I currently handle administration and assets for non-electing church pension and 401k plans for a national (small but growing) denomination. I have recently had several inquiries about information distributed by a firm in CO claiming that their plan design allows for all clergy distributions upon retirement to be classified as "housing expense" and therefore will be non-taxable income. This firm specializes in clergy finances, says that the large denomination plans do this and that they are the only place to get such a deal outside of the big churches. I've spoken with their retirement plan contact at the firm and he doesn't know any of the "legal stuff" that allows them to do this.

Can anyone give me direction in regard to case law, regulations, ltr rulings, anything that would allow this? I can find nothing at this point. I'm looking for any resource, including attorney, that would allow me to make design change recommendations if possible, or to find out if this a loophole not worth messing with.

Thanks!

A complex subject, to be sure.

From the "2004 Tax Guide For Episcopal Ministers & Churches"
http://download.cpg.org/pensions/publicati...ce_taxguide.pdf

"The IRS has announced that retired ministers are eligible for a housing allowance exclusion if the following conditions are satisfied:
1. a portion of a retired minister’s pension income is designated as a housing allowance by the church pension board of a denominational pension fund;
2. the retired minister has severed his or her relationship with the local church and relies on the fund for a pension;
3. the pensions paid to retired ministers “compensate them for past services to the local churches of the denomination or to the denomination.” Retired ordained ministers who receive benefits from the Church Pension Fund have all of their benefits designated in advance as a housing allowance, including payments received from the Church Life Insurance Corporation’s 403(b) plan. This is a very attractive benefit for retired ministers that is not available with some other kinds of retirement plans."

IRS Publication 517
http://www.irs.ustreas.gov/pub/irs-pdf/p517.pdf

"Designation requirement. The church or organization that employs you must officially designate the payment as a housing allowance before the payment is made. A definite amount must be designated. The amount of the housing allowance cannot be determined at a later date. If you are employed and paid by a local congregation, a resolution by a national church agency of your denomination does not effectively designate a housing allowance for you. The local congregation must officially designate the part of your salary that is to be a housing allowance. However, a resolution of a national church agency can designate your housing allowance if you are directly employed by the agency. If no part has been officially designated, you must include your total salary in your income."

Thanks. The CPF tax guide is particularly pertinent.