Retired Clergy housing allowance

[taxmandan]

I need a reference regarding the retired clergy housing not being subject to SE tax as mentioned in TTB, pg. 14-7. I just picked up a client whose previous returns have the housing allowance of his pension excluded from income tax BUT the cpa preparer subjected it to the SE tax. I've looked in the US Master Tax Guide but would like to have a cite for the exclusion from SE if someone has a moment to point me to something in the code, regs. or ???

Thanks and keep busy,

Dan

[rtsietsema]

See if this helps

Try the following reference for the IRS audit guidelines for ministers.

A retired minister may receive part of his or her pension benefits as a designated parsonage allowance based on past services. Trustees of a minister’s retirement plan may designate a portion of each pension distribution as a parsonage allowance excludible under IRC § 107. (Rev. Rul. 63-156, 1963-2 C.B. 79, and Rev. Rul. 75-22, 1975-1, C.B. 49) The “least of” rules should be applied to determine the amount excludible from gross income.

The retired minister may exclude from his/her net earnings from self-employment the rental value of the parsonage or the parsonage allowance received after retirement. The entire amount of parsonage allowance received is excludible from net earnings from self employment, even if a portion of it is not excludible for income tax purposes. In addition, the retired minister may exclude from net earnings from self-employment any retirement benefits received from a church plan. Rev. Rul. 58-359, 1958-2 C.B. 422.

[MAMalody]

See RR 63-156. It is also important to note that this is not available to the pastor's surviving spouse according to RR 72-249.

[taxmandan]

Thank you, those are what I was needing for reference. Much better than citing just a Pub or even TTB, every year theIRS sends a CP2000 saying the 1099R income was omitted on the return and a response must be written and I prefer to include appropriate cites for the exclusion.

Have a great tax season everyone!

[JohnH]

You should attach a statement to the return reconciling the 1099R against the H&U allowance. Photocopy the statement and the 1099R on the same piece of paper. I have been using this approach for many years and have never seen a return for a retired minister receive a CP2000.


Here is an example of the statement:

I received $ xx,xxx from (name of organization / retirement plan) as reported by the attached 1099R (photocopy shown below)

I did not include $ xx,xxx of this amount on Line 16b because it has been excluded under the provisions of Section 107 of the Internal Revenue Code as a housing allowance exclusion. As a retired clergyperson, I am entitled to take this housing allowance exclusion.

The remaining $ x,xxx was added to my other pension payments to arrive at the $ x,xxx of taxable pension income reported on Line 16b.

[taxmandan]

You should attach a statement to the return reconciling the 1099R against the H&U allowance. Photocopy the statement and the 1099R on the same piece of paper. I have been using this approach for many years and have never seen a return for a retired minister receive a CP2000.


Here is an example of the statement:

I received $ xx,xxx from (name of organization / retirement plan) as reported by the attached 1099R (photocopy shown below)

I did not include $ xx,xxx of this amount on Line 16b because it has been excluded under the provisions of Section 107 of the Internal Revenue Code as a housing allowance exclusion. As a retired clergyperson, I am entitled to take this housing allowance exclusion.

The remaining $ x,xxx was added to my other pension payments to arrive at the $ x,xxx of taxable pension income reported on Line 16b.

Thanks John, I was going to attach a statement just haven't composed it yet, this will make it easy, I don't know why the previous preparer didn't do that, it would keep the anxiety level of the client down not to get an IRS letter.

[ddoshan]

In our program you can code a 1099R distribution as for clergy. Then it generates additional information to provide. 1099R shows up on line 16b or whatever as say 15000 but the taxable portion will show say 6500 depending on the information provided in the return.
Point being does your tax program allow you to code the 1099R (C) for clergy. If so a lot will or should follow.

[ddoshan]

Sorry it is code H for type not C. Code H is for clergy retirement with housing allowance to account for.

[taxmandan]

My software doesn't have a distribution code for clergy, has a long list of various codes but not for this one.

[Burke]

The IRS 2014 Instructions for 1099R state that Code H is used in conjunction with Distribution Code 4, when you have a distribution from a decedent's retirement plan. There is also a mention of the use of this letter in the situation of a direct rollover of a ROTH (see page 10).

An article from the MMBB (Ministers and Missionaries Benefit Board) refers to a Private Letter Ruling from the IRS about designating all or a portion of the benefit as a housing allowance, and then proceeds to say "the box will show an 'X'") with an explanation at the bottom to show that it is housing allowance. I daresay most software programs do not have an" X" as a code, and it may not pass the efile checks. Everything I can find simply says the TP determines the taxable portion of housing allowance, if any, and reports that on Line 16b. Otherwise, he shows the gross on 16a and zero on 16b.

[Burke]

You should attach a statement to the return reconciling the 1099R against the H&U allowance. Photocopy the statement and the 1099R on the same piece of paper. I have been using this approach for many years and have never seen a return for a retired minister receive a CP2000.
.

I assume this is a paper return? How do you do this on an efiled return?

[JohnH]

Yes, all my returns are paper filed (I have a valid exemption). But even if I ever bite the e-flinging bullet, I would still paper file all clergy returns in order to handle the unusual nature of the exclusion and avoid the CP2000 conundrum.

[ddoshan]

The IRS 2014 Instructions for 1099R state that Code H is used in conjunction with Distribution Code 4, when you have a distribution from a decedent's retirement plan. There is also a mention of the use of this letter in the situation of a direct rollover of a ROTH (see page 10).

I was misleading again. In our program for 1099R distributions we have a listing under a category heading. Whether or not the pension is Federal, State, Military, an Annuity, etc. It is under this heading that clergy retirement with housing allowance is listed as category H. When you indicate that it is then you get to input other information as to how much of the pension constituted housing allowance. You do or are directed to fill out a clergy housing statement. The applicable housing allowance is then excluded from the total on the 1099R.
Sorry for being misleading or not clear.

[taxmandan]

I assume this is a paper return? How do you do this on an efiled return?

Attachments can be included on efiled returns in a .pdf format. Just did one for a Form 1310 attaching the designation forms for the personal rep for the deceased.

[Burke]

Attachments can be included on efiled returns in a .pdf format. Just did one for a Form 1310 attaching the designation forms for the personal rep for the deceased.

Yes, I have done this for forms. What about simple statements?