Rev. Rul. 75-22

Advice has been requested whether a designation of a rental allowance, under the circumstances described below, satisfies the requirements of section 107 of the Internal Revenue Code of 1954.

The general convention of a national religious denomination is the supreme governing body of that particular religious denomination, and decides all matters relating to the organization and operation of its local churches. The members in attendance at the general convention are the elected representatives of all of the local churches. Pursuant to its by-laws and regulations the general convention proposed and duly enacted a resolution creating a fund for the purpose of establishing and maintaining a unified clergy pension system applicable to all of the retired clergy of that particular denomination compensating them for past services to its local churches or to the denomination.

The resolution provided that the fund is to be governed by a board of trustees who are elected by the general convention. The trustees are empowered to establish such rules and regulations as are necessary to implement the purpose of the fund. The trustees of the fund are the sole authority of the denomination's retirement program for its clergy. The trustees have prescribed the eligibility requirements necessary to receive a pension. They set the amount of the pension and the amount of the monthly assessment each local church must contribute to maintain the fund. Neither the individual clergyman nor the local church can intervene in this process. The trustees have designated a certain percentage of the pension that they pay to a retired clergyman as a rental allowance.

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 Income Tax Regulations provides, in part, that the term "rental allowance" means an amount paid to a minister to rent or provide a home if such amount is designated a rental allowance pursuant to official action taken by the employing church or other qualified organization before the payment is made.

Rev. Rul. 62-117, 1962-2 C.B. 38, holds that a resolution of the executive committee of a national church agency could not effectively designate a portion of the salaries of ministers of local congregations of the particular denomination involved as rental allowances for purposes of the exclusion under section 107 of the Code, where each local congregation employed and compensated its own minister. It was concluded therein that the resolution was effective with respect to those ministers in the employ of the national church agency. It was also stated that the local congregations were independent of the executive committee as to policy and conduct of their local affairs. Further, since the ministers were hired and paid by the local congregations, each congregation was the "employing church" and only action taken by the individual church could effectively designate a portion of its minister's salary as a rental allowance for purposes of section 107.

Rev. Rul. 63-156, 1963-2 C.B. 79, concerns the applicability of the provisions of section 107 of the Code to the pension received by a retired minister. It is concluded therein that the rental value of the home furnished to the retired minister as part of his compensation for past services is excludable from his gross income under section 107(1). Also, the rental allowances paid to him as part of his compensation for past services is excludable under section 107(2), to the extent used by him for expenses directly related to providing a home.

The instant case is distinguishable from Rev. Rul. 62-117 in that the minister, effective with his retirement, has severed his relationship with the local church and is reliant upon the fund for his pension. The fund was created by the general convention and specifically authorized by the formal actions of representatives of the local churches to make all determinations regarding the pensions paid to retired ministers compensating them for past services to the local churches of the denomination or to the denomination. The trustees of the fund are, therefore, deemed to be acting on behalf of the local churches in matters affecting the unified pension system in compensating retired clergy for such past services.

Accordingly, the designation of a portion of the pension paid to an individual retired minister of the denomination by the trustees of the fund as a rental allowance is a valid designation for purposes of section 107 of the Code.

Rev. Rul. 62-117 is distinguished.