One of our staff pastors is insisting that our congregation designate a housing allowance for him even though we question whether he is a “qualified minister.” Can he demand we do this or is this up to the church to decide?
The employing church determines if an individual is a “qualified minister” and, therefore, eligible for a housing allowance designation. Ultimately, the IRS has the authority to decide if the individual is a “qualified minister” and thus eligible for the housing exclusion on their Form 1040. But the church decides whether to designate the housing allowance. The individual is not in a position to demand a housing allowance designation—the employing church makes this decision based on its own policies and procedures.
There are several factors in making a determination about whether an individual is a “qualified minister.” These factors are dependent on the type of employer, i.e., local church, denomination, parachurch organization, etc. In the local church setting, only one factor is crystal clear—the individual must by ordained, licensed, or commissioned.
Based on recent IRS examinations and court cases, we can observe that a balancing approach is used with respect to the other four qualifying tests (while the 1987 Wingo case required meeting all of the following four tests, the 1989 Knight case and the audit guidelines issued by the IRS relative to their Market Segment Specialization Program do not require that all four of the following tests be met):
- administers sacraments (such as performing marriage and funeral services, dedicating infants, baptizing, and serving communion);
- whether the individual is considered to be a religious leader by the church;
- conducts religious worship;and
- has management responsibility in the control, conduct, or maintenance of the church.
A “balancing approach” means that some but not all of the above four tests must be met. Based on IRS and court action, meeting two or three of the tests is often anticipated to achieve “qualified minister” status. In the Knight case, it appears the minister met three of the four tests. In a 2003 letter ruling (200318002), the IRS clearly stated that a minister must meet at least two of the above four tests (in addition to being ordained, licensed, or commissioned).
So, it seems, at a minimum, a church should require, in addition to ordination, licensing, or commissioning, that an individual meet at least two, and perhaps three, of the above four tests. As mentioned above, it remains up to the church to determine whether two, three, or all four tests are required by the church.
Dan Busby is a certified public accountant, president of the Evangelical Council for Financial Accountability (ECFA), and the author of the Zondervan Clergy Tax & Financial Guide.