Recent Developments

Issues that affect ministers and churches
Taxability of Employer-Provided Food and Lodging
The IRS recently addressed this matter.

The IRS addressed the question of the taxability of food and lodging provided (on a cost-free basis) to clergy and lay workers who are required to reside on a church's premises to fulfill their duties. Many churches have employees (both clergy and non-clergy) who live in church-owned housing. Of course, federal law permits clergy to exclude the annual rental value of a church-provided parsonage from their gross income for federal income tax purposes (it is taxable for self-employment tax purposes). But what about non-minister church employees who live in church-owned housing? Is the annual rental value of such housing reportable as taxable income for income tax and social security tax purposes? And what about food provided on a church's premises to both clergy and non-clergy employees? Must it be valued and reported as taxable income? These are significant questions. The recent case before the IRS involved ten church centers engaged in religious activities including praying, preaching the gospel, ministering to the spiritual needs of members, and teaching the Bible. These centers employ full-time ordained ministers and lay workers who are required as a condition of their employment to live at the assigned church center. The primary service required of the ministers and lay workers is prayer. In addition, the ministers conduct Sunday services, hold prayer meetings, counsel and help church members, and carry out evangelistic work. The lay workers teach Bible school, administer the church's business affairs, organize and run annual conventions, and maintain facilities. Although the ministers and lay workers are not paid a salary, they are provided with meals and lodging. The church centers asked the IRS for a ruling addressing the federal social security tax consequences of the meals, lodging, foodstuffs, and cash reimbursements for grocery expenses provided to the full-time ordained ministers and full-time lay workers. The IRS began its ruling by noting that under section 119 of the Code, a non-minister employee may exclude from gross income the value of lodging furnished by an employer "for the convenience of the employer." To qualify for this exclusion, the following three tests must be satisfied: (1) the lodging is furnished on the business premises of the employer, (2) the lodging is furnished for the convenience of the employer, and (3) the employee is required to accept such lodging as a condition of employment. In explaining this test, the IRS observed:

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Posted: September 1, 1992
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