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liable for tax with respect to $5,478 received as Social Security
benefits.
Respondent further determined that petitioners are liable
for an accuracy-related penalty pursuant to section 6662(a) of
$2,864 for 1994.
OPINION
Parsonage Allowance
Section 107(2) provides that the gross income of a minister
does not include "the rental allowance paid to him as part of his
compensation, to the extent used by him to rent or provide a
home". As a prerequisite for this exclusion, the taxpayer must
establish that there was designation of the rental allowance
pursuant to official church action before payment. Sec. 1.107-
1(b), Income Tax Regs. The regulations state in pertinent part:
The term "rental allowance" means an amount paid to a minister
to rent or otherwise provide a home if such amount is
designated as rental allowance pursuant to official action
taken * * * in advance of such payment by the employing church
or other qualified organization when paid after December 31,
1957. 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.
Respondent does not contest petitioners' status as
"ministers" under section 107(2); rather, respondent argues that
the claimed parsonage allowances were not properly designated in
accordance with the applicable regulations. Petitioners bear the
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