Many churches send teams on short-term missions trips both inside and outside of the United States. In some cases the participants on such trips are adults, while in others most of the participants are minors. The travel expenses incurred by participants may be paid in whole or in part by the church, or by the participants (or in the case of minors, their parents) either directly or through contributions to their church.
The correct handling of such trips for tax purposes is an important question for many church treasurers. This article will attempt to address the most important issues.
A good place to start in analyzing short-term missions trips is to recognize that there are many different ways that churches organize such trips, and the tax consequences will vary depending on the nature of the trip. Consider the following seven arrangements.
1. Adult participants, church pays all travel expenses with no contributions from participants
There are no tax consequences with such an arrangement. The church’s payment of the participants’ travel expenses is a legitimate expenditure of church funds in furtherance of the church’s religious purposes. There are no questions concerning the deductibility of charitable contributions.
2. Adult participants, the church pays all travel expenses; participants make contributions to the church in the amount of their travel expenses
Are payments made by the participants themselves to their church to cover the cost of their travel expenses deductible as charitable contributions? Yes, according to IRS Publication 526 (“Charitable Contributions”), which provides:
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 such 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. The deduction will not be denied simply because you enjoy providing services to the charitable organization.
However, note that the tax code specifies that no charitable contribution deduction shall be allowed “for traveling expenses (including amounts expended for meals and lodging) while away from home, whether paid directly or by reimbursement, unless there is no significant element of personal pleasure, recreation, or vacation in such travel.” IRC 170(j). This rule also applies to a taxpayer’s spouse and children. The purpose of this rule is to deny a tax deduction to persons who perform only nominal services for a charity while traveling or who are not required to render services for significant portions of a trip.
In determining whether travel away from home involves a significant element of personal pleasure, recreation, or vacation, the fact that a taxpayer enjoys providing services to the charitable organization will not lead to denial of the deduction. On the other hand, a taxpayer who only has nominal duties relating to the performance of services for the charity, or who for significant portions of the trip is not required to render services, is not allowed any charitable deduction for travel costs.
Example. T is a volunteer leader in a church’s youth group. The group goes on a short-term missions trip. T is responsible for providing adult supervision during the entire trip. T participates in the activities of the group and enjoys his time with them. T can deduct his travel expenses as a charitable contribution.
Example. B works for 2-3 hours each morning on a church-sponsored construction project in another country. The rest of the day is free for recreation and sightseeing. B cannot take a charitable contribution deduction for her travel expenses even though she works very hard during those few hours.
Example. Pastor J elects to go on a 2 week preaching mission in Europe. He is in Europe for 10 days, and conducts 1 hour services on 4 of those days. Pastor J will not be able to claim a charitable contribution deduction for the travel expenses he incurs in making this trip. The same rule would apply if Pastor J’s spouse or children go along on the trip.
Key point. What “travel expenses” incurred during a short-term missions trip may be deductible as a charitable contribution? They include air, rail, and bus transportation; out-of-pocket car expenses; taxi fares or other costs of transportation between the airport or station and a hotel; lodging costs; and the cost of meals. Becausethesetravelexpensesarenot business-related,theyarenotsubjecttothe limitsthat apply to the deductibility of businessexpenses.
3. Adult participants, the church pays all travel expenses; non-participants make contributions to the church to cover the travel expenses of participants who cannot afford to pay all of their own expenses
In many cases there are participants on a short-term missions trip who cannot afford to pay for their own travel expenses, and so the church makes an appeal to the congregation for assistance. If donors are contributing to a fund that will defray the travel expenses of participants who cannot afford to pay all of their own travel expenses, then their contributions would be tax-deductible. The same is probably true for donations specifying that they be applied to the travel expenses of a named participant. This conclusion is not certain, but there is a reasonable basis for it. In both cases, it is assumed that (1) the church has preauthorized the missions trip; (2) the trip will further the exempt purposes of the church; and (3) the trip involves “no significant element of personal pleasure, recreation, or vacation.”
4. Adult participants; church pays none of participants’ travel expenses
Adult participants on a short-term missions trip can claim their unreimbursed travel expenses as a charitable contribution. The income tax regulations specify:
[U]nreimbursed expenditures made incident to the rendition of services to an organization contributions to which are deductible may constitute a deductible contribution. For example, the cost of a uniform without general utility which is required to be worn in performing donated services is deductible. Similarly, out of pocket transportation expenses necessarily incurred in performing donated services are deductible. Reasonable expenditures for meals and lodging necessarily incurred while away from home in the course of performing donated services are also deductible. Treas. Reg. 1.170A 1(g).
5. Minor participants, church pays all travel expenses with no contributions from participants or their families
There are no tax consequences with such an arrangement. The church’s payment of the minor participants’ travel expenses is a legitimate expenditure of church funds in furtherance of the church’s religious purposes. There are no questions concerning the deductibility of charitable contributions.
6. Minor participants, the church pays all travel expenses; parents make contributions to the church in the amount of their children’s travel expenses
It is common for minors to go on church-sponsored short term missions trips. If parents pay for their child’s travel expenses, can they claim a charitable contribution deduction? That depends. If the parents pay the church an amount sufficient to cover the travel expenses of their child on a church approved missions trip, then it is likely that this payment will be tax deductible.
The United States Supreme Court addressed a related question in a 1990 decision. Davis v. United States, 110 S. Ct. 2014 (1990). The Court reached two conclusions. First, contributions by a parent to a church or missions agency are tax deductible, even if they designate the donor’s missionary child, so long as the church or missions agency exercises full accounting and administrative control over the contribution to be sure that it is used for travel and other missions-related expenses of the missionary. Second, payments made directly by a parent to a missionary child are not tax deductible, since they are not made to a charitable organization exercising administrative control over the payments.
The first ruling in the Davis case clearly supports the tax deductibility of contributions made by parents to their church to cover travel expenses incurred on a church sponsored missions trip. The church ordinarily will exercise administrative control over the donated funds in such cases, and will ensure that they are expended for missions related travel expenses, and it also will ensure that the children are in fact traveling for missions rather than personal purposes.
However, if parents pay their child’s travel expenses directly, or send funds to their children to cover travel expenses, the deduction is in doubt. The Supreme Court observed in the Davis case that “the plain language [of the income tax regulation] indicates that taxpayers may claim deductions only for expenditures made in connection with their own contributions of service to charities …. [A] taxpayer ordinarily reports his own income and takes his own expenses …. It would strain the language of the regulation to read it, as [the parents] suggest, as allowing a deduction for expenses made incident to a third party’s rendition of services rather than to the taxpayer’s own contribution of services.”
7. Minor participants; church pays none of the minor participants’ travel expenses
If the minors pay their own expenses through their own fund-raising efforts, there usually will not be a tax question since the minors will not be filing a tax return and do not need a charitable contribution deduction. On the other hand, if a minor’s parents pay their child’s travel expenses, then the analysis in the previous subsection would apply.
Example. A Presbyterian church planned a trip to the Holy Land for 27 of its high school students in order to “visit the places where Jesus lived and walked; visit and know young people of other backgrounds, cultures and religions; and share in an experience of Christian group living, understanding and friendship through work, travel, and worship.” For various reasons the destination was changed to Italy, Greece, and Turkey. While in Greece the students assisted in a “farm school” that taught local farmers more advanced techniques. Their primary responsibility involved the construction of a new chicken coop for the school’s chickens. The cost of the trip was $1,400 per student, and this cost was paid by several of the parents for their respective children. One of the parents claimed this payment as a charitable contribution, and this position was rejected by the IRS in an audit. The Tax Court agreed with the IRS. It observed: “We think it apparent that a deduction for expenses incident to the performance of services for the school is not allowable as a charitable contribution to [the church]. Although the church had a history of assisting the school, these are two distinctly separate organizations, and the services were not performed for the benefit of the church. That the trip increased the teenagers’ interest in the church program, developed their leadership capabilities, and increased their religious understanding does not aid [the parent’s] cause. If the trip, indeed, produced these results, the true beneficiaries were the teenagers themselves …. The evidence shows plainly that the 46 day expedition to Europe was primarily a vacation, sightseeing, and cultural trip for the teenagers …. Instead of the expenditures in question being incident to the rendition of services, we think the visit to the school and the work which was performed were only incidental to, or part of, a vacation trip. There is nothing to suggest that the expenses would have been less if the group had spent the entire trip solely for sightseeing …. While efforts to assist the teenagers in developing deeper religious involvement and concern for the needs of others are laudable, the tax laws do not permit parents to deduct sums which they expend for such purposes specifically on behalf of their own children. Tate v. Commissioner, 59 T.C. 543 (1973).
Short-Term Missions Trips—A Review of the Tax Consequences
|adults||church||yes, from participants, in the amount of their travel expenses paid by the church||none
|adults||church||yes, from non-participants, to cover the travel expenses of participants who cannot afford to pay the expenses themselves||
|minors||church||yes, from parents in the amount of their travel expenses paid by the church||
|minors||parents||no||payments made directly by parents to their children who participate on a missions trip are probably not deductible as a charitable contribution|
|minors||minors||no||none, since minors generally file no tax returns and cannot deduct contributions|
This content originally appeared in Church Treasurer Alert, March 2001.