Contributed by Katheryn Magill, Legal Assistant

Nothing in the following article should be relied upon as legal advice.

Parachurch organizations seeking to provide an ordained minister employee with a housing allowance that is exempt from taxation should first consider the question of legal qualification and second take care to follow proper procedure.

An ordained parachurch employee may be qualified to withhold a housing allowance from their gross taxable income if they meets one of three possible tests.

First, they might qualify if the ordained employee is acting on direct assignment by their church or denomination, even if their work for the organization is other than that ordinarily considered the work of a minister of the gospel.[1]

Second, they might qualify if the parachurch organization itself has a close affiliation with a church or denomination.  An organization is deemed to be under the authority of a church or denomination if it is “organized and dedicated to carrying out the tenets and principles of a faith in accordance with either the requirements or sanctions governing the creation of institutions of the faith.”[2] Furthermore, the connection should be demonstrable by things such as input into management, the ability to remove directors, the legal right to require annual reports, and financial support.[3]

Third, an ordained parachurch employee might qualify for an exempt housing allowance even if he is not on direct assignment from his church or employed by an organization with a close affiliation to a church if his duties include services ordinarily undertaken by a minister of the gospel.  These services might include things such as administering the sacraments, leading a worship service, or preaching,[4] but the specifics will vary depending on the faith tenets and practices of the faith the particular religious body constituting his church or church denomination.[5]

If it has been determined that the employee is eligible to exclude a housing allowance from his taxable income, care must be taken to ensure the proper procedure is followed.  There must be a documented action by the parachurch organization’s Board of Directors designating the amount of money as a housing allowance in advance of payment.[6]  This amount may be designated in the annual budget or an official designation may be recorded in a board meeting’s minutes.


[1] Treas. Reg. § 1.1402(c)-5(b)(2)(v).

[2] Treas. Reg. § 1.1402(c)-5(b)(2)(ii).

[3] Toavs v. Commissioner, 67 T.C. 897, at 904-905 (1977).

[4] Mosley v. Commissioner, T.C. Memo 1994-457.

[5] Treas. Reg. § 1.1402(c)-5(b)(2)(i).

[6] Treas. Reg. § 1.107-1(b).

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