Anybody notice the Tax Notes stuff on the FFRF IRC 107 suit?

[Paths of the Sea]

Last Monday Tax Notes published an article from a retired IRS national office lawyer, retired, giving an analysis of the FFRF IRC 107 issues.

Today, Tax Notes published a letter from a retired IRS Appeals Officer which provided details related to Revenue Ruling 70-549, mentioned in the Gompertz article but without the details.

Anyone got opinions on these latest developments regarding the FFRF IRC 107 suit?

Sincerely,
Maury enthusiast!

[Paths of the Sea]

Jay Starkman, an Atlanta CPA, wrote a Letter to the Editor (TaxNotes) in August 2010 after Robert Baty, retired IRS Appeals Officer, wrote his Letter to the Editor (TaxNotes).

Amazingly, it covers some of the same material, but with added details; though it addresses a more fundamental matter regarding transparency.

He says, in part, the following about the rulings:

"Years ago, I made a successful request for FOIA materials relating to the issuance of Rev. Rul. 70-549 and Rev. Rul. 71-7, which pertain to Social Security taxation of teacher-preachers.

Prior to these rulings, the parsonage (housing) allowance for ministers employed by religious schools was subject to FICA. Schools had to withhold and match the FICA tax even though housing allowances are not subject to the income tax. Without any explanation of its reasoning, these two rulings subjected all teacher-preachers to self-employment tax on their parsonage and relieved religious schools from withholding and matching FICA.

The FOIA materials revealed the reason for these parsonage rulings was political. Abilene Christian College, which is affiliated with the Churches of Christ, didn't pay the required FICA. The IRS proposed an assessment against the college for 1964 to 1967 for around $75,000. Congressman Omar Burleson sat on the tax-writing House Ways and Means Committee. Burleson was also a member of the board of trustees of Abilene Christian College.

The college appealed to Burleson. Six IRS conferees met with Burleson on May 6, 1970. He made them an irresistible offer. Rescind the assessment, or he would introduce a legislative fix the next morning. The FOIA documents include an IRS memorandum "that a favorable response should be given to Congressman Burleson [and] that a revenue ruling be published. . . . It was also agreed that any change in social security [from FICA to self-employment tax (SE)] should be done prospectively. . . . " So the IRS issued two rulings without any explanation of its reasoning, subjecting all teacher-preachers to self-employment tax on their parsonage and relieving religious schools from withholding and matching FICA. It was issued solely for political reasons -- the IRS did not want to make an enemy of Ways and Means member Burleson.

To this day, there is no statutory authority or judicial precedent for imposing 15.3 percent self-employment tax on teacher-preachers, rather than 7.65 percent FICA. In its haste, the IRS failed to obtain the required consent from the Social Security Administration for the FICA/SE switching aspect of the ruling. It is the Social Security Administration's domain to define whether income is subject to FICA or SE tax. Yet, every teacher-preacher now pays Omar Burleson's SE tax."

I have noted for years that 70-549 was the result of the political pressure of Bush and Burleson and with results contrary to the facts and the law.

I'm glad to see that Jay appears to share my evaluation.

Perhaps the FFRF IRC 107 suit, particularly as it relates to paragraph #35 of the Complaint, will help promote a public disucssion of such things.

Sincerely,
Maury enthusiast!

[Arthur Rubin]

To this day, there is no statutory authority or judicial precedent for imposing 15.3 percent self-employment tax on teacher-preachers, rather than 7.65 percent FICA. In its haste, the IRS failed to obtain the required consent from the Social Security Administration for the FICA/SE switching aspect of the ruling. It is the Social Security Administration's domain to define whether income is subject to FICA or SE tax. Yet, every teacher-preacher now pays Omar Burleson's SE tax."

I don't know about the rest of this, but it is not the SSA's domain to define whether income is subject to FICA or SE tax.

[Paths of the Sea]

[quote="Arthur Rubin"][quote="Paths of the Sea"]To this day, there is no statutory authority or judicial precedent for imposing 15.3 percent self-employment tax on teacher-preachers, rather than 7.65 percent FICA. In its haste, the IRS failed to obtain the required consent from the Social Security Administration for the FICA/SE switching aspect of the ruling. It is the Social Security Administration's domain to define whether income is subject to FICA or SE tax. Yet, every teacher-preacher now pays Omar Burleson's SE tax."[/quote]I don't know about the rest of this, but it is [b]not[/b] the SSA's domain to define whether income is subject to FICA or SE tax.[/quote]

That quote was actually from Jay's TaxNotes letter.

I don't know about any "required consent", but my information indicates the IRS did actually coordinate its consideration with the SSA and the SSA concurred with the decision of the IRS to make private school ministerial employees subject to the self-employment tax rather than the FICA tax and to do so prospectively rather than retroactively.

I figure compliance with that provision is still somewhat wanting; it being so easy to simply exclude the housing allowance and leave everything else in place. That could be preferred by the employees because of other benefits tied to being treated as an employee rather than self-employed for SSA purposes.

Jay's primary concern in writing that letter appears to have been the problem with a lack of transparency regarding IRS decision making. In that matter, I think Jay was "right on" in figuring out 70-549 was a "sell-out" to political pressure after lower level IRS administrators tried to hold the line and deny the tax handout to certain private school employees as they had proposed doing in at least two earlier administrative decisions.

So it is this year is the 40th anniversary of 70-549 which continues to be exploited by private school employees and which is, as admitted by IRS administrators and affected private school administrators, contrary to the facts and the law (e.g., the private schools are NOT integral agencies of the church or operated as integral agencies of the church).

It's still a story that needs to be told and needs to be more popularly discussed as to its ramifications and implications.

Sincerely,
Maury enthusiast!