• Key point: Some ministers employed by parachurch organizations will qualify for a housing allowance.
• The Tax Court ruled that an ordained minister who served as president of a parachurch ministry was eligible for a housing allowance. Two ordained Baptist ministers (a father and son) served as the senior and associate pastors of a Baptist church in Ohio. In 1977, the two pastors traveled to Africa. They videotaped the work and stories of several missionaries. Those videotapes were to be used to launch a missionary television program. The Ohio church provided the equipment to communicate the missionary story through television. The church’s efforts were undertaken as part of a project entitled “Priority One International.” The church viewed Priority One International as its missionary arm. The senior pastor believed that God had given him a vision of a ministry to bring national attention to the cause of world missions. In 1980, the two pastors separated their activities concerning foreign missions from their church. They did not want to be restricted in their activities to one particular Christian denomination. They believed that their message needed to be shared across denominational lines. Priority One was incorporated as a nonprofit corporation. Priority One continued the television-related activities previously sponsored by the local church, and eventually it was moved to Texas. Besides producing videotapes and television programs addressing world missions, Priority One began producing videotapes addressing issues of Christian living (parenting, teenage crises, burnout, etc.), although the emphasis of these tapes was on missionary families.
The duties of the father and son vary somewhat, but both are responsible for the “message” conveyed by the tapes. The father conducts daily worship services for employees engaged in Priority One’s marketing efforts. The services provide an opportunity for the father to challenge those employees and emphasize to them the importance of what they are doing and their opportunity to change people’s lives. On occasion, communion is administered at those services. The son is primarily responsible for the production of the tapes. Priority One designated a portion of the compensation paid to the father and son as a housing allowance. These allowances were challenged by the IRS in an audit, and the father and son appealed. In an important ruling, the Tax Court concluded that both the father and son were eligible for a housing allowance with respect to services performed on behalf of Priority One. The court rejected the position of the IRS that the father and son were not eligible for a housing allowance since the services they performed were not services that are ordinarily the duties of a minister.
The court began its opinion by noting that to qualify for a housing allowance exclusion “the home or rental allowance must be provided as remuneration for services which are ordinarily the duties of a minister of the gospel.” The court noted that the income tax regulations list 3 definitions for “services which are ordinarily the duties of a minister of the gospel.” These definitions are as follows:
Test 1: If a minister, pursuant to an assignment or designation by a religious body constituting his church, performs service for an organization which is neither a religious organization nor operated as an integral agency of a religious organization, all service performed by him, even though such service may not Involve the conduct of religious worship or the ministration of sacerdotal functions, is in the exercise of his ministry.
Test 2: If a minister is performing service for an organization which is operated as an integral agency of a religious organization under the authority of a religious body constituting a church or church denomination, all service performed by the minister in the conduct of religious worship, in the ministration of sacerdotal functions, or in the control, conduct, and maintenance of such organization is in the exercise of his ministry.
Test 3: If a minister is performing service in the conduct of religious worship or the ministration of sacerdotal functions, such service is in the exercise of his ministry whether or not it is performed for a religious organization.
The father and son claimed that they satisfied all 3 tests. They pointed out that they were “commissioned” by the Ohio church to serve world evangelism through Priority One. This, they argued, “clearly reflects an assignment” within the meaning of the regulations. The court disagreed, noting that:
The activities of Priority One began as a project of [the Ohio church]. They were separated, however, and Priority One was incorporated when [the father and son] came to conclude that their message needed to be shared across denominational lines. Priority One was moved to Texas in 1981. We see an insufficient connection between [the activities of the church and those of the father and son for Priority One] during the years in question to conclude that either … was under “assignment or designation” to Priority One during that period.
The court also ruled that the second test did not apply to the father and son. It noted simply that “we are unable to find that Priority One was organized and operated under the authority of a religious body constituting a church or church denomination.”
However, the court concluded that the third test did apply to the father and son, and accordingly they were eligible for a housing allowance. The third test asks whether or not a minister is conducting religious worship or performing sacerdotal functions. With regard to the performance of worship, the court observed:
Daily worship services are conducted at Priority One. Apparently, they were conducted during the years in question. [The father] conducts those services. They are conducted for employees engaged in Priority One’s marketing efforts. On occasion, the Lord’s Supper is administered at those services. Although [the father] had no contract of employment with Priority One during the years in question, it seems clear that his activity in conducting worship services was known to, and approved by, the board of directors of the corporation. We think that his conduct of those services constitutes the conduct of religious services within the meaning of [the regulations]. As president of Priority One, [the father] also preached at churches’ mission conventions. Clearly, [his] preaching and conduct of religious services constituted only a portion of [his] duties on behalf of Priority One. We need not decide, however, whether those duties are sufficient to justify exclusion of the rental allowances in question. We need not decide that because we believe that … [the] principal duties [of the father and son] as president and vice president, respectively, of Priority One constituted the performance of sacerdotal functions within the tenets and practices of the Baptist denomination.
In reaching its conclusion that the duties performed by the father and son on behalf of Priority One constituted the performance of sacerdotal functions, the court relied heavily on the expert testimony of Dr. Derrel R. Watkins of Southwestern Baptist Theological Seminary. Dr. Watkins’ written report was accepted into evidence by the court. In that report, Dr. Watkins stated the following: Baptist congregations recognize that God may call individuals to serve as itinerant ministers. Such ministers may serve congregations both within the denomination and in other denominations. They carry out their sacerdotal functions independent of a specific congregation. Some ministers, with the blessings of the congregation that ordained them, may broaden their ministry to include radio, television, and writing missions. A majority of Baptist congregations consider any ordained minister who seeks to proclaim the Gospel in any fashion to any person or group of persons, or who provides church-related services to congregations, to be functioning as a minister in accordance with the overall purpose of his ordination. Dr. Watkins was of the opinion that, since both the father and son continue the work undertaken by Priority One when it was a project of the Ohio church, they continue in the ministry begun by them under the authority of the church.
The court concluded:
We find that support of foreign missions is the main thrust of the services rendered by [the father and son]. Priority One … was a project of [the Ohio church]. It grew out of [the father and son’s] travels to Africa. [The father] believed that God had given him a vision of a ministry to bring national attention to the cause of world missions. [The father and son] accomplished that ministry, first, through Priority One …. We have viewed video tapes made by Priority One that deal with the work of foreign missionaries. Those tapes fulfill [the father’s] view of his ministry. Undoubtedly, they bring attention to the cause of world missions and support the work of foreign missionaries. During the years in issue, video series produced by Priority One began to address other issues, in addition to the support of foreign missions. We have sampled those series and find that, still, there was a substantial focus on foreign missions and missionaries. Together [the father and son] constituted the creative and productive force behind the videos produced by Priority One. Those videos served to support the cause of foreign missions. The main thrust of the services rendered by [the father and son] was, thus, in support of foreign missions. On account thereof, and in light of the expert testimony of Dr. Watkins, we find that their services constituted the performance of sacerdotal functions within the tenets and practices of the Baptist faith.
This ruling may be helpful to other ministers employed by parachurch ministries whose housing allowances are challenged by the IRS. Mosley v. Commissioner, T.C. Memo. 1994-457 (1994).
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