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There are at least three possible
answers to the question of who is the employer of a Presbyterian
church pastor. Although many ministers are uncomfortable using
secular terminology to describe their working relationships, it
is assumed in this paper that one uses secular categories in responding
to lawsuits in secular courts.
Some ministers would argue that in secular terms a minister
of Word and Sacrament is a self-employed professional. This
is how ministers are considered for purposes of the Self-employment
Contributions Act and of Federal income tax withholding. It
is also consistent with some theological doctrine of the minister's
call and accountability to Jesus Christ. The minister, in this
view, is a completely free agent, and therefore there is no
employer to be held liable for the minister's actions.
The Reformed doctrine of the minister generally, and the provisions
of the Book of Order at G-6.0201 and throughout, exclude
this notion of the minister as a free agent. The work of a Presbyterian
minister must be carried out in accountability to the presbytery
and to organizations, agencies, and institutions, G-11.0403d,
and when the minister serves a congregation, to the session.
The presbytery has responsibility and power to ordain, receive,
dismiss, install, remove, and discipline ministers, G-11.0103n.
Acting as a whole or through its committee the presbytery examines
ministers, G-11.0402, advises congregations regarding any candidate
or minister whose name is contemplated for nomination to the
congregation, G-11.0502d, and approves the calls of ministers
to their positions, G-11.0103n.
The minister is a member of the presbytery and is subject to
review by the presbytery according to criteria established by
the Presbyterian Church (U.S.A.), G-11.0403. In addition, the
presbytery has a responsibility to visit sessions and inquire
into the mission and ministry of the congregation, and to intervene
in disputes between ministers and churches, G-11.0502.
Due to these functions by the presbytery neither the session
nor congregation has complete authority to hire and fire. For
these reasons, it could be argued that the presbytery is the
employer of the minister. More will be said about the relation
of the presbytery to the session and the minister following
discussion of the session and minister.
The third possibility, which is the advice being given here,
is that the session is the employer of the pastor and other
ministers on the church staff.
The Internal Revenue Service uses a "common law employee test"
to determine whether sufficient control is present to establish
an employer-employee relationship. Descriptions of this test
as applied to ministers are found in Abingdon Clergy Income
Tax Guide (Abingdon Press), and Church and Clergy Tax
Guide (Christian Ministry Resources). The question there
is whether the minister is to report income as an employee or
as self-employed.
This test is also useful for considering who is the employer
of a Presbyterian pastor. The factors are not all equally applicable
to the relationship of minister, session, and presbytery.
Ignoring for this purpose certain distinctions among session,
congregation, and trustees, such as the election of the minister
by the congregation, the most significant factors are:
The minister does not own and control the workplace
and its furnishings and equipment.
Although the minister determines the content of preaching
and teaching, the session makes all major program decisions
and schedules the times facilities are available.
The session determines the personnel policies and job descriptions
of staff. The authority of the pastor to hire and fire others
exists only by delegation from the session and may be very
limited.
The minister generally works exclusively for one or two congregations,
is paid a salary and expenses, and is not continually marketing
professional services to an unlimited clientele.
Although sessions are typically lax in requiring detailed
reports of the pastor's work, there is no question that reports
may be required. Relationship of the pastor and session in
all areas of the congregation's worship, program, and pastoral
care is a continuing exchange.
Means and methods are not precisely controlled as in assembly
line work, but the use of the minister's time in leading worship,
teaching, visiting, counseling, and community service is subject
to evaluation by the session if the session chooses to do
it.
The relationship of the presbytery in all of these areas is
one of providing consultation and guidance, and ultimately,
of dispute resolution with a right to intervene. The presbytery
is not continually involved in the administration and supervision
of ministerial personnel, and under G-11.0103s of the Book
of Order, is not permitted to intervene in the powers of
the session without good cause.
On this analysis, the session's responsibility for the mission
and government of the particular church, G-10.0102, makes it,
for secular law purposes, in the day-to-day work of the church,
the employer of the pastor and other ministers. The presbytery's
relationship of oversight and evaluation of both the minister
and the session makes it a partner with them. |
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This is in response to your August
13, 1997, request for a private letter ruling submitted on behalf
of X. Additional information was submitted on November 6, 1997,
March 31, 1998, and August 3, 1998. A conference was held on February
24, 1998.
Facts
The Church is a well-established worldwide Christian denomination
that is organized pursuant to the tenets, social principles,
constitutional provisions, and legislative enactments contained
in its Governing Document. The Governing Document is the fundamental
book outlining the law, doctrine, administration and organization,
work and procedures of the Church. The Church operates via a
connectional structure maintained through a chain of conferences.
The highest level of authority is the National Conference, which
meets quadrennially to discuss issues of concern to the Church.
The National Conference is comprised of one-half laypersons
and one-half members of the clergy. Generally, each National
Conference amends the Governing Document, and those amendments
are reflected in the quadrennial revision of the Governing Document.
Although subject to certain restrictions, the National Conference
has the full authority, among other things, to define and fix
the powers and duties of the members of the ordained clergy
of the Church, and the Governing Document includes the rules
applicable to ordained members of the clergy.
The basic organizational bodies of the Church are the Regional
Conferences. Each Regional Conference within the United States
includes the local churches of the Church within specific geographic
boundaries. The membership in each Regional Conference includes
clergy, laypersons, and diaconal ministers. Clergy members in
the Regional Conferences include ordained deacons and ordained
elders. Only clergy members in full connection are allowed to
vote on matters relating to the ordination, characte,r and conference
relations of the members of the clergy.
At its Date G gathering, the National Conference voted to establish
the order of ordained deacons and the Governing Document was
amended accordingly. Proposals to establish an order of ordained
deacons had been made to the National Conference at the three
preceding quadrennial gatherings. Thus, the decision to establish
an order of deacons was made after the Church spent more than
twenty years studying its ministry. Hence, after Date G and
individual may be ordained as either a deacon or an elder. As
permitted by the Governing Document, both elders and deacons
are ordained as clergy members in full connection. Prior to
establishment of the order of ordained deacon, elders were the
only ordained members of the clergy.
The Church defines ordination as the act of conferring ministerial
orders. In accordance with Church traditions, an ordained minister
is a baptized person who is called by God, authorized by the
Church, and ordained by a bishop to a lifetime ministry. To
qualify for ordination as either a deacon or an elder, an individual
must meet the requirements set by the Church that are specified
in the Governing Document. In addition, to be ordained, the
individual must be recommended by the Regional Conference and
receive the affirmative vote of the ministerial members of the
Regional Conference. Through ordination the ordained individual
is given the approval of the denomination to serve as an ordained
minister and the authority to carry out those acts reserved
to members of the clergy. Thus, following ordination, the ordained
elder or deacon has the authority to exercise the responsibilities
and duties of an ordained minister.
According to the Governing Document, an ordained deacon is
permitted to give leadership in teaching and proclaiming the
gospel, forming and nurturing disciples, performing marriages
and funerals, and assisting the elder in administering the sacraments.
An ordained deacon has full right of voice and vote in the Regional
Conference where membership is held, may serve or hold office
as a member of the clergy on the boards, commissions, or committees
of the Regional Conference, may be elected as a clergy delegate
to the National Conference, must attend all sessions of the
Regional Conference, and with the elder is responsible for all
matters of ordination, character, and conference relations with
members of the clergy. An ordained deacon is accountable to
his or her Regional Conference and the bishop for the fulfillment
of his or her call. An ordained elder is appointed to a position
by a bishop. However, unlike an elder, an ordained deacon does
not itinerate, nor does the Church guarantee an ordained deacon
a position, salary, or place of employment. Ordained deacons
are permitted to participate in the Church retirement plan for
members of the clergy.
When it established the order of ordained deacons, the National
Conference amended the Governing Document to include transitional
rules that would allow certain "diaconal ministers"
to become ordained deacons. A diaconal minister is a layperson
who was consecrated by a bishop, but who the Church does not
treat or consider as a member of the clergy. The Church expects
that some, but not all of its diaconal ministers will become
ordained deacons. The transitional rules are available for a
limited period and provide that a diaconal minister in good
standing with his or her Regional Conference who has completed
a minimum of three years in an approved service appointment
may be ordained as a deacon provided he or she meets the following
requirements:
- Apply in writing to the Regional Conference for transfer
of credentials to ordained deacon in full connection;
- Complete the formation and education program sponsored by
the Board;
- Demonstrate an understanding of the call to the order of
deacon and a ministry that fulfills and exemplifies the definition
and description of deacon found in the Governing Document;
- Satisfy specific educational requirements; and
- Receive a two-thirds positive vote of the clergy session
of the Regional Conference.
X, a local Church, founded in 1840, is located in City and
is in the State Conference. X has more than 1,000 members and
employs more than fifty employees; including three ordained
deacons, C, D, and E. C, D, and E were ordained pursuant to
the transitional rules. X requested rulings that C, D, and E
are ministers of the gospel and that the duties they perform
are ordinarily the duties of a minister of the gospel under
section 107 of the Internal Revenue Code (the Code). X also
requested rulings that C, D, and E are ministers performing
services in the exercise of their ministry for purposes of sections
1402(c)(4) and 3121(b)(8)(A).1
X has represented the following facts concerning C, D, and
E and the duties they perform for X:
As ordained deacons, C, D, and E are expected to
comply with the applicable provisions of the Governing Document.
C is the Minister of Education; D is the Minister of Music;
and E is the Minister of Stewardship. As integral members of
X’s pastoral team, C, D, and E meet with the elder to
plan the worship services, assist with the sacraments, and officiate
at weddings and funerals. Each is required to preach at Sunday
worship service.
C's primary duties relate to the Christian education program.
C plans and supervises youth, adult, and family activities,
including Sunday education classes, Bible study, and various
educational programs sponsored by X. C selects the curriculum,
schedules activities, and when needed, coordinates lay volunteers.
C also assists the X school to develop appropriate educational
opportunities. D, the Minister of Music, coordinates all choir
and music activities. E performs financial and managerial
functions. His primary function is to encourage members of
the congregation to give their time, talent, and money to
X and the community. When not leading worship services, C,
D, and E participate with the pastor in the weekly worship
service. They also perform various other duties at X, including
confirmation preparation and membership reception.
X's August 3, 1998, submission specifies how each met the transitional
requirements needed to be ordained as a deacon. Each timely
applied to the State Conference Board to transfer his or her
credentials to ordained deacon. Each was in good standing as
a diaconal minister and had completed at least three years in
a service appointment approved by the bishop since consecration
as a diaconal minister. Each completed the continuing formation
and education program sponsored by the Board and satisfied the
applicable educational requirements. C and D have bachelor's
degrees and have completed graduate theological courses as required
by the State Conference. E has a master's degree in theology
studies. Each demonstrated an understanding of the call to the
order of deacon and received the full support of the State Conference
Board of Ordained Clergy and was passed on to the State Conference
for final vote of confirmation. Each received the required two-thirds
or greater positive vote of the clergy session of State Conference.
C, D, and E were ordained as deacons on Date H.
Applicable Law
Section 61(a) of the Code provides that, except as otherwise
provided, gross income means all income from whatever source
derived; including compensation for services including fees,
commissions, fringe benefits, and similar items.
Section 107 of the Code provides that in the case of a minister
of the gospel, gross income does not include the rental value
of a home furnished to the minister as a part of the minister’s
compensation or the rental allowance paid to the minister as
part of the minister’s compensation, to the extent used
by the minister to rent or provide a home.
Sections 1402(c)(4) and 3121(b)(8)(A) of the Code, which provide
definitions for purposes of the Self-Employment Contributions
Act taxes and the Federal Insurance Contributions Act (FICA)
tax respectively, refer to services performed by a “duly
ordained, commissioned, or licensed minister” of a church
in the exercise of his ministry.
Section 1.107-1(a) of the Income Tax Regulations provides that
in order to qualify for the exclusion provided by section 107,
the home or rental allowance must be provided as remuneration
for services that are ordinarily the duties of a minister of
the gospel. In general, the rules provided in regulation section
1.1402(c)-5 apply to that determination. Regulation section
1.107-1(a) also provides that the performance of sacerdotal
functions, the conduct of religious worship, the administration
and maintenance of religious organizations and their integral
agencies, and the performance of teaching and administrative
functions at theological seminaries will be considered the duties
of a minister for purposes of section 107.
Section 1.1402(c)-5(a)(2) of the regulations provides that
a “duly ordained, commissioned, or licensed minister”
of a church is engaged in carrying on a trade or business with
respect to service performed by him in the exercise of his ministry
or in the exercise of duties required by a religious order unless
an exemption under section 1402(e) of the Code is effective.
Section 1.1402(c)-5(b)(2) provides that service performed by
a minister in the exercise of his ministry includes the ministration
of sacerdotal functions and the conduct of religious worship,
and the control, conduct, and maintenance of religious organizations
(including the religious boards, societies, and other integral
agencies of such organizations) under the authority of a religious
body constituting a church or church denomination. Section 1.1402(c)-5(b)(2)(i)
provides that whether service performed by a minister constitutes
the conduct of religious worship or the ministration of sacerdotal
functions depends on the tenets and practices of the particular
religious body constituting the minister's church or church
denomination. Section 31.3121(b)(8)-1 has a similar provision.
If a church or church denomination ordains some ministers of
the gospel and licenses or commissions others, the licensed
or commissioned minister must perform substantially all the
religious functions within the scope of the tenets and practices
of his religious denomination to be treated as a “minister
of the gospel” under section 107 of the Code. Rev. Rul.
78-301, 1978-2 C.B. 103. The Service ruled in Rev. Rul. 59-270,
1959-2 C.B. 44, that neither a minister of music nor a minister
of education was entitled to an exclusion under section 107
when neither one was an ordained minister of the gospel, although
both were performing services relating to the office and functions
of a minister of the gospel. The facts of the ruling specify
that neither minister was licensed, ordained, or commissioned.
In Wingo v. Commissioner, 89 T.C. 922 (1989), the
Tax Court considered whether the taxpayer, a probationary member
of the North Arkansas Annual Conference of The United Methodist
Church (the Conference), who was both an ordained deacon and
a licensed local pastor, was performing services as a duly ordained,
commissioned or licensed minister for purposes of the self-employment
tax exemption available under section 1402(e) of the Code. Taxpayer
administered the Sacraments, conducted worship and performed
services in the control, conduct, and maintenance of his local
church and Conference. The court held that the taxpayer was
a duly ordained, commissioned, or licensed minister within the
meaning of section 1402 when he assumed the duties and functions
of a minister in 1980. In analyzing whether the taxpayer was
a duly ordained, commissioned, or licensed minister, the court
examined whether taxpayer performed the duties and functions
of a minister within the three types of ministerial services
specified in section 1.1402(c)-5(b)(2) of the regulations, whether
the taxpayer was ordained, commissioned, or licensed, and whether
his church considered him to be a religious leader.
The court held that the taxpayer was a minister because he
satisfied all the elements of section 1.1402(c)-5(b)(2) of the
regulations. As a local pastor and an ordained deacon, he administered
the sacraments and conducted religious worship. The court also
found that he satisfied the third prong (control, conduct, and
maintenance of the church or religious organizations within
the church) because he was in charge of all the organizational
concerns of his own congregation, including administering the
provision of the church discipline, supervising the working
program of the local church, maintaining church records and
meeting local financial obligations. The court noted that a
church’s designation of an individual as a minister standing
alone, is insufficient to determine whether the individual is
a minister for self-employment tax purposes; however, it is
an additional factor to consider. The court concluded that when
a person performs all the three types of services set forth
in the regulations and is recognized as a minister or religious
leader by his denomination that person is a minister for purposes
of section 1402(c) of the Code. Thus, taxpayer’s status
as a probationary member of the Conference did not prevent him
from being a minister for purposes of section 1402(c).
In Haimowitz v. Commissioner, T.C.M. 1997-40, the
Tax Court concluded that the taxpayer, a synagogue administrator,
was not a minister of the gospel for purposes of section 107
of the Code. He had been employed by a temple for 30 years and
was recognized as a Fellow in Synagogue Administration. He performed
various services for the temple, including assisting students
with Bar and Bat Mitzvah preparation, serving as marriage ceremony
director, and conducting services for mourners. On his income
tax return he specified that he was a religious functionary
and asserted that as a religious functionary he was a minister
of the gospel within the meaning of section 107. Here the Tax
Court concluded that taxpayer did not meet the requirements
of regulation section 1.1402(c)-5(b)(2). Specifically, the court
found that the duties he performed, although related to the
Jewish religion, were organizational in nature and did not require
performance from one with ministerial credentials. The court
then noted the religious rites and ceremonies he did not perform.
He never fulfilled the role of rabbi or cantor, and the services
he did perform were secular in nature. For example, he never
officiated at a wedding or a funeral, and he merely assisted
the rabbi at religious services. Thus, the court concluded he
did not perform regularly those duties that the minister of
the Jewish faith customarily performs. In addition, the court
found taxpayer’s recognition as a Fellow in Synagogue
Administration was irrelevant, as that designation is not a
recognized religious official of the Jewish religion. The court
also noted that taxpayer did not present any evidence that the
temple considered him to be a religious leader. Accordingly,
the court concluded that taxpayer failed to demonstrate that
he was a minister of the gospel.
Discussion
Applying the test established in Wingo, we conclude
that C, D, and E are ministers of the gospel performing services
in the exercise of their ministries within the meaning of section
1.1402(c)-5(b)(2) of the regulations. As ordained members of
the clergy in the Church, C, D, and E conduct worship and assist
with the sacraments. In addition, as ordained members of the
clergy in full connection they perform services in the control,
conduct, and maintenance of the Church. Further, X and the Church
consider C, D, and E to be religious leaders who can perform
substantially all of the religious functions within the scope
of the Church’s tenets and practices. We find that E is
distinguishable for the synagogue administrator in Haimowitz,
as E is an ordained member of the Clergy in full connection.
E officiates at weddings and funerals and will regularly perform
the duties that members of the clergy of the Church customarily
perform. Accordingly, C, D, and E are performing services as
“ministers of the gospel” within the meaning of
section 107 of the Code. Thus, C, D, and E are eligible to have
a portion of their salary designated as a parsonage allowance.
Any parsonage allowance will be excluded from gross income,
provided the allowance is designated and paid in accordance
with section 107. We further conclude that the services C, D,
and E perform are in the exercise of their ministry within the
meaning of section 3121(b)(8) of the Code.
This ruling is not intended to imply or suggest that the mere
designation of an individual as a minister is sufficient to
conclude that the individual is a minister of the gospel for
purposes of sections 107, 1402, 3121, or 3401 of the Code. Nor
does this ruling suggest that the Service has departed from
its position in Rev. Rul. 59-270. This ruling applies only to
C, D, and E with respect to the services they perform for X.
No opinion is expressed as to the federal tax consequences of
the transaction described above under any other provision of
the Code.
This ruling is directed only to the taxpayer who requested
it. Section 6110(j)(3) of the Code provides that it may not
be used or cited as precedent.
Sincerely,
JERRY E. HOLMES
Chief, Branch 2
Office of Associate Chief Counsel
(Employee Benefits and Exempt Organizations) |
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