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Letters to the Editor

Clerical Error?

In article titled “Taxation of Clergy: Complex and Controversial” on page 9 of the April 1, 2007, edition of The Trusted Professional, I take exception with the authors’ definition of clergy. The authors state that, “an individual (i.e., clergy) must work for an IRS-recognized religious organization … that has filed Form 1023 for tax-exempt status and has been accepted as such under IRC §501(c)(3).”

However, IRC §508(c)(1)(A) exempts churches from the requirement to file Form 1023 (Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code).

While these organizations need not file an application, it may be advisable for them to do so. By filing, they can receive a determination letter from the IRS to show to potential donors that the organization is exempt from income tax under §501(c)(3). For example, certain potential donors may be hesitant to contribute funds to the organization without such a determination letter.
Such exemptions are deeply embedded in the fabric of our national life and have widespread acceptance beginning in colonial times and continuing after adoption of the First Amendment. Maintenance of religious tax exemptions is a paramount concern to church organizations.

Paul E. Hammerschmidt, CPA, PFS, MS
Locust Valley, N.Y.

 

I read with interest the article “Taxation of Clergy: Complex and Controversial” on page 9 of the April 1, 2007, edition of The Trusted Professional, but I believe that two clarifications are in order:

  • IRC §107 “Rental value of parsonages” states that a minister of the gospel can exclude the fair value of the home furnished by the house-of-worship or the rental allowance provided. When the housing allowance is unavailable, the clergy may exclude the actual expenses or the estimated fair value of the rental. The clergy may exclude the higher of the actual expenses or fair value of the rental, even if they own the house.
  • The exclusion from Social Security is not always based on the election of the clergy. Certain organizations elected to be excluded from Social Security when it was enacted in 1934. These organizations and their employees are not covered under the program. Clergy employees of opt-out organization who received a parsonage allowance are subject to self-employment tax on the parsonage amount only.

Yigal Rechtman, CPA, CFE, CISM, CITP
Brooklyn, N.Y.

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