Who Qualifies for a Housing Allowance?

Housing allowances must be declared by a qualified organization.

Church Law and Tax 1991-03-01 Recent Developments

Clergy – Taxes

The IRS has ruled that a regional denominational executive could not designate a portion of a state prison chaplain’s salary as a housing allowance. The chaplain was an ordained minister with the Christian Church (Disciples of Christ). He excluded 45% of his wages as a housing allowance on the basis of a letter from a regional executive of the Christian Church which “endorsed” his ministry and stated that 45% of his annual salary constituted a housing allowance. The IRS noted that the income tax regulations specify that housing allowances must be declared “by the employing church or other qualified organization.” It referred to a 1981 decision in which the Tax Court ruled that a federation of churches that supervised police chaplains and filled vacancies could designate a portion of a police chaplain’s annual salary as a housing allowance—even though chaplain salaries were paid by the city. The Tax Court had concluded that the federation was not an “employing church” but it was an “other qualified organization” because of the “constant and detailed involvement of the federation in the city’s police chaplain program.” Specifically, “the federation retained daily contact with the chaplains under its supervision. Problems with chaplains in the program were resolved by the federation and the federation had primary responsibility to fill any vacancies in the chaplain program.” The IRS “acquiesced” (i.e., agreed) with the Tax Court’s ruling in 1982 “on the basis that the federation’s responsibilities toward the chaplain program were similar to those of an employer and that the federation was closely involved with the police department in its employer-employee relationship with the ministers.” However, in the present case, the IRS concluded that the Christian Church was not actively involved in the day-to-day conduct of the state prison chaplain program. Its involvement was limited to sending a letter to the state endorsing the chaplain, and receiving annual reports from him. The IRS concluded that “we do not believe that this level of involvement is sufficient under the test set out by the Tax Court … to qualify the Church as an ‘other qualified organization’ …. The Church is not closely involved with the state in the conduct of its chaplain program and the responsibilities of the Church are not similar to those of an employer.” Accordingly, neither the Christian Church, nor any of its executives, could designate a housing allowance for the prison chaplain. The IRS disallowed the chaplain’s exclusion of 45% of his salary as a housing allowance. IRS Private Letter Ruling 9052001.

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