Ministers Credentials and the IRS

The church has every theological right to ordain whom they will, and has historically done so.  But remember Paul, Barnabus and the multitudes following, did not have to contend with the IRS.  Ministry who live and minister in the US,  who want to benefit from tax reducing provisions available to them, are subject to US tax laws.  Somewhat different rules apply to ministers who live outside of the US [missionaries].

The question we will address in this article is what the IRS will look for, if the credentialed minister is receiving benefits which are available to reduce his tax obligation.  Such benefits include reimbursements for ministerial expenses, a housing allowance, which is free of federal [and most states] income tax, and the privilege of filing the IRS Form 4361 and exempting from social security on his ministerial income. The minister is regarded, and treated by the IRS, as a self employed person. He is classified as a “MINISTRY EMPLOYEE”

How the minister’s income is reported by the employing church is also a concern to the IRS.  See our articleReporting The Minister – W-2 or 1099?     The IRS’s concern is in regards to, “Scam” operations posing as a “Church,” that would issue credentials for the sole purpose of benefiting from the tax benefits granted to legitimate ministers by the Internal Revenue Code.  There are three ‘terms’ of credentialed ministry the IRS accepts:  Ordained; Licensed; and Commissioned.  The required prerequisite is that the credentialed minister, regardless of which term is used, be authorized to perform the “Sacraments,” to “Marry and Bury,” in order to participate.

Of course, they will also be interested in whether or not the credentialed minister actually does, the following:

  1. Administering the Sacraments  [does he marry and bury];
  2. Conduct “Religious worship.”  [ entails the preparation, and the ministering of the word];
  3. Does he have management responsibilities in the church or denomination”;
  4. Is he considered a religious leader by the church members or the parent denomination?

Some of the key points that should be addressed by the “Ordaining Church.”

  • Does the church require of the applicant to have completed a prescribed course of study, or has otherwise proven his qualification for ministry by virtue of having served in a position of “apprenticeship” under active and qualified ministry?
  • Does the church have the necessary language in their By-Laws which clearly define how, or strongly alludes to, and under what conditions, the church will grant ministerial credentials?  Following are some basic suggestions to consider:
  1. Qualifications of the candidate for ministerial credentials: *
    • A period of time of having been with the church, that his character and family life is fully known;
    • Preparation;  By completion of prescribed course material; or his experiential experience;
    • Having a proven record of Ministry of the Word of God, and a good report from the community;
    • Recommendations by additional seasoned “Senior” ministers, other than from the ordaining church;
    • Upon application to the Board, the Minister would be evaluated to determine that he or she meets Biblical qualifications, with an assessment of his “Gifting, Preparation, Anointing, Calling, and ability to minister.”
  2. Does the church require an “Ongoing relationship of accountability” with the minister? Is their annually,  a reaffirmation of identity on theological perspectives?  Can this be proven by any documentation recorded in the church records?  And then, based on that documented reaffirmation,
  3. Will the ministerial relationship be reviewed and credentials be reissued every year?;
  4. If there are different “Levels” of credentials?  And if so, is it clearly defined what those differences are?;
  5. For the Ordained, Licensed, or Commissioned minister, do the By-Laws [and his Ministerial Certificate and or Card**] clearly give him the authority to “Marry and Bury?”

* The Ministerial “Credential” – is a wallet sized card, issued annually, that says the Ministerial Certificate is current and valid for the year issued, because of his ongoing relationship of accountability with the church.

** The Ministerial “Certificate” – For the Ordained, Licensed, or Commissioned Minister, is that document issued by the church – and now hangs on the wall of his office;

Credentials – as spoken of within this article – refers to both the Certificate, and the Credential Card.

Ordination – is for life (Unless the minister has been “Defrocked”), and may only need new credentials from the organization where he is currently ministering;

Oftentimes a church wishes to ordain it’s pastor, who had previously been credentialed with another organization or Denomination, but now is no longer relational.  We suggest building a “Bridge” with appropriate documentation in the Minutes, using the old credentials (A copy of his previous Certificate of Ordination), as justification for the church issuing new “Credentials” of Ordination.  This is evidence that his ministry was recognized by others, and not just by the local church at his direction.

In all other cases, when a church decides to credential a minister, ordained or otherwise,  documentation of as much of the above as possible would be wise.

CONCLUSION:  The “Independent” * church, that chooses to ignore the above, may well be setting it’s newly credentialed minister up for some serious headaches down the road – and a disallowing of his previous tax breaks, possibly even having to pay back taxes, penalties and interest.

* Oh how I dislike using the term “Independent,” for I believe the Lord would have us all be relational, and accountable to one another.

It would be a good idea to write additional language in your By-Laws, which would include the above. The sample By-Laws found in our  “More Great Samples”  Manual address this issue.  It may also be a good idea to write a resolution in your minutes ratifying, and documenting as much as possible, the excellent qualifications of those whom you have credentialed, and why you chose to do so.

 

The above information is provided as a service to the Body of Christ by ADMINISTRATIVE ASSISTANCE.

If you would like more information about similar issues, please consider  “The Church Administration ‘How To’ Manual” This Manual, endorsed by three CPA’s, an EA and two attorneys, was updated in January, 2011, for the 12th time since its original publication in 1991.

Copyright © 2007 By Administrative Assistance – Rev. Don L. Buckel – Director

Related posts:

  1. Social Security – Should The Minister Exempt?
  2. Who Can Spend Church Monies?
  3. IRS Inquiries and Audit Restrictions
  4. Some Say Don’t Incorporate! WHY?
  5. Compensation & Housing Allowance