Church Law and Tax 1989-09-01 Recent Developments

Clergy – Taxes

Are clergy who serve in faculty and administrative positions at a church-related university eligible for housing allowances? Yes, concluded the IRS in a recent ruling, if the university qualifies as an integral agency of a religious organization under the control of a church or religious denomination. This is so even with respect to clergy who are not serving in the university’s school of theology. In clarifying the meaning of an integral agency, the IRS referred to an earlier ruling in which it listed 8 criteria to be considered in determining whether a particular university or other organization is an integral agency of a religious organization: (1) whether the religious organization incorporated the institution; (2) whether the corporate name of the institution indicates a church relationship; (3) whether the religious organization continuously controls, manages, and maintains the institution; (4) whether the trustees or directors of the institution are approved by or must be approved by the religious organization or church; (5) whether trustees or directors may be removed by the religious organization or church; (6) whether annual reports of finances and general operations are required to be made to the religious organization or church; (7) whether the religious organization or church contributes to the support of the institution; and (8) whether, in the event of dissolution of the institution, its assets would be turned over to the religious organization or church. The IRS concluded, based upon its review of the university’s organizational documents, that most if not all of the 8 criteria were satisfied, and accordingly, that clergy who served in faculty and administrative positions were eligible for housing allowances (and in addition were exempt from income tax withholding and were to be considered self-employed for social security purposes). Private Letter Ruling 8922077.

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