Memorandum

TO: Ken Goss, Finance

Committee Chair, FJA
FROM: William E. Sider

RE: Parsonage and Related Issues

DATE: September 21, 2008

BACKGROUND

The Frankel Jewish Academy (“FJA”) has on its staff a number of

rabbis who collectively teach a variety of courses in the Jewish studies
curriculum (the “Rabbis”). While the Rabbis’ principal duties involve
the instruction of their particular courses, their responsibilities also
include attendance at and supervision of the daily minyanim at FJA.

At issue is whether the Rabbis’ duties will enable them to qualify

for the parsonage allowance granted under the Internal Revenue Code
(the “Code”) and if so, what collateral consequences result from such a
favorable determination.

PARSONAGE ALLOWANCE UNDER THE CODE

The ability of clergy to exclude from gross income a parsonage

allowance has long been a staple of Federal tax law. Historically, the
form of such parsonage included the free use of a home owned by a
church, but the scope of parsonage is not limited to this situation.
Parsonage may exist in situations where clergy either rent or even own
their own homes. Code § 107(2) specifically provides that gross
income does not include:

[T]he rental allowance paid to [a minister of the

gospel] as part of his compensation, to the extent
used by him to rent or provide a home and to the
extent such allowance does not exceed the fair
rental value of the home, including furnishings and
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appurtenances such as a garage, plus the cost of

utilities.

Much of the litigation surrounding parsonage focuses on

the question of who qualifies as a “minister of the gospel.” Note
that these terms, despite their Christian connotations, are
intended as generic terms by the Code. While no statute or
regulation defines eligibility, a number of cases have routinely
interpreted the phrase to include ordained clergy. Rabbis clearly
fall into this category and a number of authorities also conclude
that cantors do as well (D. Silverman, 72-2 USTC ¶ 9546 (8th
Cir.)).

Beyond eligibility requirements, Treasury Regulations

under Code § 107 specify the mechanics associated with
claiming a parsonage allowance:

The designation of an amount as rental allowance

may be evidenced in an employment contract, in
minutes of or in a resolution by a church or other
qualified organization or in its budget, or in any other
appropriate instrument evidencing such official
action. The designation referred to in this paragraph
is a sufficient designation if it permits a payment or a
part thereof to be identified as a payment of rental
allowance as distinguished from salary or other
remuneration.

Treasury Regulation § 1.107-1(b).

I have personally drafted a number of rabbi contracts

and compliance with the above Regulation usually occurs
by the board of a synagogue agreeing to pay parsonage to
the rabbi in his employment contract. Such agreement,
per the Treasury Regulations, must be taken in advance of
the payment. The burden for designating the “fair rental
value” is placed upon the rabbi during each year of his
contract, but subject to consent by the synagogue. The
amount finally designated by the synagogue as parsonage
is typically recorded in a resolution and communicated to
the rabbi. Thereafter, the burden falls on the rabbi to claim
the exemption for parsonage on his Form 1040.

PARSONAGE AND FJA RABBIS

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The above rules and procedures apply easily to the situation of a

synagogue rabbi. The duties of the FJA Rabbis, however, do not fit
within this model. Rather, their responsibilities more closely resemble
other teachers.

The Treasury Regulations at § 1.107-1(a) offer the following

guidance on the scope of the parsonage exclusion:

In order to qualify for the exclusion, the home or

rental allowance must be provided as remuneration
for services which are ordinarily the duties of a
minister of the gospel. In general, the rules provided
in § 1.1402(c)-5 will be applicable to such
determination. Examples of specific services the
performance of which will be considered duties of a
minister for purposes of section 107 include the
performance of sacerdotal functions, the conduct of
religious worship, the administration and
maintenance of religious organizations and their
integral agencies, and the performance of teaching
and administrative duties at theological seminaries.

The citation above significantly narrows the scope of the

parsonage allowance. Only those ministers who perform
the “ordinary” duties of such a clergy will qualify. As noted
in the Regulation, the following “specific” services will be
treated as ordinary for ministers: (i) sacerdotal functions;
(ii) the conduct of religious worship; (iii) the administration
and maintenance of religious organizations and their
integral agencies and (iv) teaching at a theological
seminary. The reference to § 1.1402(c)-5 largely repeats
this list, but contains a further limitation. “[S]ervice
performed by a minister in the exercise of his ministry
includes the ministration of sacerdotal functions and the
conduct of religious worship, and 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.” [Emphasis
added].

With respect to the above, the Rabbis clearly do not

undertake sacerdotal duties, conduct religious worship1
and FJA will not qualify as a religious seminary. Thus, the
1
Supervision of the minyanim constitutes only a small percentage of remuneration
paid the Rabbis.
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only way the Rabbis may validly claim parsonage is to

argue that their duties constitute either the “administration
and maintenance of a religious organization” or “an
integral agency.” Further, as the gloss of 1.1402(c)-5(b)
(2) adds, such organizations or agencies must be under the
authority of a church.

A number of authorities have considered the

availability of parsonage to teachers. at Often, “religious
organization” is used interchangeably with references to a
church in the Code. usually refers to an organization with
significant overlap in control or contemplates a
church.Typically, however, this reference is analogous to
church in the Code. The answer depends on the FJA,
while promoting religious values and undertaking religious
worship is a primarily a high school and at best, an
“integral agency” of a church.