Transparency In Ministry

Question - Are churches/ministries required to provide a Form 1099 to individuals who receive benevolent payments?

Answer: The IRS was asked for a ruling in PLR 9314014 by a nonprofit agency that provided transportation (along with other services) to developmentally disabled persons and other qualified persons that it need not make information returns to recipients of their services. The IRS concluded that the value of the services is excludible from the gross income of the recipients of those services. Because they concluded that the value of the services is excludable from the gross income of the recipients of the services, they further concluded that "the nonprofit agency need not make information returns to them". Information returns being a Form 1099.

IRS letter ruling 200013031 indicates that payments that are "in the nature of general welfare ...are not includible in the recipients gross incomes" and concludes that a 1099 is not required for those type payments.

Publication 3833, issued after September 11. 2001, makes the statement, "In general, individuals who receive assistance in meeting personal needs from a charitable organization are not subject to federal income tax on the value of the assistance." The further conclusion, then, would be that a 1099 is not required.

For payments to be considered benevolence payments and non-taxable, the church or ministry should comply with various recordkeeping requirements. Revenue Ruling #56-304 promulgates that "Adequate records and case histories should be maintained to show the name and address of each recipient, the amount distributed to each, and the purpose for which the aid was given, the manner in which the recipient was selected and the relationship, if any, between the recipient and members, officers, or trustees of the organization, in order that any or all distributions made to individuals can be substantiated upon request by the IRS."

Churches should not file a 1099 with individuals receiving benevolence assistance, however should maintain adequate records and information on individuals receiving the assistance.

A church has an employee who would typically qualify for assistance under the benevolence program; either medical or financial hardship. Is this allowable? Is this taxable compensation to the employee? IRS Publication 3833 provides the following guidance:

IRS will presume that payments made by the church to an employee (or family members) for disaster relief and emergency hardship are consistent with the Church’s charitable purpose if: 1. the class of beneficiares is large or indefinite

2. recipients are selected by an objective determination of need

3. selection is made using an independent selection committee or adequate substitute to ensure that any benefit to the employer is incidental and tenuous.

The Church’s selection committee is independent if a majority of the members of the committee consists of persons who are not in a position to exercise substantial influence over the affairs of the employer.

So yes…it is an allowable expenditure for the church, if the above criteria is met and no taxable compensation to the employee.

For more information, see “2006 Church & Clergy Tax Guide – Employer-provided relief to employees” and IRS Publication # 3833.