The IRS takes a narrow view of the availability of the housing allowance exclusion in the case of clergy serving outside the church (see IRS Publication 517). The key issue is that the assignment must be directly related to accomplishing the purposes of the assigning church. As a result, it is important that clergy serving outside the church have a valid, “significant” assignment clearly related to the accomplishment of the purposes of the church if they want to claim the housing allowance designation. These designated services qualify even if they do not involve performing sacerdotal functions or conducting religious worship.
If services are not assigned or designated by the church, they are qualified services only if they involve performing sacerdotal functions or conducting religious worship for the purpose of being eligible for the housing allowance.
Here are some examples where the housing allowance designation would or would not apply based on IRS rulings.
- A prison chaplain’s church was not actively involved in the day-to-day operation of the chaplaincy program and did not supervise the chaplain. The church’s involvement was limited to endorsing the chaplain. Therefore, the chaplain was not eligible for the housing allowance designation.
- Ministers employed by a nondenominational organization working with churches and people of faith throughout the world to serve the poor and develop work for the organization by their local churches or denominations were eligible for the housing allowance designation.
- An ordained minister teaching religion, ethics and theology at an independent Christian college was denied the housing allowance designation because. Although the church approved the minister’s work and annually gave him permission to continue teaching, the IRS ruled that the assignment must be more than a formality and must be significant.
- A minister was involved as pastoral counselor employed by a counseling center. The minister had obtained endorsement from his church as a counselor in order to further the efforts and mission of the church. The IRS concluded that the church’s general indication of support did not constitute evidence that the church specifically assigned the minister to perform on its behalf. The services were free from the church’s control.