Minister in Jail

[Mike Mac]

I posted this question in August when there were not as many people viewing the website and got one opinion from Mike Malody. Now that there are more pros online during the tax season I thought I'd repost to see if there are other opinions around. (Mike's opinion was that the exclusion could NOT be taken due to the fact that the absence could likely not be viewed as "temporary").

A retired minister got a 3-5 year sentence and is now living in jail. Part of his church pension includes a Parsonage Allowance. He is married and his wife and one of his children still live in the home they have had for years. Is the family still allowed the housing exclusion (under IRC 107) even though the minister is incarcerated? A portion of the pension money still is used, as it was always used, by the family for the expenses of keeping the home.

I never ran across this before nor can find a definite answer as to if the minister must reside at the household in question. I did ask his wife to call the Pension Board to make sure that the minister had not been de-frocked due to his sentence. He still is getting his pension payments.

Thanks for any suggestions or cites you could pass on to me.

[JohnH]

This is a tricky one, and for the sake of his family I hope I'm on the wrong track. Hopefully someone will correct me if I am.

My understanding is that the ability to classify part of the pension as H&U allowance is definitely tied to the minister's physically living in the home (other than for temporary absences). For example, if the minister dies, then even if the joint life benefit was selected with the payment amount remaining exactly the same, the right to classify part or all of the pension as H&U allowance is lost.

So unless the incarceration can be somehow considered a temporary absence, I don't know how the family could exclude the H&U allowance. Maybe there's some basis for rationalizing that even an extended absence for serving a prison sentence could be considered temporary, since he plans to return to the home when he gets out. (Assuming that's the case)

[AccTaxMan]

I posted this question in August when there were not as many people viewing the website and got one opinion from Mike Malody. Now that there are more pros online during the tax season I thought I'd repost to see if there are other opinions around. (Mike's opinion was that the exclusion could NOT be taken due to the fact that the absence could likely not be viewed as "temporary"). .

I am just curious. Is the reason for him being in the jail tax related?

[DaveO]

I follow your line of rasoning JohnH.But in most cases the code defines temporary absense as one expected to last less than one year. Exceptions are kids away at college. The fact that the allowance isn't availalbe to a widow doesn't bode well for the wife and kids. You would think there would be a Tax Cort case out there.

[Mike Mac]

jail term

The reason for the incarceration was NOT related to taxes.

I have sent an email to the IRS question box. I will share the answer if I get one.

[tpnl]

Isn't jail a penalty?

Isn't jail a penalty? We know that we cannot deduct penalties/fines, right? So I would think the housing allowance would be disallowed also.

[erchess]

Another one I don't like

I tend to agree with John and Michael but I do have one suggestion. In many prison situations a person has to pay money for being in prison. Also in many if not most prison situations there is a prison store from which inmates may buy stuff. I wonder if any of that could be counted toward the housing allowance.

[JohnH]

Now THAT would be an interesting twist. Offsetting the H&U allowance against the costs of incarceratio. Wonder how his boss would weigh in on that one...

Mike: Please do let us know what you find out. The response might be useful in a general sense for other H&U-related questions, although hopefully not another case of a retired minister in the pokey.

[DaveO]

This is heresay and of course not a cite or anything. I was talking with an IRS auditor today and asked if he was well versed on clergy issues. I posed the question to him and in his belief the pension would qualify for exclusion as long as it was used to provide a home. He could see no requirement that the minister actually must reside in the home as long as it was used as a home by his family. He considered the 2-5 years to be a temporary absence. Again, take it for what it's worth.

[Mike Mac]

Interesting

Thanks for asking and sharing the response Dave. I'd guess my question sent to the IRS email address will take a little bit of time to get a response. The tax season is getting busier and it was not exactly a run-of-the-mill situtation.

Mike Mac

[DaveO]

You're welcome and please post the response from the IRS when you get it in oh, 6 months or so.

[JohnH]

This is heresay and of course not a cite or anything. I was talking with an IRS auditor today and asked if he was well versed on clergy issues. I posed the question to him and in his belief the pension would qualify for exclusion as long as it was used to provide a home. He could see no requirement that the minister actually must reside in the home as long as it was used as a home by his family. He considered the 2-5 years to be a temporary absence. Again, take it for what it's worth.

That's a bit of encouraging news.

[Mike Mac]

Bumping Back Up with the Reply from IRS

I promised that I'd share the reply to the question that I sent to IRS regarding this and the recent string of messages regarding their question area reminded me to do it:

NOTE: Thank you for your inquiry. Our response to your tax law question appears below. I hope this information has been helpful. If you have a follow-up question or another general tax law question, please return to our web site at: www.irs.gov.

Please do not use your "reply" button to respond to this message. More helpful information is provided at the end of this message.


Your Question Was:
A retired minister client has been able to take advantage of the Excess Housing Allowance-pension benefit designated under IRC 107 for the last number of years. He recently was convicted of a crime and sentenced to a long-term jail sentence (10 years). Although in prison, he gets sent his monthly pension which the church Board of Pensions still considers eligible for the Housing Allowance (from their viewpoint). His wife and children still live in the same home and use the pension for the same expenses as before the incarceration. The question is if can the exclusion still be taken? The prison is actually where the pension recipient lives and he does not have to pay for living there. But he actually uses the pension money for the upkeep of the abode of his family. He went to prison late in 2010 so we can probably view his 2010 absence as temporary for that year but need to know IRS s view point so I can do some tax planning with the family for future years.

Thanks for any help you can provide.


The Answer To Your Question Is:
Thank you for using our email service. We apologize for the delay in responding to your inquiry. We understand you want this service to determine if the retired minister is following the guidance of IRC section 107 with its related regulations, with regards to using his housing allowance for a home. In other words, determine if he can continue to exclude from income a designated housing allowance used to provide a family home, even though he is incarcerated for ten years. We do not have all the facts related to him or this dwelling, so we can not provide a specific response. We will provide general guidance to help answer your concerns for them. See our later >Note. As we both know, if you are a retired minister, you can exclude from your gross income the rental value of a home (plus utilities) furnished to you by your church as a part of your pay for past services, or the part of your pension that is specifically designated as a rental allowance. For purposes of IRC section 107, the term home means a dwelling place (including furnishings) and the appurtenances thereto, such as a garage. The term rental allowance means an amount paid to a minister to rent or otherwise provide a home if such amount is designated as rental allowance, pursuant to official action taken in advance of such payment by the employing church. Section 107 of the IRC and section 1.107-1 of the regulations use the term - home - in its ordinary meaning. There are no criteria that a minister's home be his main or principal home or any other specific definition. We do not find guidance on his specific situation. The regulations discuss the minister or retired minister who receives a housing allowance may exclude the allowance from gross income to the extent it is used to pay expenses in providing a home. The allowance can be used to rent a home, purchase a home, as well as for running a home (utilities, maintenance, mortgage payments, taxes, repairs, etc); it can not be excluded if used for other personal expenses like clothing, food, or servants. A rental allowance will be included in income to the extent it is not used by the minister to rent or otherwise provide a home. Accordingly, it appears the rental allowance paid to him may still be excludable from gross income to the extent he uses it to maintain a home and he considers it his home as well as the family home he continues to provide.
>Note: This service does not provide rulings on tax matters. This service is designed to assist the general public in complying with their Federal tax obligations. Further, with that goal in mind, due to the technical or complex nature of your inquiry we are not providing a specific response on your questions via this service. Because the facts and circumstances of each taxpayer are unique, this service will not be a judge of these facts for your client. You may want to seek official guidance from IRS. Private Letter Rulings (PLR), Technical Advice Memoranda (TAM) and Field Service Advice Memoranda (FSA) are taxpayer-specific rulings furnished only by the IRS National Office in response to requests made by taxpayers and/or Service officials. The procedures and user fees for obtaining a letter ruling are published annually in the first revenue procedure of each calendar year. The current procedures are in Revenue Procedure 2011-1 which can be found in Internal Revenue Bulletin 2011-1. This may be a way to have the matter officially reviewed by IRS, since it is quite important to him and his family. We hope this information clarifies the housing allowance, as best we can, for your client.