Clergy - Part 3

• Many churches and denominations use "403(b)" tax-sheltered annuities as their retirement plan for clergy and church employees. Unfortunately, the language of Code section 403(b) seems to limit such plans to employees. Several years ago, a federal appeals court ruled that tax-sheltered annuities may be purchased only for common law employees subject to the will and control of their employer regarding both the work to be done and the manner in which it is to be performed. Azad v. Commissioner, 388 F.2d 74 (8th Cir. 1968). See also Rev. Rul. 66-274. This is a significant limitation, for several thousands of ministers who report their income taxes as self-employed are currently participating in such plans. Obviously, any insistence by the IRS that 403(b) plans are restricted to clergy and church workers who are common law employees would have a disastrous tax impact upon those self-employed ...