In June, 2011, I wrote a blog post about a minister who claimed two residences with his parsonage allowance – a primary residence and a lake house. The IRS wanted to deny the exclusion for two residences, even though both residences met the criteria. The Tax Court had cross-referenced the Dictionary Act, arguing that the definition of a ‘home’ could also mean ‘homes’ if the condition for residence is met. The Tax Court supported the minister’s exclusions and so the ruling stood that both residences qualified for excluding the allowance from income.

On February 8, 2012, the Court of Appeals for the Eleventh Circuit reversed the Tax Court decision, siding with the IRS. The Eleventh Circuit Panel cited that cross-references to the Dictionary Act are made for convenience and do not constitute law. They also stated that the legislative history of the Internal Revenue Code referring to the housing allowance at the applicable time period (Code Sec. 107 applying to 1996-1999) repeatedly referred to a dwelling as a singular entity.

Obviously, these challenges can continue for years before resolution since it appears that the minister will appeal the Panel’s ruling.  Obviously, the more conservative approach is to claim only one home in the housing allowance calculation.

For more detail about housing allowances, refer to a complete description in two blog posts – part 1 and part 2.

Churches need to be aware of unrelated business income tax (UBIT). Here’s some information about UBIT related to real estate, such as rental income from church-owned property.

If there is a private school associated with your church that is exempt under 501(c)(3) of the Internal Revenue Code,  then Revenue Procedure 75-50 (Rev. Proc.) requires that the school have a racially nondiscriminatory policy as to its students.

This Rev. Proc. further requires that the school make an annual nondiscrimination statement in a local newspaper and/or radio.  The statement should be made in a forum that potential students and their parents would use; that is you should post your nondiscrimination statement in a place that you’d expect your potential students to frequent.

The Rev. Proc. gives specific wording, type and size of font for an acceptable notice.  Additionally, the Rev. Proc. also provides the record keeping requirements related to racial composition of the student body, faculty and administrative staff for each academic year, brochures, catalogues and advertising dealing with student admissions, programs, scholarships and other financial assistance awarded on a racially nondiscriminatory basis.

Failure to follow this guidance will result in loss of tax exempt status for the school.

It’s not uncommon for churches to let other, outside groups use the church’s facilities for meetings, banquets, sporting events, etc. In fact, most churches encourage such usage as a way to further their reach into the community. However, there are certain federal tax issues of which to be aware when allowing someone to use your facilities. Read the rest of this entry »