Rev. Rul. 62-117

Advice has been requested whether a resolution of the executive committee of a national church agency, fixing as a rental allowance a portion of the salaries received by all the ministers of the denomination, meets the requirements of section 1.107-1 of the Income Tax Regulations so as to exclude the part of the salaries so designated from the gross income of the ministers under section 107 of the Internal Revenue Code of 1954.

The executive committee of the national church agency passed a resolution designating as a rental allowance a portion of the salaries of ministers `performing services in exercise of their ministry in the control, conduct and maintenance' of local congregations of the denominations involved. The resolution by its terms covered ministers directly employed by the national church agency in executive and administrative positions as well as ministers of the local congregations. These congregations are independent of the executive committee as to policy and conduct of their local affairs.

Section 107 of the Code provides that, in the case of a minister of the gospel, gross income does not include the rental value of a home furnished to him as part of his compensation, or the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home.

Section 1.107-1(b) of the regulations provides, in effect, that any rental allowance paid to a minister must be properly designated as such pursuant to official action taken by the `employing church or other qualified organization.'

The resolution in the instant case fulfilled the requirement of an official action with respect to the ministers, otherwise qualified, employed by the national church agency itself and receiving compensation directly from that agency. However, where, as here, the ministers were hired and paid by local congregations, such congregations are the `employing church' and only action taken by them can effectively designate a portion of the ministers' salaries as a rental allowance for purposes of section 107 of the Code.

Accordingly, it is held that the amount designated as a rental allowance in the resolution of the executive committee, while effective so as to qualify a minister in the employ of the national church agency for an exclusion from gross income under section 107 of the Code, is not effective to allow an exclusion under section 107 of the Code for other ministers who are employed and paid by local congregations.

Pursuant to authority contained in section 7805(b) of the Code, the provisions of this Revenue Ruling with respect to ministers of the local congregations will be applied only as to payments made after December 31, 1962.