Lost Housing Because Not In Writing

Housing allowance is one of the most important benefits that pastor can receive from the church because the Internal Revenue Code  Section 107 provides that ministers of the gospel are allowed to exclude from income the fair rental value of a home provided by the church as part of their compensation as well as the amounts paid to provide their own housing.  The exclusion is limited to the fair rental value of the home, including furnishings and utility costs.

One of the important rules with regard to the housing allowance  is in the Regulations Section 1.107-1(b).  It provides that the church must designate the amount of the housing allowance by taking official action which includes an employment contract, the minutes of the governing body or any other official document of the employing church.  Any amount paid to the minister cannot be a housing allowance until after the designation as been made.  In other words, the designation must be made before the payment is received by the minister.

Pastor Williams to a pastoral position in September 2005.  An employment contract was provided which set forth salary and housing for a six month period with the provision for extensions after the six month period by majority vote of the Deacon Ministry.  Nothing more was provided in the contract for housing.

In 2007 Pastor Williams reported his ministry income and expenses on Schedule C.  He reduced his income by deducting $29,989 for business use of his home and $6,452 for utilities and other expenses on his Schedule C.  He claimed these as parsonage allowance.

The IRS disallowed the amounts because the church did not designate any amount as housing allowance for the 2007 tax year.  The Tax Court was presented an updated 2005 contract however it was not signed by Pastor Williams until 2012. The Tax Court agreed with the IRS and disallowed the amounts deducted for housing.   Ricky R. Williams, et ux. v Commissioner, TC Summary Opinion 2013-60

NOTE: If there is an intention to provide housing allowance, it is vital that an employment contract or minutes of the church’s governing body meeting be clear as to the amount to be paid as housing and that it be signed before those housing amounts are paid to the minister.  It will save both the church and the minister time and money.

 

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