• Key point. Persons who (1) are ordained, commissioned or licensed; (2) perform sacerdotal functions; (3) conduct worship; (4) are engaged in the "control, conduct, and maintenance of religious organizations"; and (5) who are considered to be religious leaders by their church, qualify as ministers for federal tax purposes.
The IRS ruled that three "ordained deacons" in a Methodist church, who served as the ministers of education, music, and stewardship, were "ministers" for federal tax purposes. After twenty years of study, the Church voted to establish the status of ordained deacon. Prior to this decision, elders were the only ordained members of the clergy. The Church defines ordination as the act of conferring ministerial orders. In accordance with Church traditions, an ordained minister is a baptized person who is called by God, authorized by the Church and ordained by a bishop to a lifetime ministry. To qualify for ordination as either a deacon or an elder, an individual must meet the requirements set by the Church that are specified in its governing document. In addition, to be ordained, the individual must be recommended by the regional Conference and receive the affirmative vote of the ministerial members of the Conference. Through ordination the ordained individual is given the approval of the Church to serve as an ordained minister and the authority to carry out those acts reserved to members of the clergy. As a result, following ordination, an ordained elder or deacon has the authority to exercise the responsibilities and duties of an ordained minister.
Duties of Ordained Deacons
According to the Church's governing document, an ordained deacon is permitted to give leadership in teaching and proclaiming the gospel, forming and nurturing disciples, performing marriages and funerals, and assisting the ordained elder in administering the sacraments. An ordained deacon has full right of voice and vote in the regional Conference where membership is held, may serve or hold office as a member of the clergy on the boards, commissions or committees of the Conference, may be elected as a clergy delegate to the national Conference, must attend all sessions of the regional Conference, and with the elder is responsible for all matters of ordination, character and Conference relations with members of the clergy. An ordained deacon is accountable to his or her regional Conference and bishop for the fulfillment of his or her call. An ordained elder is appointed to a position by a bishop. However, unlike an elder, an ordained deacon does not itinerate, nor does the Church guarantee an ordained deacon a position, salary, or place of employment. Ordained deacons are permitted to participate in the Church retirement plan for members of the clergy.
When it established the status of ordained deacons, the national Conference amended its governing document to include transitional rules that would allow certain "diaconal ministers" to become ordained deacons. A diaconal minister is a lay person who was consecrated by a bishop, but who the Church does not treat or consider as a member of the clergy. The Church expects that some, but not all of its diaconal ministers will become ordained deacons. The transitional rules are available for a limited period and provide that a diaconal minister in good standing with his or her regional Conference who has completed a minimum of three years in an approved service appointment may be ordained as a deacon provided he or she meets the following requirements: (1) apply in writing to the regional Conference for transfer of credentials to ordained deacon in full connection; (2) complete a prescribed education program; (3) demonstrate an understanding of the call to the order of deacon and a ministry that fulfills and exemplifies the definition and description of deacon found in the Church's governing document; and (4) receive a two-thirds positive vote of the clergy session of the regional Conference.
The Ruling Request
A Methodist church employs more than fifty employees, including three ordained deacons. The church asked the IRS whether these three ordained deacons are ministers of the gospel performing services in the exercise of their ministry for purposes of eligibility for a housing allowance, self-employed status for social security, and exemption from income tax withholding. The ordained deacons served in the following three positions in the church:
(1) Minister of education. This person plans and supervises youth, adult, and family activities, including Sunday education classes, Bible study, and various educational programs sponsored by the church; selects the educational curriculum; schedules activities; and, when needed, coordinates lay volunteers. One of the ordained deacons is the church's minister of music.
(2) Minister of music. This person coordinates all choir and music activities of the church.
(3) Minister of stewardship. This person performs financial and managerial functions. His primary function is to encourage members of the congregation to give their time, talent, and money to the church and community.
As integral members of the church's pastoral team, the three ordained deacons meet with the church's elder to plan the worship services, assist with the sacraments, and officiate at weddings and funerals. Each is required to preach at Sunday worship service. They participate with the elder in the weekly worship service. They also perform various other duties at the church, including confirmation preparation and membership reception.
Each of the three ordained deacons had been in good standing as a diaconal minister and had completed at least three years in a service appointment approved by the bishop since consecration as a diaconal minister. Each completed the continuing education program sponsored by the Conference and satisfied the applicable educational requirements. The ministers of education and music have bachelors degrees and have completed graduate theological courses as required by the Conference. The minister of stewardship has a masters degree in theology studies. Each demonstrated an understanding of the call to the order of deacon and received the full support of the regional Conference's ordained clergy.
The IRS Ruling
The IRS ruling is summarized below:
(1) Ministers of the gospel. The IRS ruled that the three ordained deacons were ministers of the gospel performing services in the exercise of their ministries. It observed:
As ordained members of the clergy in the Church [they] conduct worship and assist with the sacraments. In addition, as ordained members of the clergy in full connection they perform services in the control, conduct and maintenance of the Church. Further, [the local church and national church] consider [them] to be religious leaders who can perform substantially all of the religious functions within the scope of the Church's tenets and practices …. Accordingly [they] are performing services as "ministers of the gospel" within the meaning of section 107 of the Code. Thus, [they] are eligible to have a portion of their salary designated as a parsonage allowance. Any parsonage allowance will be excluded from gross income, provided the allowance is designated and paid in accordance with section 107. We further conclude that the services [they] perform are in the exercise of their ministry within the meaning of section 3121(b)(8) of the Code [which treats ministers as self-employed for social security purposes].
(2) The Wingo case applied. Unfortunately, the IRS applied the Tax Court's discredited ruling in Wingo v. Commissioner, 89 T.C. 922 (1989) in support of its conclusions. In the Wingo case the Tax Court defined the term minister as follows:
In determining whether [one] is a minister, we must look at whether he performed the duties and functions of a minister within the three types of services set out in the regulations [performance of sacerdotal functions and religious worship, and the "control, conduct, and maintenance of religious organizations" under the authority of a church or church denomination]. In making that determination, we will also consider the additional factors as to whether he was ordained, or commissioned, or licensed, and whether [his church] considered him to be a religious leader.
This language, along with other statements in the court's opinion, clearly indicates that to be a minister for tax purposes one must satisfy all three types of religious services mentioned in the regulations. To illustrate, the court noted 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 …."
The Wingo case was disturbing for two reasons. First, it was contrary to the specific wording of the regulations, which provide that "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." This language certainly recognizes that not all three types of services are essential. The Wingo case was also disturbing because it implied that only those clergy who work for churches or church-controlled organizations were eligible for the housing allowance and other special tax provisions since only such clergy satisfied the third type of service mentioned in the regulations (the control, conduct, and maintenance of a religious organization "under the authority of a religious body constituting a church or church denomination"). This was clearly contrary to the regulations, which specifically recognize that "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 overly strict analysis in the Wingo case was rejected a few years later by the Tax Court in Knight v. Commissioner, 92 T.C. 199 (1989). In the Knight case, the court concluded that a person need not satisfy all three requirements of the regulations to qualify as a minister for federal income tax purposes. At a minimum, one must be ordained, commissioned or licensed. But then a "balancing" of the other elements noted in the Wingo case is performed. This more flexible approach was adopted by the IRS in its audit guidelines for ministers, which were released in 1995. It is unfortunate that the IRS relied on the discredited Wingo case in reaching its conclusion regarding the status of the ordained deacons.
(3) The Haimowitz case distinguished. In Haimowitz v. Commissioner, T.C.M. 1997-40, the Tax Court concluded that a synagogue administrator was not a minister of the gospel for purposes of qualifying for a housing allowance. He had been employed by a temple for 30 years and was recognized as a Fellow in Synagogue Administration. He performed various services for the temple, including assisting students with Bar and Bat Mitzvah preparation, serving as marriage ceremony director, and conducting services for mourners. On his income tax return he specified that he was a religious functionary and asserted that as a religious functionary he was a minister of the gospel. The Tax Court concluded that the duties he performed, although related to the Jewish religion, were organizational in nature and did not require performance from one with ministerial credentials. The court then noted the religious rites and ceremonies he did not perform. He never fulfilled the role of rabbi or cantor, and the services he did perform were secular in nature. For example, he never officiated at a wedding or a funeral, and he merely assisted the rabbi at religious services. As a result, the court concluded he did not perform regularly those duties that the ministers of the Jewish faith customarily perform. In addition, the court found taxpayer's recognition as a Fellow in Synagogue Administration was irrelevant, as that designation is not a recognized religious official of the Jewish religion. The court also noted that taxpayer did not present any evidence that the temple considered him to be a religious leader. Accordingly, the court concluded that taxpayer failed to demonstrate that he was a minister of the gospel.
The IRS noted that the ordained deacon who served as a minister of stewardship was distinguishable from the synagogue administrator in Haimowitz, since he "is an ordained member of the clergy in full connection … officiates at weddings and funerals and will regularly perform the duties that members of the clergy of the Church customarily perform."
(4) Ministers of music and education holding no ministerial credentials. The IRS cautioned that "nor does this ruling suggest that the Service has departed from its position in Revenue Ruling 59-270." In Revenue Ruling 59-270 (1959), the IRS ruled that a church's minister of music and minister of education who performed some of the duties of a minister of the gospel could not be treated as ministers for federal tax purposes since neither was ordained, commissioned, or licensed as a minister of the gospel. In other words, ministers of music and education who hold no ministerial credentials should not assume, based on the recent IRS ruling, that they now qualify for a housing allowance.
(5) Legal value of a private ruling. The IRS ruling was a private letter ruling. Such a ruling applies only to the individuals involved. In fact, the IRS declined the church's request that it rule that all ordained deacons employed by the church in the future can be treated as ministers for federal tax purposes. The IRS advised the church that it would not issue a ruling that all of its ordained deacons were ministers "without examining the facts relating to each individual minister." As a result, ordained deacons serving in Methodist churches should not assume that they qualify as ministers for federal tax purposes as a result of this ruling. IRS Letter Ruling 199910055. [Who is a minister for Tax Purposes]
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