Donor Directed Dollars for Missions Work

Do’s and Don’ts for Happy Donors and Travelers

Your ministry is planning an upcoming international mission trip. With the destination decided, it’s time to line up volunteers and raise financial support. When a donor asks for funds to go directly to a specific traveler, your initial response may be a resounding, “yes.” But to avoid tax issues for donors and your ministry, you will need to take some steps ensure funds are raised properly and go toward supporting a program or project.

Raising Funds for Missions Work

Missions work is often performed by individuals who rely on donor support to help fund their travel and work. While it’s common practice in missions to raise support for individual travelers, it’s important to ensure that ministries are receiving and controlling donations to maintain the tax benefit for donors.  

To make sure gifts are tax deductible for donors, the ministry’s board could decide—before requesting donations—that funds for a certain program or project will be used to assist specific individuals in achieving that program or project. The decision should be recorded in the board’s meeting minutes. This step helps specify that it was your ministry’s decision to use ministry funds to assist a specific mission, rather than a person simply passing money through your ministry to another individual, which would not be tax deductible for the donor.

Policies Protect Ministry Operations

To help avoid deductibility concerns, it’s best to create and follow a policy that clarifies the types of gifts your ministry will accept and that they’ll be used to further the ministry’s purpose. Again, it’s important to remember that to be tax-deductible for the donor, gifts generally must be made to the ministry or a specific ministry program, rather than an individual.

Two conditions of a well-written policy are:

1. All donations will be under complete control of your ministry and may be used at the ministry’s discretion.
2. Donations may be directed to a specific program of the ministry, such as mission travel, foreign missions, or a benevolence fund, but may not be directed to a specific person.

These policies can help ensure that the ministry maintains control over the use of the funds, keeping the donation tax-deductible for the donor. Make sure your ministry indicates its policy on all giving platforms (electronic and paper).

Gifts Given for a Specific Program or Project

When a donor designates a gift for a specific program or project by writing it down explicitly or implying it through the circumstances, the ministry should honor the request. For example, if a donor contributes to the ministry’s upcoming foreign mission trip, ministry leaders may only be able to use those funds for that purpose. This is known as a “restricted gift.” It the trip is cancelled and your ministry decides to use the funds for a different purpose, the donor may be able to force your ministry to refund the donation. This could damage donor relations and the overall mission of the ministry.

However, there are ways to remove restrictions from donated funds:

1. Obtain permission from the donor to remove restrictions.
2. If your ministry is unable to identify the donor of a restricted gift, or if you’re unable to receive consent, you may be able to appeal to a local court to release the ministry from the restriction of the donation. Ministries should seek the advice of an attorney licensed in their area to determine what additional steps are required in order to remove the restrictions on a gift.

Once the restrictions have been removed, ministries are typically free to use the funds for any purpose and are not obligated to return donations.

Working with Independent Contractors

Sometimes your mission worker is considered an independent contractor. In this case, the gift given to benefit a worker the ministry treats as an independent contractor may need to be included in the amount reported on the individual’s 1099 form—especially if the payments are related to the contractor’s duties. For more on this topic, read the article about independent contractors and taxes.

Sending Funds Internationally

If your organization engages in ministry around the world, you likely use international financial transfers to support your foreign operations. Under U.S. law, it’s critical for ministries to develop financial ‘due diligence’ procedures to reflect the extra steps and additional obligations accompanying foreign transfers. This process should include examining all foreign-based individuals or entities who will receive funds from you.

All U.S.-based organizations, including ministries, are legally prohibited from engaging in financial transactions that directly or indirectly benefit individuals, entities, or countries currently sanctioned by the Department of Treasury’s Office of Foreign Assets Control (OFAC). Ministries are expected to comply with OFAC regulations for all foreign transactions, no matter the purpose. Even payments related to kidnappings or ransomware attacks are subject to OFAC restrictions. Failing to follow OFAC requirements can lead to significant fines and penalties – even if you were unaware of violating the law.

Additional Information

Be sure to consult with your ministry’s attorney and tax professional before putting donation policies into practice. For additional information on this subject, see the following resources:

• IRS Publication 526 on charitable contributions.
• Refunds of Charitable Contributions by Church Law & Tax
• Proper Care of Donor-Restricted Gifts by the Evangelical Council for Financial Accountability

Posted August 10, 2022

The information provided in this article is intended to be helpful, but it does not constitute legal advice and is not a substitute for the advice from a licensed attorney in your area. We strongly encourage you to regularly consult with a local attorney as part of your risk management program.