Raby & Raby on The Clergy and the Tax Collector

Burgess J.W. Raby & William L. Raby have published The Clergy and the Tax Collector, also available on the Tax Analysts web site as Doc 2006-3964, 2006 TNT 41-23.  Here is the Conclusion:

For clergy, the tax law actually may offer the proverbial free lunch, even though common sense would tell us there is no such thing. The price for obtaining the maximum tax benefit from the parsonage allowance, for example, is the need to keep sufficient records so as to allocate the clergyperson's business expenses between nontaxable revenue (the parsonage allowance) and taxable revenue (everything else), as well as between Schedules C and A. Tax practitioners advising or doing returns for clergy should heed Judge Dean's advice in the Young case about minimizing the degree to which the tax exemption accorded the parsonage allowance affects the nondeductibility of the clergyperson's business expenses. Which activities generated what expenses? The goal is to minimize the expenses attributable to the parsonage allowance and maximize the expenses attributable to the other income of the clergyperson. Each $10,000 of deduction disallowance avoided can save the clergyperson in a 25% marginal federal income tax bracket, who also will have 15.3% self-employment tax and a possible state income tax of 5%, a total of $4,530.

For the tax practitioner who may have a client who is intrigued by the siren song of corporations sole or by the fact that "gifts" are not taxable income, the "SSS cases" of Saladino, Swaringer, and Snowden, as appropriate, provide relevant war stories that should be sufficient to dissuade most clients from wanting to proceed further with their Church of Tax Avoidance. If a client wants to follow in the footsteps of the SSS cases, the practitioner is well advised to terminate any professional relationship. If the tax practitioner should perchance encounter a client or potential client who claims exemption as a church, it might be well to review with that client the story of Kenneth Bucher and the Unitary Mission Church of Long Island.