MinistryCPA - Corey A. Pfaffe, CPA, LLC

Question: A writer of Christian books wishes to enjoy the benefits of ministerial status. What organizations can ordain (or license) him to the gospel ministry? The minister plans to launch his ministry career from these books and would like to get a ministerial license through this ministry. Answer: The most frequent instance when a minister must provide proof of his status relates to the filing of Form 4361 applying for exemption from social security tax. The instructions to the form state the following: "Enter the date you were ordained, commissioned, or licensed as a minister of a church... "Attach a copy of the certificate (or, if you did not receive one, a letter from the governing body of your church) that establishes your status ... "[E]nter the legal name, address, and employer identification number of the denomination that ordained, commissioned, or licensed you ... "You must be able to show that the body that ordained, commissioned, or licen...

Question: A minister is partially retired and receiving Social Security benefits that will be limited by the Social Security Administration (SSA) if his earnings exceed the SSA's thresholds. at age 62. Can the church continue to employ him and compensate him appropriately without exceeding the threshold? The church did investigate a deferred compensation arrangement called a "rabbi trust" but found it to be overly complex. Answer: According to the SSA website : "If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2009 and 2010, that limit is $14,160. "In the year you reach full retirement age, we deduct $1 in benefits for every $3 you earn above a different limit, but we only count earnings before the month you reach your full retirement age. If you will reach full retirement age in 2009 or 2010, the limit on your earnings for the months before full retireme...

Question: A pastor writes, "Every year I break my package down how I want (base salary, housing, and a professional reimbursement). Can I carry over my excess unspent professional reimbursement or excess expenses into the following year? Answer: IRS Publication 15 spells out the rules for accountable plans--required conditions for employees to receive non-taxable employer advances for business expenses: "To be an accountable plan, your reimbursement or allowance arrangement must require your employees to meet all three of the following rules. 1. "They must have paid or incurred deductible expenses while performing services as your employees. The reimbursement or advance must be paid for the expense and must not be an amount that would have otherwise been paid by the employee. 2. "They must substantiate these expenses to you within a reasonable period of time. 3. "They must return any amounts in excess of substantiated expenses within a reasonable...

First-Time Homebuyer Credit From the IRS, November 17, 2009: "New legislation, the Worker, Homeownership and Business Assistance Act of 2009, which was signed into law on Nov. 6, 2009, extends and expands the first-time homebuyer credit allowed by previous Acts. The new law: -- Extends deadlines for purchasing and closing on a home. -- Authorizes the credit for long-time homeowners buying a replacement principal residence. -- Raises the income limitations for homeowners claiming the credit. "Under the new law, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return. "For the first time, long-time homeowners who buy a replacement principal residence may also claim a homebuyer credit of up to $6,500 (up to $3,250 for a married individual filin...

Question: A church compensates its minister who does not request optional income tax withholding. Then, it issues Form 1099-MISC ( non-employee compensation form). He deposits the maximum allowable contribution to a Roth IRA. Can he also establish a tax deductible Simplified Employee Pension (SEP) retirement account which is eligible for a higher maximum contribution? Answer: My January 27, 2008, blog posting, Ministers’ Retirement Options , reviews some of the alternatives available to ministers. In the question above, I recommend that the church consider filing Form W-2 ( employee compensation form). Unless the minister is an itinerant preacher, it is likely that he should be properly classified as an employee. This means that the church could establish a 403(b) plan and the minister could make elective deferrals to reduce both his income and SE tax. Unlike 403(b) plan contributions, Roth contributions reduce neither Form 1040 taxable income nor Schedule SE self-employmen...

Question: If a church establishes a Health Reimbursement Arrangement ( HRA ), can it define the plan to include only its ministerial staff and not its other full-time employees? Answer: Several resources are valuable in this determination: IRS Publication 969 IRS Publication 15-B, Chapters 1 and 2 Internal Revenue Code ( IRC ) Section 105 (available at Cornell Law ) IRC Section 105 describes nondiscriminatory requirements for HRA and other accident and health benefit plans. Plans may be able to exclude five classes of employees. Three are generally applicable to churches (Section 105(h)(3)(B)): employees who have not completed 3 years of service employees who have not attained age 25 part-time or seasonal employees Section 105(h)(4) states that "a self-insured medical reimbursement plan [and HRA ] does not meet the [nondiscriminatory] requirements ... unless all benefits provided for participants who are highly compensated individuals are provided for all o...

Question: A minister filed IRS Form 4361 but never received written confirmation of its acceptance. Later, the IRS audited his return and assessed the unpaid self-employment tax. What can he do now? Answer: According to the Minister Audit Technique Guide , a guide prepared by the IRS for its auditors but available to the public through the above link, "To determine if a minister is exempt from self-employment tax, request that he or she furnish a copy of the approved Form 4361 if it is not attached to the return. If the taxpayer cannot provide a copy, order a transcript for the year under examination. The ADP and IDRS Information handbook shows where the ministers' self-employment exemption codes are located on the transcripts and what the codes mean. Transcripts will not show exemption status prior to 1988. "If the transcript does not show a MIN SE indicator and the taxpayer still claims that he or she is exempt from self-employment tax, the Taxpayer Relations ...