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Sch C Traveling Evangelist - Housing Allowance


BulldogTom

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Taxpayer is a traveling evangelist.  Travels from Church to Church setting up ministries.  Ordained.  All of his income from this activity goes on his Schedule C. 

If he was an employee of a church, he would be able to designate a portion of his income for housing allowance.  As a self-employed person, is he eligible for the same treatment?

Thanks

Tom
Newark, CA

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Tom, is he doing this for a specific denomination?  And if so, what group sends him out?   If there is some religious organization that arranges his travels, that organization may be able to designate an amount, but otherwise, no.  

From Pub 517

Designation requirement. The church or organization
that employs you must officially designate
the payment as a housing allowance before
it makes the payment. It must designate a
definite amount. It can't determine the amount
of the housing allowance at a later date. If the
church or organization doesn't officially designate
a definite amount as a housing allowance,
you must include your total salary in your income.
If you are employed and paid by a local congregation,
a resolution by a national church
agency of your denomination doesn't effectively
designate a housing allowance for you. The local
congregation must officially designate the
part of your salary that is a housing allowance.
However, a resolution of a national church
agency can designate your housing allowance if
you are directly employed by the national
agency.

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Here is the thing.  He gets contributions from a variety of sources, kinda like a missionary does.  Some of the churches he goes to give him a monthly support amount on a regular basis, some on a one time basis.  There are about 3 organizations (his home church, the organization that he is loosely working under, and another church that he does not attend) that make up the bulk of his income.  But those amounts are not guaranteed, it is just a payment like they would do to a missionary.

There is a blurb in Pub 517 about traveling ministers and their housing.  From what I read, the donor organizations possibly could designate a portion of their contribution to him as housing allowance provided they did it before the beginning of the tax year.  But I am not sure.

Thanks

Tom
Newark, CA

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4 minutes ago, BulldogTom said:

There is a blurb in Pub 517 about traveling ministers and their housing.  From what I read, the donor organizations possibly could designate a portion of their contribution to him as housing allowance provided they did it before the beginning of the tax year. 

Exactly !   If they do that, in advance, he can take it.  If they don't, he can't.  

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I found two articles that might help.  The quote from Pub 517 in KC's first post seemed to agree with me on the need to be an employee, I think.  (Use of the word employ.)  Anyhow, these are not exactly from the horse's mouth, but they might get your there.

http://www.freechurchaccounting.com/housing-allowance-for-evangelists.html

http://churchlawgroup.com/resources/blog/are-traveling-evangelists-entitled-to-a-housing-allowance/

Although I didn't see your issue addressed (but I may have missed it), I thought this document from Guidestone would be an excellent thing to give to churches and clergy:

https://www.guidestone.org/~/media/GuideStone%20Corporate/Ministry%20Tools/2166_MinTaxIssues%20pdf.ashx

 

 

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19 minutes ago, MAMalody said:

Traveling evangelists are entitled to a housing allowance exclusion if they maintain a permanent home and have local churches in which they conduct religious meetings declare, in advance, a portion of thier compensation as a housing allowance.  See RR 64-326.

Thank you Mike. 

Does that mean "in advance of the tax year" or "in advance of the payment"?  For example, could a church contact him in May to do some ministry at their church, and designate a portion of a one-time payment of support as housing allowance?

Tom
Newark, CA

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4 hours ago, MAMalody said:

Traveling evangelists are entitled to a housing allowance exclusion if they maintain a permanent home and have local churches in which they conduct religious meetings declare, in advance, a portion of thier compensation as a housing allowance.  See RR 64-326.

That was a great reference Mike. Your expertise in Clergy Tax a is great Blessing to this board!

Per Rev. Rul. 64-326 :
A day or two before concluding his services, B meets with authorized
officers of the host church to determine the amount of compensation he will
receive. It is customarily agreed at that time that a portion of B's
remuneration will be designated as a `rental allowance.'

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  • 3 years later...
On 2/20/2016 at 11:33 AM, RitaB said:

No, he'd had to be an employee. 

"A licensed, commissioned, or ordained minister may be able to exclude from income the fair rental value of a home (a parsonage) or a housing allowance provided as compensation for ministerial services performed as an employee."

https://www.irs.gov/taxtopics/tc417.html

Rita,

I know this is a really old post, but I just wanted to say, thank you.  This has been a horrible thing to try to research as all the keywords you need, "Schedule C," "Housing Allowance," etc. are in all articles you don't need.  How I missed the word "employee" on that page, I don't know.

The situation I was researching is an ordained, Board Certified Pastoral Counselor, running a practice as a sole proprietor and reporting on a Schedule C.  A Form 4361 has been approved by the IRS, so none of the income from that Schedule C passes to the Schedule SE.  The challenge was how to take the Housing Allowance.  To my way of thinking, it would perhaps report on Line 27 of the Schedule C so it would reduce the AGI, but I just couldn't seem to find a way to trigger the forms needed in the software without entering the allowance from a W-2.  I was hopeful the Schedule C practice should be able to designate the allowance.  Your post is the first thing I've seen to give a good reason why I can't seem to make it work.

If any of you have any additional insight, please share.

Thanks again. 

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7 hours ago, MacGyver said:

Rita,

I know this is a really old post, but I just wanted to say, thank you.  This has been a horrible thing to try to research as all the keywords you need, "Schedule C," "Housing Allowance," etc. are in all articles you don't need.  How I missed the word "employee" on that page, I don't know.

The situation I was researching is an ordained, Board Certified Pastoral Counselor, running a practice as a sole proprietor and reporting on a Schedule C.  A Form 4361 has been approved by the IRS, so none of the income from that Schedule C passes to the Schedule SE.  The challenge was how to take the Housing Allowance.  To my way of thinking, it would perhaps report on Line 27 of the Schedule C so it would reduce the AGI, but I just couldn't seem to find a way to trigger the forms needed in the software without entering the allowance from a W-2.  I was hopeful the Schedule C practice should be able to designate the allowance.  Your post is the first thing I've seen to give a good reason why I can't seem to make it work.

If any of you have any additional insight, please share.

Thanks again. 

Thank you as well, MacGyver, I've not had a Sch C clergy with housing allowance, but I would say entering the legitimate HA on Sch C would not be correct because that would reduce income for SE purposes.  I know your client does not pay SE tax, but others do, so Sch C would not be the place.  In thinking how to reduce income for income tax purposes only, my first thought is to enter the HA on what used to be Form 1040, Line 21.  (I think it's on a Schedule for 2018 but still Line 21.)  Others in this thread have dealt with this, and they'll know more than I do about this one. 

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That's a really good point.  

I think it gets adjusted for those who are not 4361 over on Part II of the Schedule SE Adjustments Worksheet and then transferred accordingly.  It looks like Turbotax places "STMT" next to one of the SE lines, and adds a Statement after the form.  That might allow it to be placed on the Schedule C, but I think the real question would be is it allowed?  If we are to read Topic 417 to the letter, it says "employee," though it isn't written that way in Pub. 517.  Are tax topics binding?

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I have referenced my 2019 Church and Clergy Tax Guide and it may provide the answers you seek.  There is just too much for me to write here but my browsing inclines me to believer that, without a relationship to a church and/or performing sacerdotal functions, he is not permitted an excludable housing allowance. 

In the section titled Counselors, all examples were as employees.  Only one was allowed a housing allowance exclusion as he was employed by a nonprofit religious organization not associated with a particular church but spent a majority of his time 'in performing service in the conduct of religious worship or the ministration of sacerdotal functions, such  service  in the exercise of his ministry...' The other two examples of counselors, both employees (nonprofit pastoral counseling center and organization the promoted recovery through spiritual ministration and counseling) provided indicated that only about 5% of the 'taxpayer's working hours are spent performing duties such as the conduct of religious worship or the performance of sacerdotal functions...'  IRS rejected excludable housing allowances for the latter two.

I don't know if this helps or totally confuses you.  I would not attempt to justify a housing exclusion given your description.  I also suggest that you reread the Exempt earnings portion of the instructions for Form 4361.  If this counselor is not performing sacerdotal functions and is filing Sch. C, he may well be subject to SE tax.

You might want to contact, for example, churchlawandtax.com and maybe get a copy of this tax guide or other similar organizations.  If you expect to have clergy clients of any type, I suggest good resources to be educated and support your decisions. Good luck!

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1 hour ago, MacGyver said:

That's a really good point.  

I think it gets adjusted for those who are not 4361 over on Part II of the Schedule SE Adjustments Worksheet and then transferred accordingly.  It looks like Turbotax places "STMT" next to one of the SE lines, and adds a Statement after the form.  That might allow it to be placed on the Schedule C, but I think the real question would be is it allowed?  If we are to read Topic 417 to the letter, it says "employee," though it isn't written that way in Pub. 517.  Are tax topics binding?

Oh, I thought you had already determined that he had a legitimate HA exclusion and were asking how to report it.  No, tax topics are not binding.  Yes, absolutely, if you're not sure he's entitled to an exclusion for HA, by all means determine that first.  In addition to the points Margaret made, the payer had to designate the HA prior to paying it.

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Thanks for all the input.  Unfortunately there just isn't a lot out there for this type of scenario.  

The first part being that the taxpayer is a pastoral counselor.  His ability to practice within the state laws is based on the fact that he is ordained clergy.  Without that, he would not be able to provide marriage counseling under the provisions of the law.  

The second issue being the Schedule  C.  

It would seem that to take the housing deduction he would likely want at the very least to form an entity, put the housing allowance in the annual minutes, and receive a W-2.  As for the 4361, I made sure we used SIC 866108 on the Schedule C so there is complete transparency.  I'll keep you updated.

Thanks again for all your willingness to help.

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7 hours ago, Catherine said:

Oh, good, it's not just my office that still talks about "Line 21 income"!

 

3 hours ago, Lion EA said:

And, line 10 refunds, and what are we going to do next year when they redesign the forms and renumber?!

 

Dear Lord, just let them go back to the forms we know.  Amen.

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When I went through school in 96 we had to do all the forms by hand in pencil so that you really learned how a change on this line of this form affects things on that form.  I can't even imagine trying to do that with this new I'll be nice and say, "stuff."  I'm doing good to know what the schedules are now.  What was that about the Paperwork Reduction Act???? 😉

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