Missionary

[Koss]

Expenses

I think the mechanics of the transactions are important.

I don't think any information reporting is necessary for payments that flowed from the church to another exempt organization, as long as the church has adequate documentation of what it was for.

As for payments made by the "second" exempt organization--

Was the organization making payments directly to third parties for expenses of the volunteer? For example, did the organization buy a plane ticket, and pay rent directly to the landlord, etc.

If the organization was not making direct payments, but rather issuing checks to the volunteer, then my next question is:

Is it an accountable plan, in which he must provide proper documentation of all expenses, and return any excess?

The rules for accountable and non-accountable plans are not technically applicable if you are taking the position that he is a volunteer and not a paid worker. But it is a chicken-egg question. If he does not have to account for the expenses, and the organization is just handing him money for expenses in arbitrary amounts, then that sounds more like a stipend, and it would probably have to be treated as compensation. On that theory, he could then take a Schedule A deduction for out-of-pocket expenses incurred while performing the charitable work.

If every payment made by the organization can be directly tracked back to travel and transportation, and basic living expenses while he is living abroad performing missionary work, then it doesn't matter who the check was made out to. I would treat it as a direct expense of the organization, or as a non-taxable reimbursement to the volunteer. Either way, it is not taxable income fo rhim.

I don't have concrete authority for your particular fact pattern, in which the exempt organization is paying for living expenses for a missionary who is volunteering while away from home. But there is plenty of authority for the basic principle that a charitable organization can reimburse volunteers for out-of-pocket expenses. Those reimbursements are not taxable income to the volunteer, but they are nevertheless valid business expenses for the organization.

BMK

[Lion]

He has a new tax home. He's not away from home temporarily. If his organization buys plane tickets, food, etc., that is taxable compensation to him. (Does his organization pay for plane tickets, food, etc., back home to an administrator?) Also, charities can get into trouble if a substantial portion of their budget is spent for the benefit of an individual/family as opposed to spent on their mission; walking a fine line here. What percentage of the funds are building a church/childcare center/school or feeding the natives or education or...? What else is he doing with the funds? His own clothing, trips to visit family, recreation? We don't have enough info to advise you.

[Koss]

Further thoughts

He has a new tax home. He's not away from home temporarily. If his organization buys plane tickets, food, etc., that is taxable compensation to him. (Does his organization pay for plane tickets, food, etc., back home to an administrator?) Also, charities can get into trouble if a substantial portion of their budget is spent for the benefit of an individual/family as opposed to spent on their mission; walking a fine line here. What percentage of the funds are building a church/childcare center/school or feeding the natives or education or...? What else is he doing with the funds? His own clothing, trips to visit family, recreation? We don't have enough info to advise you.

I agree with Lion that this may be a "fine line." As I wrote in an earlier post in this thread, the facts and circumstances are open to interpretation.

I also agree that things change a bit if he has in fact permanently relocated to Honduras. But permanent is not the same as indefinite.

BMK

[Burke]

He wasn't taxed as clergy before because even though he was ordained and did preach occasionally for the local church it was always volunteer and never for compensation. He had a job as a Real Estate agent that his income came from and his wife worked. I kinda agree that he is just doing volunteer work while in Honduras. Needed other input. I have no problem filing tax return if he needs to as with his standard and exemptions non of it would be taxable, just the formality of filing. The question was from the church that his 501c3 falls under as to if they need to issue a 1099 or if his own 501c3 needs to issue one to him. Once we determine that doing his return will not be an issue. We are just trying to make sure if there needs to be a 1099 that it gets issued but feeling like it's not necessary.

Note that if a W-2 or a 1099 is issued and reported to the IRS, then it will generate a non-match if he does not file. And it will be subject to SE tax unless he has opted out, even if he doesn't have any income tax liability. Even if it is classified as housing allowance on a W-2. Even claiming Foreign Income Exclusion will not avoid the SE tax.

[Bonnie]

The church does not control his 501c3. But it is organized under the umbrella of the church. This does happen and is allowed but doesn't happen often.

[MAMalody]

I believe that everybody on this board knows signigicantly more than I do, I accept that and have learned much and hope to continue to do so in the future. So please explain to me how you can be "under" the umbrella (normally interpreted to be authority/protection/supervison) of the church and yet be totally independent of it and not responsible or accountable to it. I Must admit that I have never seen this or heard of it in the 40 years I have worked with churches, their agencies or local or overseas ministries. Thank you for your help in this.

[Koss]

Umbrella

I believe that everybody on this board knows signigicantly more than I do, I accept that and have learned much and hope to continue to do so in the future. So please explain to me how you can be "under" the umbrella (normally interpreted to be authority/protection/supervison) of the church and yet be totally independent of it and not responsible or accountable to it. I Must admit that I have never seen this or heard of it in the 40 years I have worked with churches, their agencies or local or overseas ministries. Thank you for your help in this.

Maybe it's a group exemption. Or the church and the other organization have the same board of directors. Or it is an auxiliary.

Group exemption and auxiliary are terms of art that you can find in IRS publications. You won't find the term umbrella.

BMK

[MRTAX4EA]

Missionary service

I believe he is subject to SE tax if he has not opted out.

His housing is compensation for his service. It may be excluded from income tax, but not SE tax.

I am not saying this is the case here, but I have a problem with clergy who disregard tax laws.

B J Worth has some of the best publications and seminars pertaining to clergy issues.

[Burke]

In a previous post, you mentioned that he would not have any taxable income and that his expenses were less than $10K. I assume you were talking about the general filing thresholds, and not deducting his living expenses. Normally, income under the filing threshold would not generate a requirement for filing a return. However, in this case the SE issue is in play so one would be required, IMO, if he has not filed 4361 and had it approved by the IRS.

[mastertaxguy]

Note that if a W-2 or a 1099 is issued and reported to the IRS, then it will generate a non-match if he does not file. And it will be subject to SE tax unless he has opted out, even if he doesn't have any income tax liability. Even if it is classified as housing allowance on a W-2. Even claiming Foreign Income Exclusion will not avoid the SE tax.

1. TP may have a foreign earned income exclusion, although there are some instances where the TP may want to waive that.
2. It seems to be that the poster has a need for more extensive information than they have on the TP's situation and it may be best to send the TP/spouse a detailed organizer to be completed, including a page or two specific to missionary work.
3. A self created 501(c)(3) has its own issues, including filings and all that.

[MAMalody]

Maybe it's a group exemption. Or the church and the other organization have the same board of directors. Or it is an auxiliary.

Group exemption and auxiliary are terms of art that you can find in IRS publications. You won't find the term umbrella.

BMK

That being the case and as I suspected, it potentially supports that the missionary is sent by the church, one way or the other. Being ordained in the ministry and receiviing his expenses (or a portion) paid for his services would tend to make the compensation taxable and require a reporting document. I do agree that more info would help and that if it is taxable that the SE tax at least would apply to those funds (absent an approved Form 4361). I wonder if there might be some minutes available that could shed some light on this.