By Dennis Kasper, Christian Management Report
The May/June 2000 issue of the Christian Management Report included an article entitled “Deputized Fund-Raising: IRS Gives Favorable Guidance,” which described a recent IRS letter about deputized fund-raising programs. The IRS letter is a very helpful tool for mission agencies whose personnel raise support for their ministries.
But even if you don’t operate a formal “deputized fund-raising” program, the IRS letter may apply to your Short Term Missions (STM) programs that use similar fundraising strategies. Put another way, if your church or Christian school requires participants in STM programs to raise the money needed to cover the costs of a missions trip, you have a form of deputized fund-raising program.
For the contributions for your STM program to be deductible, the IRS letter is the starting point. However, STM projects have different characteristics from traditional missionary service, and the IRS guidelines do not always fit neatly. This article discusses how to apply the IRS guidance to keep your STM fund-raising efforts deductible.
Basic Rule No. 1: Contributions for the benefit of an individual are not deductible by the donor, even if they are given to a tax-exempt entity (e.g., a Christian school). For contributions to be deductible, the charity must exercise, in the words of the IRS, “full control and discretion” over their use. The donor must agree that the charity can decide how to use the money, even if that means the money won’t benefit the individual who raised it.
Basic Rule No. 2: The STM program’s expenses are deductible as charitable activity expenses if they are paid directly by the participant. Expenses for activities that are more like a tour cannot be paid with deductible contributions.
The do’s and don’ts shown here will help you structure your STM programs so that the contributions are deductible by the donors. Space does not allow an exhaustive list, but these address the most common uses:
What to Do
(1) The trip’s purpose must be related to your mission. Tourist aspects of a trip must be incidental to the missionary activities. Contributions for a tour of the Holy Land, even though it will be educational, are not deductible. On the other hand, contributions for a trip to build homes for the poor on the West Bank and to show the Jesus film are deductible, especially if the sightseeing takes place only on weekends. Consulting with knowledgeable tax counsel at the planning stage will help you avoid problems.
(2) Your church or Christian school needs to direct the activities on the trip. The participants should not be free to decide what [work they will do, and] when and where they will work and travel.
(3) If your church or Christian school participates in a program run by an outside mission agency, review the program carefully. Be certain that the participant’s activities have a missionary purpose that is consistent with your organization’s purposes.
(4) Your organization should establish the budget for the trip, taking into consideration the costs of travel, food, lodging, and incidentals. The participants should not determine how to spend the funds.
(5) If you plan to provide a per diem for meals and incidentals, consult with your accountant or tax advisor to be certain that the per diem is consistent with current tax law. There are strict rules regarding the use of a per diem in lieu of reimbursements for actual expenses. In addition, the per diem should be fixed, and it should be established without reference to the amount of money a participant has raised.
(6) If you are paying compensation to participants, you should establish the amount of compensation according to objective standards. The amount raised by a participant may not be a consideration. (Compensation may be reduced if insufficient funds are raised.)
(7) Selection of the participants should be based on their gifts and skills. Do not rely on support raising as the criterion for participation.
(8) When you discuss with participants their obligation to raise a certain amount of money as a condition of their involvement, make it clear that the money is to help your organization cover the costs of the STM project. They are not raising money for their participation on the trip; they are raising money for the ministry. This is a significant distinction, and a very important one for them to understand.
(9) Organize required training for those participating in the trip.
(10) Require those returning from an STM trip to report to your missions committee, board, congregation, and/or student body on their missionary efforts. An accounting of the funds raised for, and expended in connection with, the project should be a part of the report. Your board’s audit committee should consider auditing the accounting if the amounts involved are significant for your
organization.
What Not to Do
(1) Don’t accept checks payable to a participant. Contributions must be made to the church or Christian school. Checks payable to a participant suggest that the donor intended to make a nondeductible gift to the participant.
(2) Teach participants to tell donors not to put the participant’s name on the “memo” line on their checks. If you need a record to be sure that participants have met their fund-raising obligations, give them a separate form to give the donor to return with the check.
(3) Don’t establish a separate account within your accounting system for each participant. You may keep a separate account for the STM trip, but not for the individual participants.
(4) Don’t agree to return contributions for participants who, for whatever reason, can’t go on the trip, and don’t refund contributions when a participant has raised more than the required goal. These funds were raised to support your STM program, not the individual participant. Participants must understand this, and they need to communicate this effectively to donors. Explain your policy in a letter they must give potential donors.
(5) Don’t set fund-raising goals for the participants that are identical to the costs associated with one person’s going on the trip. While the costs are a significant factor in setting the goals, you may wish to set a high goal for some, or all, of the participants. This will provide additional funds for your overall missions program, and will demonstrate that the goals for each participant’s fund-raising are not directly related to the cost of participating in the trip. It will also provide
some extra funds if some participants don’t meet their goals.
(6) Don’t automatically prohibit participants from going on the trip if they haven’t met their fund-raising goals. The goal should be to cover the total cost of the trip, not to have all participants raise the funds to cover their own costs. Some people are better at fund-raising than others. There are probably people who should be on the trip because of their spiritual gifts or skills, but who are not able to raise the full cost of the trip. Your purpose should be to reach your missions objectives
by sending the best team that you can put together.
Contributions by Participants
Some participants may wish to satisfy their fund-raising obligations by contributing their own funds to you. The receipt you give them must state whether the donor received anything of value in exchange for the contribution. Because the individual’s expenses are going to be paid for the trip, this might be considered something of value that needs to be reported.
The answer depends upon the nature of the trip. If the trip is a missionary activity, as opposed to a tour, the expenses are a charitable contribution and are not a valuable benefit being given in exchange for the contribution. If the individual had paid the expenses, he or she would have been able to deduct them as charitable expenses. In contrast, if the trip involves a significant recreational element, the costs associated with it are not deductible, and the value of the trip must be noted on the contribution receipt. Consult with your tax counsel before issuing the receipt
if you are uncertain.
Short Term Missions projects are an important tool for advancing the mission of churches and Christian schools. Asking the participants to help with the fundraising for the trip is often the most effective way to raise the necessary money. As long as the missionary objectives of the trip control the activities undertaken, and your church or ministry exercises control over the funds and the project, the contributions will be deductible for the donors.
Dennis R. Kasper, Esq., is a partner with Lewis Brisbois Bisgaard & Smith LLP, Los Angeles, California. You may contact him by phone at 213.680.5185 or by email . Individuals contacting this attorney for help or clarification regarding this article or other issues should expect to pay a fee for professional services rendered.