18 Dec Can the board declare a housing allowance without a specific amount?
When your board declares your annual clergy housing allowance, they must declare a specific dollar amount or percent as the housing allowance. The designation must be made in advance of the payment. A general declaration that you have a housing allowance without naming a specific amount would be insufficient.
Designating a housing allowance without specifying a dollar amount is considered aggressive and may not be upheld during an audit. Additionally, this method introduces complexities in payroll reporting. The church would initially omit housing allowance in its quarterly reports and subsequently need to amend each quarter’s report to ensure compliance.
The IRS released a Minister’s Audit Techniques Guide to assist in auditing a minister’s tax return. This guide also addresses designating an amount in advance.
The exclusion under IRC § 107 only applies if the employing church designates the amount of the parsonage allowance in advance of the tax year. The designation may appear in the minister’s employment contract, the church minutes, the church budget, or any other document indicating official action. Treas. Reg. § 1.107-1(b).
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