Rev. Rul. 80-110

ISSUE

Is a minister allowed to deduct unreimbursed business expenses from gross income to arrive at adjusted gross income? Is the unreimbursed business expense deductible in computing the minister's income for self-employment tax purposes?

FACTS

A duly ordained minister, an employee of a church, received a salary of $15,000 in 1979. The minister received no parsonage allowance. During 1979 the minister incurred unreimbursed business expenses (other than travel or transportation expenses) of $500. The minister has not filed for an exemption, under section 1402(e) of the Internal Revenue Code, from the tax imposed by the Self-Employment Contributions Act of 1954.

LAW AND ANALYSIS

Section 62(1) of the Code provides that adjusted gross income means gross income minus deductions attributable to a trade or business carried on by the taxpayer, if such trade or business does not consist of the performance of services by the taxpayer as an employee.

Trade and business deductions of employees under section 62(2) of the Code are reimbursed expenses, expenses for travel away from home, transportation expenses, and outside salesmen's expenses.

Section 1402(c)(2)(D) of the Code provides that the term "trade or business", when used with reference to self-employment income, does not include the services of an employee other than the performance of service by a duly ordained minister of a church in the exercise of the ministry. Section 1402(a) provides that the term "net earnings from self-employment" means the gross income derived by an individual from any trade or business carried on by the individual, less the deductions attributable to the trade or business.

The services of a duly ordained minister of a church are excepted from "employment" under section 3121(b)(8)(A) of the Code for purposes of the Federal Insurance Contributions Act.

The trade and business deductions of a minister are allowable as deductions for purposes of computing the tax on self-employment income. However, if the minister is performing services as an employee in the exercise of the ministry the deductions are allowable as deductions from gross income to arrive at adjusted gross income only if they are of the type described in section 62(2) of the Code. HOLDING

The $500 unreimbursed expenses are not allowable as a deduction in arriving at the minister's adjusted gross income. The $500 is deductible only as an itemized deduction on Schedule A (Form 1040), Itemized Deductions. However, the $500 is deductible on the Schedule SE (Form 1040) Computation of Social Security Self-Employment Tax, in computing the minister's self-employment tax.