Question of the Month - Housing Allowance for Chaplains

Question of the Month - Question of the Month 2009

We are a nonprofit hospice care organization that is not affiliated with any religious organization or government entity.  We employ chaplains as part of our interdisciplinary team.  These chaplains are ministers of the gospel, duly ordained by their own church bodies.  The chaplains’ primary duty in their capacity as a chaplain for our organization is to provide spiritual counsel and care to our patients and their families and, on occasion, perform funeral services for patients after they pass.  These duties include the direct contact with the patient and patient families as well as the administrative activity of documenting these contacts in the patient files. I can find no where that the IRS defines “conducting religious worship or administering sacerdotal functions” nor the “exercise of his/her ministry”? Can these chaplains get housing allowances if the organization is will to set the aside each year?

First you would need a Valid Church Assignment of Minister May Qualify for Housing Allowance. Clearly, the church assignment must not be a mere formality but must be substantive and directly related to furthering the purposes of the church’s ministry.  For example, in Boyer v. Commissioner 69TC41 (1977) a minister obtained an assignment after he had been teaching at a secular state college and the core state of the assignment appeared merely proforma in that the church did not assign the minister for reasons that were directly related to accomplishing the purposes of the church. The court also pointed out that there was no contractual relationship between the church and the employer and the church did not negotiate with the employer as to the minister’s salary or duty in arguing against a valid assignment in this case.  Moreover, in Revenue Ruling 78-229 the IRS outlined circumstances where services of a minister will not constitute a valid assignment:

1. the organization for which the minister performs the services did not arrange with the ministers church for the minister’s services;
2. the minister is performing services for an organization that other employees of the organization who have not been designated are performing; or
3. the minister performed the same services before and after the designation.

The IRS gave further instruction in a private letter ruling where the IRS denied the housing allowance of a duly commissioned minister who was engaged in a counseling practice having obtained a letter of assignment from his church.  The church had provided a letter of assignment in which the church expressed its support for the minister’s counseling practice, its desire to support the minister and its counseling and endorsement of him through the counseling practice to further the efforts and mission of the church LTR 88-26-043 (July 1, 1988).  In that private letter ruling the IRS pointed out that they found no evidence that

1. the church specifically assigned the minister to perform such counseling services on its behalf;
2. the counseling service the minister performed directly furthered the purpose of the church;
3. the minister was performing services under or in connection with the church’s control and
4. his counseling practices were not primarily religious or spiritual in nature using the principals and teachings of the church.

Thus, under Boyer, Revenue 78-229 and LTR 88-26-043 the following questions concerning a valid assignment letter can be discerned:

1. do the services directly further the purposes of the church;
2. did the entity arrange with  the minister’s church for the ministers services;
3. are the minister’s services different from those performed by other employees who are not ministers;
4. did the ministers start with the assignment or quantitatively change after the assignment; and
5. did the minister perform these services under some degree of meaningful control by or accountability to the church

Apparently, the IRS will weigh and balance each of these factors in determining whether an assignment is substantive and not a mere formality and whether the evidence concerning a degree of accountability of the minister to the assigning church is sufficient.  The determination of an individual’s ministerial status depends primarily on the nature of the official recognition of the church or denomination and the extent to which an individual is recognized as a spiritual leader in his or her church or denomination.  However, the IRS applies a stricter analysis when an individual is licensed or commissioned as compared to when an individual is ordained.  For example, there is usually no question of ministerial status when an individual has been duly ordained by an official church body or denomination, but the question is more carefully scrutinized when the individual is either (1) only licensed, (2) only commissioned (3) ordained by an entity other than the church body or denomination or (4) not ordained, licensed or commissioned.  Under these circumstances the IRS applies a five-factor test to determine the status of the individual claiming a housing allowance or other tax benefit as a minister of the gospel:

1. does the individual administer sacraments;
2. conduct worship services;
3. perform services in the “control, conduct and maintenance” of religious organization;
4. “ordained, commissioned or licensed”; and/or
5. considered a spiritual leader by his or her religious body.

In Wingo v. Commission, 89TC922 (1987) the Court held that while the fourth factor “duly ordained commissioned or licensed” must always be present to qualify for a housing allowance, the other factors do not all need to be present, but will be weighed given the particular circumstances of each case.

Please refer to subscribers legal memo entitled “Ministerial Housing Allowances in Non religious Organizations” in the subscriber only section at www.nonprofitchurchlaw.org.