Church and unrelated business income

[sali]

Church buys 13 acres to build a church building. The 13 acres has a house on the property. The minister lives in the house and is charged rent of $1,000 per month. The minister does not receive a housing allowance. Is this rental income unrelated business income? If so, does the church have to file a tax return? I also wonder why the minister doesn't donate the $1,000 per month to the church as a charitable contribution and write it off on Schedule A instead of paying rent. Couldn't the church reclassify $1,000 of his pay as parsonage expense and have him pay social security on it, but no fed income tax? Thanks in advance.

[taxmandan]

I also wonder why the minister doesn't donate the $1,000 per month to the church as a charitable contribution and write it off on Schedule A instead of paying rent.

I've never been able to wrap my mind around the nuances of minister tax issues so can't help you much. But I don't see where he could make a charitable donation if he is receiving something in return, ie housing for 'free', I doubt the IRS would accept that premise.

[Chief]

Church

Sali, The church has to determine the housing allowance in advance and designate it at a business meeting. Sounds like they need a tax accountant on their board. See IRS Publ 517 and denominational guides. or the Taxbook.
By the way where in SC are you? I am from Union.

[DaveO]

The church and the minister should take advantage of the liberal housing allowance rules. The minister would enjoy a tax free benefit and the church would avoid the UBTI problem.