Foreign mission work offers churches powerful opportunities to expand their impact globally. However, these activities come with complex legal and tax requirements. Understanding the rules is essential for maintaining compliance and ensuring your mission’s success.
Key Areas to Understand
Tax-Deductible Contributions
Donors often want to claim tax deductions for gifts supporting foreign missions. To meet IRS requirements, churches must:
- Maintain full control over donated funds.
- Use funds solely for charitable purposes.
- Avoid acting as a conduit—don’t pass along designated gifts directly to individuals or foreign entities without oversight.
Example:
A gift specifically designated for a missionary is not tax-deductible unless the church retains discretion over how the funds are used.
To stay compliant:
- Keep proper documentation.
- Regularly review how funds are used.
- Ensure clear policies are in place.
Short-Term Mission Trip Guidelines
Mission trip expenses are usually tax-deductible—if the trip’s primary purpose is charitable.
To qualify:
- Expenses must directly relate to volunteer or ministry work.
- Trips that include substantial personal pleasure or recreation may disqualify the deduction.
- Churches must document:
- Detailed itineraries
- Dates and purposes of each day
- Expense breakdowns
Churches should clearly explain these rules to participants in advance to avoid misunderstandings.
Grantmaking to Foreign Organizations
When providing grants to foreign organizations, churches must ensure funds are used properly and legally.
Best practices include:
- Vetting the foreign organization’s operations and governance.
- Using written grant agreements outlining how funds will be used.
- Requiring expenditure reports and documentation.
- Seeking legal review or opinions when needed.
Maintaining oversight helps protect the church’s tax-exempt status and keeps donations tax-deductible.
Payments to Foreign Nationals
Churches must handle payments to foreign nationals with care, depending on where services are performed:
- If services are provided in the U.S.:
- IRS withholding and reporting rules likely apply.
- If services are provided outside the U.S.:
- Treat payments as grants.
- Ensure proper accountability and documentation.
Following IRS rules is critical to avoid penalties and protect both the church and the recipient.
Anti-Terrorism Compliance
U.S. anti-terrorism laws apply to all foreign mission activities. Churches must take steps to avoid inadvertently funding prohibited individuals or groups.
Key steps include:
- Screening all transactions against government watch lists.
- Filing required Treasury Department forms for any foreign bank accounts.
- Staying up to date with Office of Foreign Assets Control (OFAC) regulations.
Warning:
Noncompliance can result in severe penalties, including criminal charges.
FAQs: Foreign Mission Activities
1. Can donations for foreign missions be tax-deductible?
Yes—if the church maintains control and discretion over the funds and uses them for charitable purposes.
2. Are personal expenses on mission trips deductible?
No. Only expenses for charitable activities are deductible. Costs for personal days must be excluded.
3. What documentation is needed for foreign grants?
Churches should use:
- Written agreements
- Detailed spending reports
- Periodic reviews or audits
4. How do churches comply with anti-terrorism laws?
- Screen all transactions against U.S. sanctions lists.
- File the necessary forms for foreign financial accounts.
Final Tip
Foreign mission work is rewarding but legally complex. To stay compliant:
Stay current on IRS and federal regulations.
Work with legal and financial professionals.
Develop strong internal policies.
For additional guidance, consult legal and financial professionals familiar with the complexities of foreign mission activities.
The original version of this article has been updated for improved readability.
