Rev. Rul. 71-7

The Internal Revenue Service has been requested to furnish guides for determining whether a duly ordained minister of a church, who is employed as a member of the faculty of a church-related college and whose duties do not include the conduct of religious worship or the ministration of sacerdotal functions, is performing services as a "minister of a church in the exercise of his ministry" as that expression is used for purposes of the Federal Insurance Contributions Act and the Collection of Income Tax at Source on Wages (chapters 21 and 24, subtitle C, Internal Revenue Code of 1954), and of the Self-Employment Contributions Act of 1954 (chapter 2, subtitle A of the Code).

Section 3121(b)(8)(A) of the Federal Insurance Contributions Act excepts from the term "employment" service performed by a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry, or by a member of a religious order in the exercise of duties required by the order. As a consequence, the employer and employee taxes imposed by that Act do not apply to remuneration for services so excepted. Likewise, because of a similar exception in section 3401(a)(9) of the Code, remuneration for the services is not subject to income tax withholding. However, for purposes of the Self-Employment Contributions Act, the services are a "trade or business." The minister must take his net earnings from the ministry into account in determining his liability for the self-employment tax unless he has qualified for exemption from the tax, under section 1402(e) of the Code, as a minister opposed to public insurance because of conscience or religious principles.

Guides for determining the status of the minister's services under these circumstances are found in three substantially similar sections of regulations; namely, section 1.1402(c)-5 of the Income Tax Regulations and sections 31.3121(b)(8)-1 and 31.3401(a)(9)-1 of the Employment Tax Regulations. Paragraph (b) of section 31.3121(b)(8)-1 provides, in part, that:

* * * service performed by a minister in the exercise of his ministry includes * * * the control, conduct, and maintenance of religious organizations (including the religious boards, societies, and other integral agencies of such organizations), under the authority of a religious body constituting a church or church denomination. * * *

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(2) Service performed by a minister in the control, conduct, and maintenance of a religious organization relates to directing, managing, or promoting the activities of such organization. Any religious organization is deemed to be under the authority of a religious body constituting a church or church denomination if it is organized and dedicated to carrying out the tenets and principles of a faith in accordance with either the requirements or sanctions governing the creation of institutions of the faith. The term "religious organization" has the same meaning and application as is given to the term for income tax purposes.

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(4)(i) If a minister is performing service for an organization which is operated as an integral agency of a religious organization under the authority of a religious body constituting a church or church denomination, all service performed by the minister in the conduct of religious worship, in the ministration of sacerdotal functions, or in the control, conduct, and maintenance of such organization (see subparagraph 2 of this paragraph) is in the exercise of his ministry.

In considering the status of a minister serving on the faculty of a college under the circumstances described in this Revenue Ruling, it is necessary to determine (a) whether the college employing him is itself a religious organization under the authority of a religious body constituting a church or church denomination or, (b) if the college is not such a religious organization, whether the college is operated as an integral agency of such a religious organization.

The Internal Revenue Service has reconsidered Revenue Ruling 55-243, C.B. 1955-1, 490, which conflicts with the preceding paragraph, and which holds, in part, that the services of certain ministers on the faculty of a college are not excepted from "employment" under section 1426(b)(9)(A) (now section 3121(b)(8)(A)) of the Federal Insurance Contributions Act. The college in Revenue Ruling 55-243 is described therein as an "institution" of a state convention of churches. Although not specifically stated in the Revenue Ruling, the college, under the particular facts in the case, is an integral agency of the convention. Instead of applying the tests stated in the preceding paragraph, Revenue Ruling 55-243 was erroneously based on a determination of whether the state convention of churches is itself a religious body constituting a church denomination. The proper test is whether the convention is "a religious organization under the authority of a religious body constituting a church or church denomination." The state convention meets this test under the regulations quoted in this Revenue Ruling, inasmuch as it is a religious organization "organized and dedicated to carrying out the tenets and principles of a faith in accordance with either the requirements or sanctions governing the creation of institutions of the faith."

Accordingly, Revenue Ruling 55-243 is modified to conclude that services performed by the ordained ministers as heads of religious departments and as teachers and administrators on the faculty of the college are excepted from "employment" under the provisions of section 1426(b)(9)(A) (now section 3121(b)(8)(A) of the Federal Insurance Contributions Act. Also, the remuneration for the services is excepted from income tax withholding under section 3401(a)(9) of the Code. However, pursuant to the authority provided by section 7805(b) of the Code, the modification of Revenue Ruling 55-243 will not apply to remuneration paid by the college before January 1, 1971. A college that has relied on the conclusion in Revenue Ruling 55-243 is not required to withhold income tax or Federal Insurance Contributions Act taxes with respect to remuneration paid to the ministers after December 31, 1970. Ministers who have relied on the conclusion in Revenue Ruling 55-243 are subject to the self-employment tax under the provisions of the Self-Employment Contributions Act of 1954 for taxable years beginning after December 31, 1970, unless such a minister qualifies for exemption from the tax under that Act as provided by section 1402(e) of the Act.