No, not the 2009 Faith Anthony and Jill Wesolik opus, but rather a look at Section 107, of which I was only dimly aware but on which a close relative of mine was at one time an expert. Case in point– Ricky R. Williams and Pamela D. Williams, 2013 T. C. Sum. Op. 60, filed 7/22/13, a “not for nuthin’” Section 7463 small-claimer.

Ricky was a duly ordained Baptist minister and was employed under the terms of a written agreement at the St. Johns Missionary Baptist Church.

The employment agreement was the problem. It set forth Ricky’s wages, but specified a $500 monthly housing allowance for the first six months of Ricky’s employment. The payment could be extended by vote of the Church’s Deacon Ministry, but the agreement said nothing else, and apparently neither Ricky nor the Deacons did anything else.

Ricky and the Deacons tried to amend the agreement retroactively seven years after the fact, and after IRS audited Ricky and Pam and blew away most of their Schedule A and Schedule C deductions, and nailed them for unreported Schedule C income.

No go, says CSTJ Panuthos.

“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 and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities.’ As a prerequisite for this exclusion, the taxpayer must establish that there was a 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.” 2013 T. C. Sum. Op. 60, at p. 6.

The second agreement (or the amended agreement, whichever it is) was not executed before Ricky got the alleged payment. Therefore no exclusion and the deficiency stands.

“We understand that petitioners are not tax experts, but we conclude that they did not act with reasonable cause and in good faith and that they are liable for the accuracy-related penalty under section 6662(a)….” 2013 T. C. Sum. Op. 60, at pp. 9-10.

Parson, get it in writing and get it in advance, lest, like an exalted predecessor, you find you have not where to lay your head.