- 6 -
from the cases cited above. Petitioner earned both nonexempt
income as a minister and tax-exempt parsonage income from the
Church. The parsonage allowance is a class of income wholly
exempt from tax under section 107, and section 265(a)(1)
expressly disallows a deduction to the extent that the expenses
are directly or indirectly allocable to his nontaxable ministry
income. Sec. 1.265-1(b), Income Tax Regs.
Respondent argues that a “double allocation” must be made in
this case. According to respondent, the ministry expenses must
be allocated between Schedule A, Itemized Deductions, for his
ministry employment income, and Schedule C, Profit and Loss From
Business, for his other ministry income as well as between tax
exempt and nonexempt income. The Court agrees with respondent.
Because petitioners have failed to provide evidence that
would allow the Court to determine which of his ministry
activities generated which expenses, the Court will allocate the
expenses on a pro rata basis. See McFarland v. Commissioner,
supra. The Court concludes that petitioner’s Schedule C ministry
activities generated 22 percent ($21,438/$99,438) of his total
ministry income, and therefore allocates 22 percent of his
$24,982 of ministry expenses ($5,496) to Schedule C, and the
balance of $19,486 to Schedule A. Because 54 percent of
petitioner’s ministry salary was his parsonage allowance
($42,000/$78,000), 54 percent of his Schedule A deductions
Page: Previous 1 2 3 4 5 6 7 8 9 10 Next
Last modified: May 25, 2011