Short-Term Mission Trips

Many churches and parachurch organizations sponsor individuals and/or teams of individuals that serve on short-term mission trips, domestically and internationally. The proper handling of funds raised and expended for short-term mission trips often raise some challenging issues.

The definition of "short-term" varies from one sponsoring organization to another. For church sponsored trips, a short-term mission trip often means a trip of a week or two in duration. However, for a missions organization, a short-term trip may last as long as two years. Short-term mission trips sometimes involve only adults. Other times, participants are minors, supervised by adults, or some combination of adults and minors.

Funding of short-term mission trips. Short-term mission trips may be funded in a variety of ways. For example, the sponsoring organization may pay part or all of the expenses of the trip from the organization's general budget. Or, a donor may give funds restricted for short-term mission trips without any preference or reference as to particular mission trip participants—the donor simply wishes to support the program of sending short-term missionaries. However, most short-term mission trip sponsoring organizations seek gifts that are preferenced for particular trip participants.

• Funding by the sponsoring organization's general budget. Expenses relating to short-term mission trips may be funded in full by the sponsoring organization, a church or parachurch organization. The use of funds from the general budget of a nonprofit organization is appropriate if short-term mission trips are consistent with the tax-exempt purposes of the sponsoring charity.

• Funds directly expended by the trip participant with no financial involvement of the sponsoring organization. A participant in a short-term mission trip may partially or totally fund trip expenses by making direct payments for airfare, lodging, meals, and other expenses. If a trip is sponsored or approved by a charity, the trip is consistent with the tax-exempt purposes of the charity and there is no significant element of personal pleasure, recreation or vacation,  expenses related to the trip are generally deductible as charitable contributions on the taxpayer’s Schedule A. Personal expenses relating to "side-trips" or vacation days included in the trip are generally not deductible.

IRS Publication 526 (Charitable Contributions) states:

You can claim a charitable contribution deduction for travel expenses necessarily incurred while you are away from home performing services for a charitable organization only if there is no significant element of personal pleasure, recreation, or vacation in such travel. This applies whether you pay the expenses directly or indirectly. You are paying the expenses indirectly if you make a payment to the charitable organization and the organization pays for your travel expenses. The deduction will not be denied simply because you enjoy providing services to the charitable organization.

If a donor makes a single contribution of $250 or more in paying short-term mission trip expenses, the donor must have and the charity should provide a written acknowledgment. The acknowledgment must include:

• A description of the services provided by the donor (such as the purchase of an airline ticket for the trip);

• A statement of whether or not the sponsoring organization provided the donor with any goods or services to reimburse the donor for the expenses incurred;

• A description and a good faith estimate of the value of any goods or services (other than intangible religious benefits) provided to reimburse the donor, and

• A statement of any intangible religious benefits provided to the donor.

Funding based on donor-restricted gifts for the short-term mission project but with no expressions of preference in relation to any trip participant. Donors may make gifts restricted for a short-term mission trip project or fund. Gifts for the project could be solicited by the charity or the donor might make an unsolicited gift. These gifts generally qualified as charitable contributions and it is appropriate for the sponsoring charity to provide a charitable gift acknowledgment.

If a charity accepts gifts that are donor-restricted for a short-term mission trip project or fund, the charity is obligated to spend the funds for the intended purpose. The only exceptions are generally if the donor releases the restriction, excess funds are carried over for future trips or if the excess funds are minimal.

Funding based on gifts preferenced for particular trip participants. Mission trip participants generally are responsible for soliciting gifts to cover part or all of the expenses necessary for the particular trip.

When mission trip participants raise part or all of the funds required for a trip, the sponsoring organization generally records the amounts raised in separate accounts for each participant as a way of monitoring whether sufficient funds have been raised to cover the expenses of the participant’s trip. Charges are then made against the particular account for expenses incurred for the trip. Occasionally, charges will be made to the accounts for the particular short-term mission trip participants in relation to the charity’s overhead expenses for the trip.

Gifts preferenced for particular trip participants should not be refunded to donors if the preferenced individual does not go on the trip. Refunding these gifts is a strong indication that the sponsoring charity does not have adequate discretion and control over the gifts and the issue of earmarked gifts is raised.

When funds are raised for a short-term mission trip on a participant-by-participant basis, the deputized fundraising guidelines generally apply. When a worker or a volunteer (a short-term mission trip participant typically fits the definition of a “volunteer”) raises some of his or her own support, the Internal Revenue Service (IRS) has proposed the following two general tests to determine whether a tax-deductible contribution was made to or for the use of a charitable organization, or whether the gift was a nondeductible, pass-through gift to a particular individual who ultimately benefited from the contribution.

• The intended benefit test. The purpose of this test is to determine whether the contributor's intent in making the donation was to benefit the organization or the individual.
  
  The IRS has formally indicated that organizations are to avoid the use of conflicting language in their solicitations for contributions, and to avoid conflicts in understandings between the parties. This is to demonstrate: (1) that the qualified donee has exercised the necessary control over contributions; (2) that the donor has reason to know that the qualified donee has the necessary control and discretion over contributions; and (3) that the donor intends for the qualified donee to be the actual recipient of the contributions.
  
  The following statement should be used in solicitations for contributions:

Contributions are solicited with the understanding that the donee organization has complete discretion and control over the use of all donated funds.

• The control test. The IRS uses the phrase "discretion and control" to indicate a charity's obligation regarding deputized funds. The IRS stated that charities receiving revenues from fundraising for the support of career or short-term mission endeavors can demonstrate control and discretion with the following directives:

  • Reimbursement of legitimate ministry expenses are approved by the organization, pursuant to the governing body's guidelines. Reimbursement must be set by considerations other than the amount of money collected by the individuals who raises funds.

  • Potential trip members are screened according to qualifications established by the organization.

  • Trip members are given meaningful training, development, and supervision.

  • The organization assigns trip members to programs and project locations based upon its assessment of each individual’s skills and training, and the specific needs of the organization.

  • Donor receipts inform donors of the organization’s full control and discretion over its programs and funds.

  • Since the organization should not commit contributions to a particular person, potential trip participants should never imply the opposite, verbally or in writing. A donor may indicate a preference that the charity use a gift to support the trip of a certain individual, and the charity may track the dollars based on that preference. However, the organization and the potential trip participant should refrain from any inference that the contributions will be paid as expenses to or for a particular worker. This is a fine line, but one that should be carefully observed.

Assuming the intended benefit and control tests are met, the tax deductibility issues of contributions for short-term mission trips are based on age, charity authorization, and the pursuit of pleasure or personal gain. Two potentially tax-deductible scenarios follow:

• Trip participants are adults.

  • Participants contribute to the charity to cover the entire amount of the trip expenses. The payments by the participants to the charity are deductible as charitable contributions if the trip involves no significant element of personal pleasure, recreation, or vacation. These trip contributions may be receipted by the charity as charitable contributions.

  • All trip expenses are paid by the charity and non-participants make contributions to cover trip expenses of participants who cannot afford to pay all of their own expenses. If the charity has preauthorized the mission trip, the trip furthers the exempt purposes of the charity, and if the trip involves no significant element of personal pleasure, recreation, or vacation, gifts to cover the travel expenses of participants who cannot afford to pay all travel expenses are generally tax deductible, even if the donors indicate a preference that gifts be applied to the trip expenses of a particular participant.

• Trip participants are minors. If a trip participant is a minor, the minor must actually provide services to carry out the purposes of the trip. The age of the minor and the minor’s development may be important factors in determining the minor’s capability of provide services to the charity.
  
  If parents, relatives, and/or friends contribute to the charity with a preference for their children’s trip expenses, and the charity pays the trip expenses, these contributions are generally tax deductible (assuming the minor carries out the charity’s trip purposes).

Funding based on gifts restricted for particular trip participants. Although a donor may express a preference for a particular trip recipient, if a donor expresses a restriction for a certain trip recipient, the gift is generally considered earmarked, does not qualify for a charitable deduction and should not be accepted (or acknowledged as a gift if accepted) by a charity sponsoring a short-term mission trip.

An earmarked gift is a transfer that is intended to benefit an individual, not the charity. It is a transfer over which the charity does not have sufficient discretion and control. In the short-term mission trip context, if the charity accepted a gift restricted for a particular trip participant, the charity would not have the freedom to use the funds for a trip participant that fell short of the financial goal for the trip.

Sponsors of short-term mission trips generally should not accept gifts earmarked for individuals because the gifts are not consistent with the charity’s tax-exempt purposes.

Accounting for short-term mission trip funds. Gifts that qualify for the issuance of charitable gift receipts by a charity should be recorded as charitable gift revenue by the sponsoring organization. If earmarked gifts are accepted by the sponsoring organization, the amounts should generally be treated as agency funds and reflected as a liability on the organization’s statement of financial position.

Some sponsoring organizations, initially record gifts preferenced for particular trip participants as a liability until the trip is complete and then reclassify the transaction as a charitable gift. This is done in an effort to justify any refunds for gifts preferenced for potential trip participants who did not go on the trip. This practice is inconsistent with the need to exercise discretion and control over the gifts, could jeopardize the charitable deductibility of the gifts, and the practice is not recommended.