Private Letter Ruling 9434008
Background. Many churches have missionaries conduct missions services during the course of the year. Often, an offering is collected. Church treasurers often ask if these offerings need to be reported to the missionary as taxable income on a Form 1099. In some cases this may be required. For example, if the offering will be turned over directly to the missionary and not to a missions board or agency, then a 1099 form ordinarily must be issued to the missionary.
The IRS ruling. A recent IRS ruling addressed a situation in which a 1099 would not need to be issued. While the ruling did not address missionaries directly, it is still instructive. The IRS noted that “as a general rule, income is taxed to the person who earns it” and that “a taxpayer who assigns or transfers compensation for personal services to another individual or entity fails to relieve himself of federal income tax liability, regardless of the motivation behind the transfer.” However, the IRS added that “amounts received by an agent on behalf of a principal, and turned over to the principal, are not taxable to the agent.”
Example. In 1958 the IRS ruled that fees paid to staff physicians and returned to a hospital were not included in the physicians’ taxable income. The physicians held salaried positions. Under a written agreement with the hospital, the physicians would receive no fees or compensation for their individual benefit from or on behalf of any patients admitted to the hospital. In situations in which patients made checks payable to physicians, the physicians would endorse the checks and turn them over to the hospital. The fees so received were used entirely in the operation of the hospital. The IRS held that the physicians were not required to include these amounts in gross income. The ruling noted that the physicians were an agent for the hospital, merely acting as a “conduit” for the fees collected.
Relevance to church treasurers. What is the relevance of this ruling to church treasurers? Simply this—it is not necessary for church treasurers to issue 1099 forms to missionaries who collect an offering if they are acting as “agents” of a missions board or agency. What factors indicate that a missionary is acting as an agent of missions board or agency? The IRS noted the following:
- The missionary is required by contract or written policy to turn over all church offerings to the missions board or agency, and is forbidden to retain any portion of such offerings for his or her personal benefit.
- The missionary has no control over the amount of the offering that will be collected.
- The missionary is paid a salary by the missions board or agency.
- A missionary who receives a 1099 from a church is required by official policy to attach a statement to his or her tax return explaining that the amounts were received as an agent for the missions board or agency.
This article originally appeared in Church Treasurer Alert, December 1994.