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Can a disassociated priest use the parsonage allowance exclusion found


Guest Nicolle Zeman-Bonnett
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Guest Nicolle Zeman-Bonnett

Does anybody know the IRS position as to whether a retired "disassociated priest" (for example, one who left the church with permission to get married) can use the parsonage allowance exclusion under Code 107?

I know that "retired ministers" are eligible for the parsonage allowance exclusion under Code 107; however, I could not find in any of my research whether the term "retired minister" includes a disassociated priest. Would a disassociated priest be considered ineligible because he is no longer a "minister of the gospel" (i.e., he can no longer celebrate Mass or perform other "ordinary duties of a minister of the gospel")? Or would a disassociated priest be eligible for the exclusion because the parsonage allowance is paid as compensation for past services which were "ordinary duties of a minister of the gospel"?

Thanks in advance for any insights.

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  • 1 month later...

What specific requirements must a priest meet in order to "retire" ?

The answer to the above question will solve your question (regarding the disassociated priest).

If the disassociated priest does not meet your church's retirement requirements ... then he is not retired, and therefore he cannot exclude his free housing form being taxable.

I assume that he still provides some service for the church. If he provides no service in return for the housing ... then the housing is not earned income and therefore not taxable for that reason.

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Moe,

I do not think he was referring to a specific payment from the church for housing.

Practitioners have interpreted 107 to apply the housing allowance exception to retirement plan distributions (that come from a church plan) that are used for housing. I presume that is what the question is referring to.

I would think that as long as the person is receiving distributions from the church plan, it makes no difference what his current status is as far as being disassociated or not...just opinion, no references. Is he still considered a priest for any other reason under the tax code? I.e., can he still avoid FICA if he had earned income?

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