• A recent Technical Advice Memorandum from the IRS national office addresses the question of who is a minister for tax purposes. This question was the focus of an in-depth feature article in the May-June 1989 issue of Church Law & Tax Report—an article prompted by the Tax Court's recent ruling in Knight v. Commissioner. It is an important question, since it determines which persons are eligible for a number of federal tax provisions that apply uniquely to clergy, including the housing allowance exclusion, the exemptions from self-employment taxes (if various conditions are met) and income tax withholding, and self-employed status for social security purposes (if not exempt). These special tax provisions are unique in that they use identical language in defining which persons are eligible for the special treatment. The housing allowance exclusion, exemption from social security coverage, exemption from income tax withholding, and self-employed status for social security purposes (if not otherwise exempt), are available only to ordained commissioned, or licensed ministers of a church with respect to services performed in the exercise of ministry. This critical terminology is defined in the income tax regulations as follows: "Service performed by a minister in the exercise of his ministry includes the ministration of sacerdotal functions and the conduct of religious worship, and the control, conduct, and maintenance of religious organizations … under the authority of a religious body constituting a church or church denomination." This regulation makes the four special tax provisions available to persons who satisfy two requirements: (1) they must be ministers, and (2) the special treatment only applies with respect to services performed in the exercise of ministry. Prior to the Knight decision, the courts had difficulty clarifying what is meant by the term minister. The most confusing Tax Court decision prior to Knight was the Court's 1987 decision in Wingo v. Commissioner, 89 T.C. 922 (1987). In defining the term "minister," the Wingo court observed that "the regulations … describe three types of services that a minister in the exercise of his ministry performs," and that "when a person performs all three types of services set forth in the regulations, and is recognized as a minister or religious leader by his denomination, that person is a minister …." In other words, a person is a minister for tax purposes only if he or she administers sacerdotal functions, conducts religious worship, and is engaged in the "control, conduct, and maintenance" of a church or religious organization under the authority of a church or church denomination. The regulations, however, nowhere specify that a minister must satisfy all three kinds of ministerial services. Fortunately, the overly restrictive Wingo decision was modified in the Knight case. In Knight v. Commissioner, the Tax Court announced a new test for determining whether or not a particular individual is a minister: "Five factors [must be] analyzed. Those factors are whether the individual (1) administers sacraments, (2) conducts worship services, (3) performs services in the 'control, conduct, or maintenance of a religious organization,' (4) is 'ordained, commissioned, or licensed,' and (5) is considered to be a spiritual leader by his religious body." The Court emphasized that its new test for ministerial status "is not an arithmetical test but a balancing test. Failure to meet one or more of these factors must be weighed by the court in each case." It did acknowledge that one of the five factors must be present in every case—the requirement that the individual be an ordained, commissioned, or licensed minister. The individual involved in the Knight case only met three of the five factors and yet was determined to be a minister for tax purposes by the Court. In a Technical Advice Memorandum issued by the IRS national office just prior to the issuance of the Knight decision, the IRS addressed the question of who is a minister for tax purposes. Specifically, the IRS was addressing the question of whether a minister had filed a timely application for exemption from social security taxes (Form 4361). The individual had been licensed in 1971 and ordained in 1980, and had submitted an application for exemption from social security taxes (Form 4361) in 1980. The parties conceded that if the individual became a minister for tax purposes at the time he was licensed, then the exemption application was properly rejected since it was too late, but if he became a minister for tax purposes upon his ordination in 1980, then the application was timely. The IRS, applying the Wingo test, concluded that the individual became a minister for tax purposes in 1971 (when he was licensed) since at that time he performed all three kinds of ministerial services described in the regulations and mandated by the Wingo decision. The IRS observed that in determining whether an individual is a minister for tax purposes, "the courts have consistently examined whether the individual has performed the three types of ministerial services set forth in … the regulations." In summary, the IRS reached the right result for the wrong reasons. There is no doubt that the individual satisfied the five-part test of ministerial status announced a few weeks later in the Knight decision. It is unfortunate that the IRS reached its conclusion by relying on the much more restrictive test announced in the Wingo decision—a test repudiated in the Knight decision. It is likely that the IRS ruling will contribute to further confusion regarding who is a minister for tax purposes. TAM 8915001.
