In practice, do qualified pension plans covering clergy designate a portion of benefits as a housing allowance under Code Section 107? Rev. Rul. 75-22 is favorable but doesn't deal specifically with a qualified plan. The IRS won't rule on the issue. What do your clients do?

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Patrick J. Foley
Foley & Foley
415-399-0907
pjfoley@foleyfoleylaw.com

Since the purpose of the parsonage allowance is to make what would otherwise be taxable compensation become non-taxable it simply accomplishes something similar to what a retirement plan contribution does. I do not think the designation of a qualified plan contribution as a parsonage allowance is either possible or necessary.

The parsonage allowance does reduce compensation for purposes of calaculating the allowable qualified plan contribution. I have run into this involving 403(B) plan of a seminary. Both the 415 limit and the Maximum Exclusion Allowance is reduced and can make getting a contribution problematic.

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Are you certain you can't get a PLR on that issue? Our firm got one on this exact point, although I must admit it was pre-ERISA.

I will reply to your question, as well as comment on the responses to it posted on the message board. I think, from your question, you are talking about claiming housing allowance on benefits paid out rather than contributions going in. If that's not correct, let me know, and I'll address the contribution issue, too.

You will notice that Rev. Rul. 75-22 mentions a 1963 ruling that established the basic principle that housing allowance can be claimed on deferred compensation. The 1975 ruling is, in my opinion, an extension of this basic principle to a retirement plan sponsored by a national denomination. You are correct that the 1975 ruling doesn't indicate that the plan involved was a qualified plan. However, I believe that the type of plan is not the key--the issue is whether the compensation that is deferred was earned with respect to services that are considered to be the exercise of ministry, as defined in the Code (principally in the SECA tax regulations).

So, it is my view that housing allowance can be declared by a church or denomination from payments of deferred compensation from all types of retirement plans (section 401(a), 403(B), etc.). I'm aware of denominational benefit programs, both 401(a) and 403(B), for which this has been long-standing practice.

On the issue of getting a ruling on the availability of housing allowance on retirement benefit payments, you are correct that the Service will not rule on this issue. For some time now, back to the mid-80s, I believe, the Service has been in a no ruling posture while it is ostensibly is studying the area. As I recall, the Service announced this position after a tax case was concluded against a well-known television evangelist in which housing allowance on retirement payments was an issue. For whatever the reason, rulings cannot now be obtained on issues involving housing allowance on retirement payments.

Hope this helps.

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Danny Miller
Conner & Winters
1050 17th St., N.W.
Suite 810
Washington, D.C. 20036

(202) 783-5711
dmiller@cwlaw.com

I have a slightly different twist on this question-

If a pastor designates a portion of his current "W2" income as housing allowance, is that considered compensation for retirement plan calculation purposes?

In other words, if the church board states that each pastor is to receive a 6% of pay retirement contribution, would you calculate the 6% based upon gross pay (including the housing allowance), or would you calculate it using net compensation (excluding housing allowance)?