The Internal Revenue Code has a long history of favorable tax treatment for “ministers of the gospel”. I do not prepare income tax returns for ministers or churches, but there is a good summary of the rules in a December 2005 article in the CPA Journal.
UPDATE: See Below
Here are some of the special privileges:
A church is able to provide their minister with a housing allowance – which is not subject to income tax – to pay for mortgage, property taxes, insurance, utilities, and upkeep of his home. However, the mortgage interest and property taxes that are normally deductible on his tax return can still be deducted even if they are included in the non-taxable housing allowance.
A minister is also treated differently for Social Security and Medicare. The full compensation, both their salary and the housing allowance, are treated as subject to self employment tax. This means that rather than the employer (the church) paying half and the employee (the minister) having half deducted from their check, the minister is liable for the full 15.3% (less deductible expenses).
A minister can, however, opt out of the social security system. If he asserts opposition to the acceptance of public insurance payments for retirement, disability, death, or medical care, then all compensation is excluded from self employment tax.
Confused yet? Then let me give you an example:
Suppose that a church compensated its minister a salary of 23,000 plus a housing allowance of 33,000. Now suppose that at least $20,000 of the allowance went for mortgage interest and property taxes (or even less if he had a wife or kids). Since the housing allowance is not subject to income tax and since the itemized deductions (and exemptions) offset the salary, the minister would pay no income tax.
The minister would also have the option of paying no Social Security or Medicare and thus would pay nothing in taxes.
To compare this tax-free $56,000 to compensation for, say, an administrator of a secular counseling referral service, a comparable salary would be about $72,000.
Obviously there is a huge advantage for both the minister and the church. So there is a great incentive for a church to pay its employees as “ministers of the gospel”, especially when seeking to maximize the impact of your limited funds.
Therefore the IRS has a fairly rigid definition of “minister”. Simply being religious or “in ministry” or even being an employee of a legitimate church is not enough. The Tax Court in 1987 set down a list of five attributes of a minister:
* Performing sacerdotal functions;
* Conducting worship services;
* Controlling or maintaining the organization;
* Considered a spiritual leader; and
* Ordained, licensed, or commissioned.
While these are not tick-box definitions, they do lay out a pretty good understanding of what the IRS recognizes as a minister. The IRS is not amused by those who seek to avoid taxes by falsely claiming to be a minister.
There can be legitimate debate as to whether the tax code should be as it is. It is true that most ministers perform a great deal of good to their parishioners and to their community at large. It is also true that most ministers operate from very limited resources and often put the care for the poor and needy as a far higher priority than their own personal comforts. But others can point out the separation of church and state is a principal that is incompatible with preferential tax treatment based on religion.
The objective of this thread is not to debate whether the tax code should be changed, but to instead discuss whether the lead ex-gay ministry is in compliance with the law:
Is Exodus International complying with the Tax Code?
Exodus’ 2004 tax return clearly indicates that Alan Chambers receives a “minister housing allowance under Section 107 of the Internal Revenue Code”. But does Exodus behave in a manner that could be considered a church or could need a minister? Exodus lists four programs which they perform:
* The annual conference to train ministers
* Various educational programs and publications
* Referral and counseling
* Grants to other organizations
None of these activities appear to be similar to the traditional functions performed by a church. None of these appear to be eligible for the preferential tax treatment as intended by the Internal Revenue Code.
But even supposing that Exodus could convince the IRS that it is a church, would Alan qualify as a “minister of the gospel”? Alan does not appear to regularly conduct church services or have a congregation. He does not regularly perform sacraments nor would he be considered to be the spiritual leader of any church body.
The CPA Journal suggests that Alan would not qualify:
Ministers claiming a housing allowance have the burden of proving that their duties exemplify those of a minister in their faith. Those with extensive counseling or administrative responsibilities would not qualify as ministers under the Tax Court’s ruling in Haimowitz. … Thus, administrators and counselors would typically fail to meet at least three of the five factors specified in Wingo. These employees would not qualify as ministers under IRC section 107 without a preponderance of other duties that exemplify those of a minister.
Perhaps a tax attorney with a strong familiarity with the provisions relating to ministers can clarify why Exodus could treat Alan as a minister for tax purposes. But it appears to me personally that Exodus may be in violation of the Internal Revenue Code.
MEANWHILE (update)
Another “minister” has discovered that the IRS is not amused by tax fraud. Kent Hovind operated a theme park called Dinosaur Adventure Land in Florida where he championed creationism and disputed evolution by offering “proof” that dinosaurs and people lived together. Hovind also did not pay employee taxes.
Kent Hovind is accused of failing to pay $473,818 in federal income, Social Security and Medicare taxes for employees of his Creation Science Ministry between March 31, 2001, and Jan. 31, 2004.
The ministry includes Dinosaur Adventure Land, a museum and a science center.
The indictment alleges Hovind paid his employees in cash and called them “missionaries” to avoid paying payroll and FICA taxes.
Hovind’s responses suggest a less than penitent or truthful attitiude
When asked where he lived, Kent Hovind replied, “I live in the church of Jesus Christ, which is located all over the world. I have no residence.”
He called his home on Cummings Road, which backs Dinosaur Adventure Land, a “church parish.”
However, the mortgage interest and property taxes that are normally deductible on his tax return can still be deducted even if they are included in the non-taxable housing allowance.
The above seems like it couldn’t possibly be true but it is. My father and brother are both ministers a take advantage of this. In my mind its double dipping – not only do they deduct the housing allowance but turn around and deduct the mortgage interest again. I looked it up (I’m a CPA – but not in tax practice) and it really exists.
It seems the loophole came as a result of tax relief for Cathloic priests who were being taxed on the housing benefit they received. They recieved the benefit (normally taxable) but were allowed to deduct it in total.
In the last 30 years, protestant demoninations have moved away from the church owned parsonage – possibly because someone smart realized they could, in essence, increase their minister’s take home pay with a generous housing allowance.
This is an area where there is alot of tax fraud, and the IRS doesn’t generally like to tangle with churches.
According to page 15 of Form 990, Exodus donated $10,000 to Liberty University, $2,000 to Alan Chambers’ own church Calvary Assembly, and $1,000 to each of the following antigay political organizations:
Liberty Counsel
Campaign for California Families
Massachusetts Family Institute
Why is Exodus donating to Jerry Falwell, who also happens to be a keynote speaker for Exodus?
Why is Exodus “donating” to the wealthy lawyers group that not-so-coincidentally sues pro-tolerance and ex-exgay organizations on Exodus’ behalf?
And why is Exodus donating its impoverished member ministries’ annual fees and anguished parents’ conference fees to discriminatory antigay political organizations?
Also, the $56,000 given as Alan Chambers’ compensation does not include thousands of dollars in honoraria (speakers’ fees) that Chambers likely collects for speaking at fundamentalist and antigay political events.
There are people out there who are involved in religion because they believe in that religion. They are good, faithful people who live their lives as examples for others, who show us how wonderful faith can really be for those that believe.
Then there are the others. Some are political hacks who intuit that they can convert religious authority into secular authority. Others are in it for the money, knowing they can build a great empire off the donations of others if they use religion and god just the right way. Many of these people know what they are doing, using faith for secular power, while others convince themselves they really are doing it out of faith and all the power, all the wealth, are just ‘God’s Reward’.
True people of faith look at the law and do their best to respect and obey those laws. How could they do any different? Faith requires obedience.
The charlatans, those who wear their faith on their sleeve and don’t let it anywhere near the heart, see the law as something to twist and abuse they way they twist and abuse their followers. They will find every loophole in the law, they will stretch the definitions of the law, until they believe they can get away with squeezing a few more pennies, or a few more political prestige points out of the people.
AFA, TVC, other big christian groups and their shill organizations like Exodus have shown over and over they are more interested in pushing a socio-political agenda and acquiring material wealth than really spreading the word of God. I wish I could say I was outraged at this perspective of Exodus’s raping of the tax code, but it is par for the course.
I believe that their viewpoint of gay people having no morals comes from looking back at their own lives. They are people of little or no morals (even to this day), and don’t see how other people could have morals when morals are so absent from their lives.
Dan Kirk said:
I believe that their viewpoint of gay people having no morals comes from looking back at their own lives. They are people of little or no morals (even to this day), and don’t see how other people could have morals when morals are so absent from their lives.
We’ve touched on his before and it bears repeating. In fact, it should be engraved on the door at Exodus. Ex-gays do penance for their reprehensible lives by persecuting other gays for simply existing. Many get paid for doing just that.
What perhaps disgusts me the most as a Christian is that they drag my God into it as a supposed co-conspirator, thereby not only causing grief among innocent people, but causing unwarranted hatred toward Him. If they want to stir up a market for their snake oil, let them leave God out of it.