Monday, July 4, 2016

The strange world of autonomy and the clergy housing allowance

What a great country! Aside from a thousand other reasons, add our sacred clergy tax break the Housing Allowance which has and continues to give us a pretty good exclusion for a chunk of our cash pay. I'd speculate that the average Southern Baptist pastor is able to exclude around a couple thousand dollars a month from being reported and taxed under our income tax laws. I'm just guessing about the numbers. A pastor of an averaged-sized church with a stay-at-home wife and a few runny-nosed, exemptions , er...children, running around the house likely pays no income tax at all. 

I think the HA is secure for the foreseeable future, although there is a new legal challenge to it. I like it, use it, and think it to be a nice, modest, tax break that is appropriate and helpful.
But our world of autonomous churches makes for some interesting scenarios that arise over exactly who can qualify as a "minister" under the IRS rules on the matter. 

GuideStone answers the questions most of us have in their Commonly asked questions about minister's housing allowance. As to who is eligible for it, the Q & A says:
The Internal Revenue Service usually uses one of two tests to determine if a minister is a minister for tax purposes. The IRS normally uses the Wingo or Knight test. In deciding if a person is a “minister” for federal tax purposes, the following five factors must be considered: (1) the person must be ordained, commissioned, or licensed; (2) administration of sacraments; (3) conduct of religious worship; (4) management responsibilities in the local church or a parent denomination; (5) considered to be a religious leader by the church or parent denomination. In general, the IRS and the courts require that a minister be ordained, commissioned, or licensed, and then they apply a "balancing test" with respect to the other four factors. The more factors that a person satisfies, the more likely he will be deemed to be a minister for tax reporting purposes.
Here is where lawyers and CPAs make their money. Chase this as far as you want in legal cases and ruling but here's the simple version: You can decide for yourself (or your church for itself relative to its staff) who is a minister for tax purposes. But...the minister/taxpayer better be on pretty solid ground, as determined by the IRS, or face some bad and expensive news down the road. Because of that, GuideStone says if there is any question, you should consult with a knowledgable tax preparer or lawyer. I agree. Lest anyone isn't clear, this article isn't written by one of those.

The most of us are ordained, administer the ordinances ('sacraments' is one of those dirty words to us Baptists), conduct religious worship, have more management responsibilities in the church than we want, and are considered to be a religious leader by the church. Yes, yes, yes, yes, yes to the five IRS questions. Slam dunk. Exclude the income and don't look back (but do it right in regards to the church budget, designations, limits, and documentation or get slammed).

But what about other staff ministers? I have in mind church staff who are not the senior pastor but who exercise pastoral responsibilities. What about non-ordained but licensed staff? What about non-ordained but commissioned staff?

Good questions.

Our cherished autonomy puts every church in a position where denominational leaders, theologians, and entities are unable to dispense rulings that settle these matters. The ordination, licensing, and commissioning of individuals has not a syllable in the Baptist Faith and Message, which wouldn't interfere with churches' actions on these even if it did. A church may ordain, license, and/or commission anyone for any purpose in any manner they choose. What's this mean to the IRS? Nothing. The IRS will look at the five questions above. 

But this is the question that arises out of our peculiar circumstances: Would a woman church staff member qualify for a housing allowance?

If ordained and functioning like her male counterparts, almost certainly, yes. 
If unordained and not functioning like male staff members, almost certainly, no.
If unordained but licensed or commissioned (or even unlicensed or commissioned), maybe. Depends.

I see a lot of things today that I didn't see thirty or forty years ago. I see the ordinance of baptism being handed over to non-senior pastor church staff, no big deal there. But lately I see and hear of parents, grandparents, and even friends of the baptizee doing the actual dunking. Female staff members sometimes baptize candidates. Female staff members, sometimes administer the Lord's Supper, though not, perhaps, to the entire church assembled, rather to a smaller sub-group of members. Female staff certainly manage church matters and conduct worship, including the, uh, talking part though most commonly to sub-groups within the congregation.

What is to prevent a conservative, loyal, cooperative Southern Baptist church which has the view that from licensing or commissioning a woman staff member and that staffer being paid in an equivalent manner to her male counterparts? Nothing, of course, although my guess is that the majority of Southern Baptists would consider ordination to be the break point in this. No ordination - no housing allowance. No ordination - you really aren't considered a spiritual leader by the church. But that is up to the church, not the denomination. So, about that female staff member...

She is licensed, or perhaps commissioned in whatever formal manner the congregation chooses.

She administers the ordinances. Seems to me that one baptism, or one service (could be a women's gathering) of the Lord's Supper would demontrate this.

She conducts religious worship. Might be any or all of the congregation in most any fashion.

She has management responsibilities. 

She is considered to be a religious leader by the congregation.

She meets the IRS tests. She should be able to arrange her compensation to include the housing allowance if she so chooses. 

But, seems a number of SBC congregations, I read, are way ahead of me on the matter and have taken steps to qualify and give their female staff the housing allowance. If they are doing the same work (music, student ministry, discipleship, missions, preschool, etc.) that their male counterparts do, it is shameful if such is denied to them. The minister's housing allowance is a tax break, not a doctrinal standard.

Notably, no SBC entity - not Guidestone, not my state convention, seems to address this directly.

Perhaps they should.

1 comment:

Robert Baty said...

It's almost as if you are taunting me, Plodder!

I think the referenced standard is a bit disingenuous, or at least a little misleading.

I haven't been keeping up to know if there has been any substantive changes. I don't think there have been any.

Here's one point I take exception to. Your reference states:

"(4) management responsibilities in the local church or a parent denomination".

I don't think that is an honest or accurate statement of the standard.

What is allowed by IRS administrative decisions is a lot broader than that.

For instance, if the basketball coach at Pepperdine University registers as a "minister" and happens to be a "minister" because he belongs to a church that believes in the concept of the "priesthood of believers", then he can have the income tax free benefit.

Why is that?

Because the IRS administratively considers Pepperdine, last I heard, to be operated as an "integral agency" of the church and so any "ministers", or just about any despite the duties they get paid for, on the payroll can claim the benefit.

Yes, that's still one of my pet peeves!

Mr. Pepperdine didn't want his school being under any church control or to be an agency of any church, and he set it up that way and it's been run that way. Alas, for political reasons the schoolmen and the IRS made a deal to pretend that it is an "integral agency" of the church.

And there may be 1,000's of similar organizations whose employees are exploiting the allowance and Congress, the President, and the IRS is doing nothing about it.

At least the FFRF is trying to do what they won't do about it.