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In general, a contribution is deductible only if it is made “to or for the use of” a charitable organization, not a designated individual.  IRC §170(a).  Direct contributions to missionaries, or any other individual, are not tax deductible, even if they are used for religious or charitable purposes.  However, contributions to designated individuals in the context of mission work may be deductible where it is shown that the contributions were to a charitable organization and for the use of the organization, not just the individual missionary designated. Contributions to a missions agency or church for the benefit of a particular missionary may be deductible if the missions agency or church exercises full administrative and accounting control over the donated funds so as to ensure that the funds are spent in furtherance of the agency’s or church’s exempt purpose.

The Internal Revenue Code and the IRS regulations do not detail a specific test as to what “full administrative and accounting control” means.  There are, however, two good sources of authority that have addressed the issue, these being IRS Revenue Ruling 62-113 and IRS Private Letter Ruling 200530016.  Both concerned the issue of gifts to a missions organization or church that were intended to reach a specific missionary.

In Rev. Rul. 62-113, the IRS was asked to consider the treatment tax treatment of payments made to a missionary from a church fund as reimbursement for travel and living expenses incurred away from home in the service of the church and contributions to the fund by the parent of the missionary.  In that case, the missions work of the local congregation is carried on by missionaries who are specially called from the congregation to missionary service and who are ordained for this purpose.  The local congregation, through the contributions of its members, maintains the missions fund and members are encouraged to make personal contributions to the fund.  All contributions to the fund are expended in pursuance of the purposes of the fund and no part of the fund is earmarked for any individual.  The taxpayer requesting the revenue ruling was the parent of one of the missionaries.  The taxpayer makes contributions to the church fund, which are then distributed to taxpayer’s son for his missionary work.

In this instance, the IRS held that if taxpayer’s contributions to the fund were earmarked for a particular individual, they are to be treated, in effect, as being gifts to the designated individual and are not deductible.  However, the IRS will permit a deduction where it is established that a gift is intended by a donor for the use of the organization and not as a gift to an individual.  The key is whether the organization has full control of the donated funds, and discretion as to their use, so as to insure that they will be used to carry out its functions and purposes.  The taxpayer’s son’s, in Rev. Rul. 62-113, receipt of reimbursements from the fund on its own was not sufficient to render the donation non-deductible.  The IRS further stated that unless the taxpayer’s contributions to the fund are distinctly marked by him so that they may only be used for his son or are received by the fund pursuant to a commitment or understanding that they will be so used, they may be deducted by the taxpayer.

PLR 200530016 considered charitable contributions that designate specific projects and specific individuals.  The IRS held that:

An important element for a taxpayer donor of a qualified charitable contribution is the donee’s control over the donated funds.  The donor must show that the qualified donee organization retained control over the funds.  To have control over donated funds is to have discretion as to their use…Such control and discretion ensures the funds will be used to carry out the organization’s functions and purposes…

[T]he [missions organization/church] may endeavor to honor donors’ wishes that designate the use of donated funds.  The [missions organization/church], though, must maintain control over the ultimate determination of how all donated funds are allocated.  Donors should be made aware that, although [the missions organization/church] will make every effort to honor their contribution designation, contributions become the property of the [missions organization/church] and [it] has the discretion to determine how best to use all contributions to carry out its functions and purposes.

In Peace v. Commissioner, 43 T.C. 1 (1964) the Court permitted a deduction for funds donated to a church mission society with the stipulation that specific amounts should go to four (4) designated missionaries because an examination of the totality of the facts demonstrated that the contribution went into a common pool and the church retained control of the actual distribution.

In Winn v. Commissioner, F.2d 1060 (5th Cir. 1979), the Court considered a contribution in response to an appeal by a church to assist a certain person in her church missionary work.  The Court relied upon the fact that even though the contribution was made payable to a fund named for the individual, an officer of the church took the donated funds and dealt with them as the church wished.  Possession of the contribution by the church official was held to be one of the key elements establishing control by the church.  The Court held:

We also note that a donor can earmark a contribution given to a qualified organization for specific purposes without losing the right to claim a charitable deduction… Such a contribution still would be “to or for the use of” a charitable entity despite the fact that the donor controlled which of the qualified entity’s charitable purposes would receive the exclusive benefit of the gift.

Proof that the church sponsored the appeal … for the express purpose of collecting funds for this part of its work, that an officer of that church took the funds donated and dealt with them as the church wished, and that the funds went to the support of the work the church intended is sufficient to establish that the funds were donated for the use of the [appeal].

Overall, missions agencies / churches are permitted to honor donors’ wishes for use of funds for a specific individual, provided that it maintains ultimate control over how the donated funds are allocated; and donors are made aware that the missions agency / church has full discretion to determine how best to use all contributions to carry out its functions and purposes.


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