March 26, 2013

Review of Housing Allowance Documentation

Question:

A missionary receives a Form 1099-MISC from the service organization which receives funds for him. Recently he became aware of the benefit of clergy housing allowance (HA) after reading our 2009 blog post Housing Allowance and Form 1099-MISC, but still has a few questions:
  1. What documents are need to justify this?
  2. Would the IRS find it unusual that he did not claim a HA in previous years? Could this be explained in a letter?
Answer:

Documents are needed to help support consideration of the three-part test applied to minister's housing allowances.
  • Designation of a portion of the minister's income to housing allowance. Written certification of this designation by the service organization should be requested. Having accomplished this, the amount of housing allowance designation must be subtracted from compensation reported on Form 1099-MISC as described in the above referenced blog post.
  • Support for amounts actually spent for housing expenses. A worksheet listing the categories permissible by the Internal Revenue Code may be found on our website.
  • Evidence of the fair rental value of the minister's primary residence. Such evidence may include advertisements for rental of comparable properties, the written opinion of qualified real estate or rental agents, and formulas for estimating fair rental value as a percentage of the fair market value of the property.
In regard to not claiming the clergy HA in previous years, it is unlikely that the IRS will concern itself with a taxpayer's failure to claim a benefit.

Missionaries must consider multiple issues regarding their foreign and US housing arrangements. But the above general guidelines are still applicable relative to their primary US residence.

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