- 5 - Section 1.265-1(c), Income Tax Regs., provides: (c) Allocation of expenses to a class or classes of exempt income. Expenses and amounts otherwise allowable which are directly allocable to any class or classes of exempt income shall be allocated thereto; and expenses and amounts directly allocable to any class or classes of nonexempt income shall be allocated thereto. If an expense or amount otherwise allowable is indirectly allocable to both a class of nonexempt income and a class of exempt income, a reasonable proportion thereof determined in the light of all the facts and circumstances in each case shall be allocated to each. The issue of whether petitioner’s ministry expenses are deductible against his tax-exempt parsonage income has been examined by this Court before. In McFarland v. Commissioner, supra, we held that ministry expenses incurred by the taxpayer were indirectly allocable to a class of nonexempt income and a class of exempt income when the taxpayer’s only business activity was his ministry and he received both taxable compensation and tax-exempt parsonage allowance. Likewise, in Dalan v. Commissioner, supra, the Court held that section 265(a)(1) barred the deduction of the taxpayer’s ministry expenses to the extent the expenses were allocable to his tax-exempt ministry income even though the taxpayer had nonexempt income from his job as a guidance counselor. See Deason v. Commissioner, supra (minister taxpayer denied deduction for automobile business expenses when virtually all income earned during year was tax-exempt parsonage allowance under section 107.) Petitioner’s circumstances are not factually distinguishablePage: Previous 1 2 3 4 5 6 7 8 9 10 Next
Last modified: May 25, 2011