Jesse

Thanks for the help really appreciate the feedback.

>>they did not qualify for the housing allowance<<

This is a valid parsonage allowance, designated by statute. Normally we think in terms of "dual status," but that's not exactly what Reg §1.1402(a)-11 actually says. It doesn't say he MUST be treated as self-employed, just that if he IS then the housing allowance is not excluded from SE tax.

However, you don't take $7000 off the $35,000. Box 1 of the W-2 is supposed to show the taxable net AFTER exclusion. See the example starting on page 11 of Pub 517. In other words, Wisconsin apparently pays an exempt housing allowance in addition to the taxable salary. The result is that the minister does not get any reduction from the W-2. In fact, he must show housing costs exceeding $7000 to avoid having excess allowance ADDED on Line 7.

The taxpayer should be able to explain all this. State employees usually know every detail of their benefits; why else would he go to the prison every day? Don't you require last year's return for any new client? Surely he knows if he gets $35000 or 20% more than $35000. You can check for yourself whether FICA withholding was 6.2% of $35K or 6.2% of $42K, but frankly I wouldn't worry about that part being right or wrong. Basically just enter the W-2 the normal way. I'm sure he uses up the $7000.

According to paystubs his gross indeed is $35,000, that is why I don't understand the "phantom" housing allowance. FICA was actually based on $37,000, only because $2,000 was deferred Comp. If his actual housing does not exceed the $7,000 something that was not received can't be taxable. In 2007 this is his only employment, previously he was a pastor at a local church, so for 2007 he was no longer self employed.

I actually have a client that was a chaplain for the State of Maryland. Since the full $35,000 has been subject to SS, there is no need to complete the from SE. Line 21 then has a subtraction for the amount of the housing allowance as it is not subject to income tax. I also e filed this clients return. We had to use the form 8453 and send a copy of the letter to the IRS. I have done this for four years and have never heard from the IRS. It sounds like your letter is exactly like the one I see every year.

Thank you. This is what I was looking for.

Peggy, thank you also, but in this case as cpabsd pointed out the amount has already been subject to SS. What I was questioning is how to report and if indeed it should be subtracted from the wages.

New client is a chaplain for a State of WI prison. He is paid as an employee and FICA & Medicare are taken out of his pay and just like any other employee the state mathches this. $35,000 is reported in box 1 of his W-2.

With his W-2 he received a letter that says:

To Whom it May Concern:

Mr. C is employed as a chaplain with the Dept of Corrections at the XXX Correctional institution. Chaplain C is not furnished a residence by the state and therefore pursuant to WI Statute he is eligible for $1,800 or 20% of his chaplain's salary, whichever is greater, to be designated as the housing allownace.

Chaplain C's 2007 earnings were $35,000 and therefore $7,000 should be designated as the housing allowance. If you have any questions, please contact So and So at ####.

I called the number and they could not tell me anything except this is what they had been instructed to do by the State.

Has anyone else run across this or have any ideas as to what to do?

Do I make an adjustment for the $7,000 on his Federal and state income subject to income tax because normally the housing allowance is not subject to income tax but is subject to SE tax?

Do I "pretend" he received this $7,000 and subject it to SE tax? That makes no sense at all but I'm dealing with taxes.

Do I just say "oh that's nice" and do nothing?

Any opinions welcomed!!

I'm with Jainen on that. The PRIMARY home is the one that the kid goes to school from, and regardless of the fairy tales we all hear, it is just not practical for the kid not to have one primary home. Sure, he may then spend lots of the summer and break time with the other parent, and many weekends, etc. But there is always a primary home. And that should be the parent that gets the kid, unless that parent chooses to sign an 8332. Frankly, I think that is both legal and fair, because it's the parent that gets the kid up and to school, and helps with homework, etc, that deserves it, IMHO.

In many cases there is not a "primary home" and the children go to Mom's one week and Dad's the next so both are getting the kids up for school, helping with homework, etc. It seems this would be really hard on the kids, but they don't have a choice. Many times it's also very difficult to get the point across to your client, whether it be Mom or Dad, that in order to claim the dependent w/out the 8332 you must have custody > than 50%, and to add to it they have a divorce decree saying they can because they are current on child support. Now you have to explain the IRS doesn't care what the divorce decree says because it contains a contingency.

Honoring what's in the divorce decree is legal too, it's just a different court you have to settle in.

Also household employee, such as a babysitter.

A couple years ago my clients Federal refund was intercepted for attorney's fees- the fees were for a divorce lawyer. I don't know if it depends on State laws - this was in Wisconsin.

>>how do you challenge her filing<<

Regardless of who "files first," if the same SSN shows up on two returns both taxpayers will get a letter from the IRS asking for an explanation, which should be simple enough to answer.

Simple enough to answer but what are some examples of actual proof that the child was physically in the home? I have a similar case where grandparents have a teenager, how can thay prove that this child was physically in their home from mid February until late Novemeber?

ADESSA, Inc merged with KAR Holdings, Inc and stockholders received cash merger proceeds of $27.85 per share. My client had 1,000 shares and received a check in April for almost $28,000.

If the original stock was purchased in 1986 would this be a long term capital gain? If not how would you treat the cash merger proceeds received?