepaid expenses are usually deductible at the time for which the expense relates, not at time of payment.

Travel expense for providing service to a charitable organization are not deductible if the taxpayer has only nominal duties to perform for the charity.

[JohnH]

Thanksfor the reminder, but the tax deductibility of the trips is beyond question. The only issue is the timing of the contribution.

[Gene V]

My thoughts would be to deducted the application fee when paid, unless they are going to hold the check until the exact date and schedule is set.
If the person decides not to go and they return the money, then just amend the return they took the deduction for.

[BOB W]

Can a deduction for travel expense be considered a contribution regardless of what the participant does on the trip?

Or is it more like a vacation?
Prepaid expenses are usually deductible at the time for which the expense relates, not at time of payment.

Travel expense for providing service to a charitable organization are not deductible if the taxpayer has only nominal duties to perform for the charity.

I agree totally with taxxcpa. Nothing would be deductible because the money HAS to go into the GENERAL FUND to qualify as a contribution. Remember "No services were provided".

[Gene V]

I agree totally with taxxcpa. Nothing would be deductible because the money HAS to go into the GENERAL FUND to qualify as a contribution. Remember "No services were provided".

I'm not sure what the money is for. If it is for the travel expense, then I think it is deductible, no matter who the money is paid to. See following from Pub. 17

Travel. Generally, you can claim a charitable contribution deduction for travel expenses necessarily incurred while you are away from home performing services for a charitable organization only if there is no significant element of personal pleasure, recreation, or vacation in the travel. This applies whether you pay the expenses directly or indirectly. You are paying the expenses indirectly if you make a payment to the charitable organization and the organization pays for your travel expenses.

[JohnH]

I didn't post specifics of the trips because there is no question in my mind regarding the deductibility. The trips are for legitimate mission purposes and there is no significant element of personal pleasure involved. (These are not sightseeing trip to the Holy Land, for example). A contribution of this particular type does not have to be made to unrestricted/undesignated funds in order to give rise to a tax deduction.

My only concern is when the giver would be able to take the tax deduction. In some cases, the payments will span two or three tax years before the final commitment is actually made and the trip is scheduled. And since the person can opt out and get their prepayments refunded during the interim period, it seems to me that the only time the deduction can be taken would be when the prepayments are actually released for the purpose of paying for the trip. But I can't find any guidance which specifically addresses this issue.

[AJsTax]

I dont know the code section

But, in order to have a charitable contribution you must give up complete control of the money or property. So until they give up control (can no longer get it back) there is an incomplete gift and no deduction. The expense will be incurred at the time of travel. I would deduct it then. It is the same as putting the money in their own savings account and taking it out at the time of the trip.

[JohnH]

Yes, that is the way I am leaning.

[Burke]

I agree with that assessment. It makes complete sense under the law concerning gifts. Same concept as Revocable trusts. As long as it can be rescinded by the grantor, it is disregarded for tax purposes.

[FEDUKE404]

Payments

Totally sidestepping any issues as to whether such payments constitute a legitimate charitable contribution. . .

If the funds are to be paid over multiple tax years, how possibly could you NOT report only what was "paid" during each of the relevant calendar years?

Obviously you can never deduct a pledge, but only the subsequent payments toward such.

Is this something like Algore's "lockbox" idea?? **IF** such is in play, then I would take the approach there is NO contribution until the (stockpiled) funds are eventually used, regardless of when they went into said "lockbox."

FE


Addendum: I would love to the see the IRS-qualified receipt from the church for each $3,800 donation !!

[JohnH]

I don't fully follow the addendum, but here's the answer to what I think is the issue:

The receipt is the same as the receipt for any deductible contribution. Our receipt lists the mission trip contributions along with all other contributions, with the appropriate memo showing the nature of the contribution. If you are referring to the "No goods or services...' wording, it still applies.

[Burke]

That is also the practice at the church which I advise, although I had the financial officer issue a separate receipt for this particular item,in addition to the one for regular contributions throughout the year.

[JohnH]

That's interesting. Is there a particular reason for the separate contribution receipt, other than the size of the gift? Our year-end statement allows us to code each cash/check contribution on the "Memo" line for such things as Undesignated, Building Fund, Benevolence, Food Pantry, Mission Trip, etc.

I suppose one good reason for a separate statement might be a reminder to the participant that they can also deduct legitimate out-of-pocket expenses related to the mission trip(s). They often incur expenses such as immunizations, visas, meals enroute, special clothing, etc.

[TaxGuyBill]

I don't fully follow the addendum, but here's the answer to what I think is the issue:

The receipt is the same as the receipt for any deductible contribution. Our receipt lists the mission trip contributions along with all other contributions, with the appropriate memo showing the nature of the contribution. If you are referring to the "No goods or services...' wording, it still applies.

This is NOT a contribution to the church. It should not be included with church contributions.

It is an out-of-pocket expense for charitable services. It should be just like a business receipt. The church is just acting as a travel agent for the trip.