Missionaries & Tax Exemptions

I am a bit surprised, and a bit confused, to see a specific sub-category for each missionary receiving support from a local unit. I understand the usefulness of the sub-category to track out-going funds. I can also see transferring funds from the Ward Missionary fund to a specific missionary's fund. But alarm bells are going off should funds ever be directly placed into a specific missionary's fund, instead of being donated to the Ward Missionary fund as a whole then subsequently transferred to a specific missionary. The reason for this alarm is we have been told that contributions made directly to a specific missionary are not tax deductible. The instructions that I've been reading regarding how to use CUBS seem to indicate that this policy (or practice or standard) is no longer in effect. What is the current policy regarding receipt of Ward Missionary funds?

HunsakerTG wrote:But alarm bells are going off should funds ever be directly placed into a specific missionary's fund, instead of being donated to the Ward Missionary fund as a whole then subsequently transferred to a specific missionary. The reason for this alarm is we have been told that contributions made directly to a specific missionary are not tax deductible.

Where did this instruction come from? I've seen that issue raised before by members who know tax law, but never by someone in authority. As such, I've never seen that as church policy to ward financial clerks.

Note that while the donations are made in a specific name, it's still an equalized payment - a fixed amount regardless of where they serve or their actual expenses. And I believe that all donations are non-refundable. If a family fails to make good on their commitment the missionary is not called home. I don't know tax law, but perhaps that's enough to satisfy tax requirements.

HunsakerTG wrote:. . . we have been told that contributions made directly to a specific missionary are not tax deductible.

Contributions made directly to a specific missionary are not. That is why members donate to the Ward Missionary Fund, and not to any specific missionary.

What the Church decides to do with those donations and how they decide to measure and track them after that is up to the Church, as long as they are used for missionary work.

While eventually the funds do get pulled out and Church Headquarters does what they need to do with them, the fact that there is still a listing in the local unit's financial system may indicate it's more for the convenience of the member, especially at the end of the year when they get the year-end statement at the time of tithing settlement. It may be so the amounts donated will show up there.

JamesAnderson wrote:It may be so the amounts donated will show up there.

Of course, any amount a member donates to the Ward Missionary Fund will show up on their donation statement. But, there will be nothing on the statement that relates to any specific missionary. Just a contribution to the Ward Missionary Fund.

Many members donate to the Fund who do not have family members serving missions. It is just the same as any other donation to the Church for tithing, fast offering, or any other category of Church donation.

When they switched over to the equalization plan there was a strict, perhaps over emphasis that, we have to do this(the equalization plan) because earmarked donation are not tax deductible.

Go talk to headquarters on why any donation to Other, no matter the purpose, is not tax deductible. You will hear all about "earmarked". If you apply the same logic and reasoning to the missionary fund as the Other account, you will cringe when you see someone write "for Elder Smith" on their donation slip.

If they wanted to be a little safer they should change the categories to something like "friends and family of Elder Smith" and members could write "I am a friend/family member of Elder Smith" as opposed to "For Elder Smith". This actually reflects the true nature of the subcategories and the donations. That money is not for Elder Smith, it is from a family member of Elder Smith.

But I suspect, and a quick perusal of the handbook seems to indicate, although never explicitly stated the reason, that the non refund nature of the missionary fund is the important part. But then that begs the question, lets make all donation, even to Other non refundable. What donor wants them back?. That leads to, it still can't be tax deductible because it earmarked. And now you see why tax lawyers cringe when they see "For Elder Smith" on the donation slip.

BUT, on the flip side it is very easy to just put it all in the ward missionary fund and then every month notice the numbers. If you are short, run a report or just look who did not make a payment. It's really pretty easy this way.

Amm_ wrote:Go talk to headquarters on why any donation to Other, no matter the purpose, is not tax deductible.

Actually, some of them are deductible, and MLS knows the difference and will show on the Tithing and Other Offerings Statement whether a contribution is Charitable or Non Charitable.

However, this is not a tax forum, and the matter of what is deductible on an actual tax return is left to those who file those returns and their accountants.

It is sufficient for me to know that the legal experts at Church headquarters have worked with our ecclesiastical leaders to devise a plan where I may contribute to the Ward Missionary Fund and the IRS will allow it as an income tax deduction under certain circumstances.

If we follow the proper procedures as clerks, all will be well. Yes, members sometimes write things on their donation slips that ask for trouble. But, properly processed contributions in MLS will print onto the Tithing Statement in a way that will be beneficial to members.

Amm_ wrote:If you apply the same logic and reasoning to the missionary fund as the Other account, you will cringe when you see someone write "for Elder Smith" on their donation slip.

But I suspect, and a quick perusal of the handbook seems to indicate, although never explicitly stated the reason, that the non refund nature of the missionary fund is the important part.

I think you hit the nail on the head when you said that the non-refundable nature of the donations is the key point.

Your other theories are interesting, but don't match a wide variety of facts about how the Church deals with these donations. There is nothing at all wrong with noting a missionary's name on a donation slip. Think of these facts:

• On the missionary application, the Church asks who will supply the funding -- the family, the missionary, etc. This is clearly asking for some sort of commitment by those people. If it were taboo to connect the funding to the missionary charges to the ward missionary account, why would the Church ask this?
• The Record Keeping FAQ talks about specifying a category for Ward Missionary donations. Why would this even be mentioned, if it were inappropriate to connect a donation to a Ward Missionary subcategory?
• The Record Keeping FAQ also talks about "missionary contributions made in behalf of one of [a ward's] missionaries by his grandparents." Why discuss donations "made in behalf" of a missionary if that is not allowed?
• The MLS Software Manual says "When the primary support is being supplied by the parents of the missionary, they should contribute support funds to the new ward." That reference to "primary support" seems quite similar to those that make you "cringe," but it is in an official publication of the Church.

Amm_ wrote:BUT, on the flip side it is very easy to just put it all in the ward missionary fund and then every month notice the numbers. If you are short, run a report or just look who did not make a payment. It's really pretty easy this way.

That's not really easy at all. You're assuming that every family pays regularly and that the source of the funding is obvious from the donor name. That's not true in many, many cases. I deal with situations all the time where your suggestion for running a report would not even come close to providing the needed information. If you keep track of the donations by missionary, this is trivial, but otherwise, it can be an accounting nightmare. We have a ward in our stake with 18 missionaries, where some of the parents pay a large lump sum, others do a donation in kind, others get behind on their commitments several months but then catch up, some families have two missionaries serving at the same time, etc.

There's not much point in speculating about exactly why the Church does what they do, or what the tax ramifications are for individuals. But let's not add restrictions on missionary donations that the Church clearly does not intend, either.

There is also the idea that the parents might keep track of how much they have paid toward their Missionary expenses.

Also, I know that my parents would have LOVED to have been able to deduct the money they paid out when I was on my mission (1966-1968).

MLS keeps track of what's "charitable" and what's not. Notice that the donor statement intended for tax purposes doesn't mention any of the categories used in MLS. There was a big court case about 20 years ago where a family from Idaho did battle with the IRS over claiming their son's missionary expenses as a charitable deduction. Following that high-profile case, the church changed and/or clarified many donation policies. I think it is unwise for us to stir up something which was "settled" long ago.

EDIT:

To Clarify:

All category and sub-category information in MLS is for the convenience of the church and the donor. The report shows which donations are charitable. Donor statements which show any categories (tithing, fast offering, ward missionary, etc.) are NOT to be used for tax filing. The only question is whether the donation was charitable. Charitable donations for tax purposes are listed on a specific form printed by MLS.

The $400 per month figure we assign to missionary support is arbitrary. It has nothing to do with the actual cost of supporting any individual missionary in any given month. The ultimate responsibility for the $400 per month payment falls on the ward. So any contributions to "Elder Smith" are recorded that way for the convenience of those who want to contribute to that $400 per month arbitrary figure. But once that money is in the ward account the donor has no say in what happens to it. And once that money is taken by CHQ the ward has no say in what happens to it. THAT is why there is NO ISSUE with the IRS about a donation being made "to a specific person." The church (a legitimate, charitable organization) dictates the use of that money.

Previous to the equalized payment system, families were sending money directly to their missionary sons and daughters. The church had nothing to do with those transactions OR what really happened to the money OR the amount of money "required" for missionary support. THAT is why a family had to go to court in order to claim it was a charitable donation. That's why they lost. That's among the reasons why the church has an organized system today.

My understanding is that the only donations that do not show up on the members year end tax statement are donations to "other"

I have noticed that donations made directly to "budget" and its sub-categories are also not charitable donations.

GregAnderson wrote:I have noticed that donations made directly to "budget" and its sub-categories are also not charitable donations.

Correct. No one should be donating to those categories. It's assumed that any "donation" is actually returning unused funds that were previously advanced or some other form of reimbursement.

wrigjef wrote:My understanding is that the only donations that do not show up on the members year end tax statement are donations to "other"

Some donations to Other are Charitable. Some are Non Charitable.

On the statement for the members, all donations show up, and there are two lines at the bottom marked Charitable and Non Charitable.

On the actual tax statement, only the Charitable contributions appear.

lajackson wrote:Some donations to Other are Charitable. Some are Non Charitable.

On the statement for the members, all donations show up, and there are two lines at the bottom marked Charitable and Non Charitable.

On the actual tax statement, only the Charitable contributions appear.

Can you give us an example of an Other that qualifies as Charitable?

Amm_ wrote:Can you give us an example of an Other that qualifies as Charitable?

I think donations to the category formerly known as Other:Temple Patron Assistance qualify as charitable.

Amm_ wrote:Can you give us an example of an Other that qualifies as Charitable?

Humanitarian Aid, Temple construction, and Perpetual Education are sub categories that (at least used to be) found under "Other" that are charitable contributions. But outside of these special predefined categories, anything sent to "other" would not be found on the end of year tax form.

RussellHltn wrote:Humanitarian Aid, Temple construction, and Perpetual Education are sub categories that (at least used to be) found under "Other" that are charitable contributions. But outside of these special predefined categories, anything sent to "other" would not be found on the end of year tax form.

None of those categories are under "Other" anymore -- they all have their own top-level categories. There are only two categories under Other: "Temple Patron Assistance" and "Authorized Member Financed Activities" (which can have any number of sub-categories). The former is charitable, the latter is not. So it's pretty simple under CUBS.

Handbook (Book 1, [2006]) references:

• Page 95 in the handbook: (right hand side, last paragraph)
• Page 155 in the handbook: (right hand side, bottom of page - MISSIONARY FUNDS)

Seems quite plain -- if you contribute to the ward missionary fund, there is no problem specifying what missionary the funds are going to, it is a TOOL to assist the Bishop in following up on support that has been promised for that missionary.

James Nice
Ward Clerk
Sandy River Ward
Mt Hood Oregon Stake

[EDIT by Alan_Brown: Removed direct quotations from the Handbook]

Access to book 1 of the Handbook is, um, rather limited. There is a lot of information in book 1 that I as a finance clerk neither have a need nor a desire to know. Even if my bishop were to let me borrow it for a time, as illustrated by information as far apart as page 95 and page 155, it is inevitable that while tracking down that information, that I would also have to read a lot of information that has nothing to do with my calling. Does anyone know if there is anything that, unlike book 1 of the Handbook itself, is readily available to finance clerks that repeats just book 1's finance instructions?

HunsakerTG wrote:ADoes anyone know if there is anything that, unlike book 1 of the Handbook itself, is readily available to finance clerks that repeats just book 1's finance instructions?

There is no separate reference for the finance instructions in the handbook. However, a stake president or bishop can authorize the duplication of sections of the handbook for high councilors and others as needed (see p. xiii). I am the stake financial clerk, and my stake president has authorized me to have a copy of "Chapter 16: Finances" of the 2006 CHI Book 1.

It's certainly reasonable for you to make such a request of your bishop (but you might want to wait another 3-4 days, since the new 2010 handbook will be released on November 13). But of course, the decision is up to him as to which portions, if any, he would like you to have.

Under the Record Keeping FAQ (available online), the very first general question is how you can learn your duties as a clerk. In order, the resources you have available are:

- your stake clerk
- other clerks
- The Handbook. Specifically, it directs you to start with the sections under ward or stake administration and mentions that the sections under ordinances, blessings, records or reports are also important.
- the online training
- clerk.lds.org

To me, if I don't have access to a copy of the handbook, I am seriously handicapped in my calling to assist the Bishop and the Ward clerk. There should be 4 copies of the handbook available: one each for the Bishop and his counselors, and an extra one. We've always used that as the Ward clerk's copy and that way the assistant clerks can research policies related to their own callings without borrowing from the Bishop.

LVAllen wrote:...and an extra one. We've always used that as the Ward clerk's copy and that way the assistant clerks can research policies related to their own callings without borrowing from the Bishop.

We've recently decided this copy should "live" in our locked filing cabinet for easy reference by any clerk (and executive secretary), yet be secure enough that it won't "wander".

gregwanderson wrote:MLS keeps track of what's "charitable" and what's not. Notice that the donor statement intended for tax purposes doesn't mention any of the categories used in MLS. There was a big court case about 20 years ago where a family from Idaho did battle with the IRS over claiming their son's missionary expenses as a charitable deduction. Following that high-profile case, the church changed and/or clarified many donation policies. I think it is unwise for us to stir up something which was "settled" long ago.

EDIT:

To Clarify:

All category and sub-category information in MLS is for the convenience of the church and the donor. The report shows which donations are charitable. Donor statements which show any categories (tithing, fast offering, ward missionary, etc.) are NOT to be used for tax filing. The only question is whether the donation was charitable. Charitable donations for tax purposes are listed on a specific form printed by MLS.

The $400 per month figure we assign to missionary support is arbitrary. It has nothing to do with the actual cost of supporting any individual missionary in any given month. The ultimate responsibility for the $400 per month payment falls on the ward. So any contributions to "Elder Smith" are recorded that way for the convenience of those who want to contribute to that $400 per month arbitrary figure. But once that money is in the ward account the donor has no say in what happens to it. And once that money is taken by CHQ the ward has no say in what happens to it. THAT is why there is NO ISSUE with the IRS about a donation being made "to a specific person." The church (a legitimate, charitable organization) dictates the use of that money.

Previous to the equalized payment system, families were sending money directly to their missionary sons and daughters. The church had nothing to do with those transactions OR what really happened to the money OR the amount of money "required" for missionary support. THAT is why a family had to go to court in order to claim it was a charitable donation. That's why they lost. That's among the reasons why the church has an organized system today.

They lost in the tax court but the ruling was remanded by the circuit court. They were able tp claim the deduction. All the more reason for hiring a CPA

gregwanderson wrote:

"Previous to the equalized payment system, families were sending money directly to their missionary sons and daughters.

That's not precisely true. Yes, for several years that's how it worked before the court ruling caused the church to have all donations to missionaries paid to the local ward. However, when I served in the 80s before the equalization system was put into effect, donations were made to the ward with my name included on the donation slip, and those funds were then sent to an account that was set up by the church at Zion's bank to send to me every month in Argentina. So the funds were indeed earmarked for my use, although the donors had no control over what actually happened to them once they made the contribution. The ward clerk simply forwarded the standard amount my mission had set for each missionary every month to the Zion's bank account, which was then transferred to a bank in Argentina and picked up by the mission office, and eventually sent my way. So the church had a system the IRS had approved, it's just different from the one we have today.

It was more flexible, since as I became a district leader and zone leader, our mission increased the amount we needed per month (to pay for extra bus trips, etc.) plus our parents could send extra spending money if they felt we needed it. (I have no idea if they told the ward clerk to send the extra, or if he just sent all the funds earmarked for me that were available each month.) My mission cost $100-$135, so the savings from the equalized system were significant, since Argentina was cheap.

IRS has specific rules about tax deductions for charitable donations. In 1984, the Supreme Court ruled that charitable donations for missionary work are tax deductible as long as the missionary work is a direct furtherance of the Church's or charitable organization's charter. The Supreme Court further clarified in about 1992 that donations directed only to specific missionaries are not tax-deductible but are taxed as wages. To "close the loop" on this, the Church since about 1994 treats all missionary donations it receives, including those to General Missionary Fund, those to Ward Mission Fund, and those directed to individual missionaries via tithing slips, as Church property and are not refundable. You will receive a tax statement at the end of the calendar year that lists your missionary contributions as "charitable donations." The MLS payments system records donations directed to a specific missionary as a credit to that missionary's entire mission obligation (currently $500 per month for missionaries from U.S.), but that specific missionary will not directly receive your extra funds that month--all missionary donations are deposited into a central missionary account and disbursed via centralized controls to the missions and missionaries per routine every month. If a missionary needs funds for extra items while on their mission, the extra funds are typically sent directly to the missionary by friends/family/ward members (but not from the ward or general account), and are then used only by that missionary for those specific personal needs and are not tax-deductible per the IRS rules above. However, each missionary's situation is unique.