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Surviving an IRS Audit

Recently the Internal Revenue Service issued "audit guidelines" for ministers' tax returns. Here are attorney and accountant Richard Hammar's conclusions of the risks and benefits of the new guidelines.

Is a minister an employee or self-employed?

The guidelines inform agents that most ministers are employees for income-tax reporting purposes, and that this is "the first issue that must be determined." The guidelines do not say that all ministers are employees but "are generally considered employees." Self-employed status will be the exception, however, and any minister reporting income taxes as self-employed must expect to have his or her status challenged if audited.

Who is a "minister"?

Happily, the guidelines apply a flexible definition of the term "minister." It is more likely that associate pastors, and clergy employed by seminaries and parachurch ministries, will be considered "ministers" for federal tax purposes. There is less risk of an auditor challenging ministerial status.

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