Clergy E-file question

[MAMalody]

I am getting a reject on a clergy tax return for e-filing. They don't have any apparent earned income, bu they do have a housing allowance. Because of that there is an entry on the SE, but no W-2, no Sch C, no Other Income, no 1099, no Schedule F, no Schedule E, just the 1040 Clergy Worksheet. How do I get this thing through? All I can think of is to convert the info to Sch C, but that stinks because it is incorrect. Anyway, ideas?

[MAMalody]

Oops. Can't use a Schedule C because there is no unused housing allowance. Additional info is that the allowance is $8100 with about $7400 of unreimbursed EBE so only $675 or so is available for SE purposes.

How about, I include the $8100 on line 7 and back it out on line 21 and then go ahead and use the 1040 Clergy worksheet for the IRC 265 limitation computation and transfer the balance to the SE like you are supposed to? What do you think?

[JohnH]

Mike: For what it's worth...

I paper file but I picked up a new clergy return this year whose prior preparer did efile for 2008. His return showed exactly what you're describing - an entry on line 7 which included the H&U allowance (in this case it was erroneously included on the W-2) and then a negative entry for the H&U allowance on Line 21. The Lined 21 notation simply said "H&U Allowance reported on Line 7 in error". The e-flinging paperwork was included in his copies, so I'm assuming it flew.

[JJStephens]

Mike-- like you, I do a lot of clergy returns and have run into the same problem several times. I just recorded $1 of interest so that the return shows a positive gross income. That has always done it for me.

[MAMalody]

Here's what happened. Client has no w-2, Schedule C, E or F, no partnerships or any recordable source of earned income. He is a pastor and does receive the housing allowance. Return was rejected because of no earned income. Tried putting earned income on line 7 of 1040 and backing out on line 21. Return rejected same reason. Called E-file help desk. They looked at return and said have no clue, we will get back to you. They called me yesterday and said we have no idea what to do, this would require special handling so it would be best for client to paper file. I asked what the problem was and they said they weren't set to handle this situation and could find nothing wrong with the return. Told client to paper file return. Jeez, now I have to take the time (maybe) to mention this to ATX hoping they will bring it up to IRS because person on phone could not seem to grasp that she needed to let her supervisor know of this problem. Just thought I would let you now.

For those who want to know, the code/regs do indicate that if you have income on line 2 of SE that you can use that for EIC computations.

[Margaret CPA in OH]

This is an interesting scenario for sure. More interesting to me is how, with no discernable income, this pastor lives. The housing allowance must be substantiated as the actual cost, more or less, so how does this person, say, eat or operate a vehicle? Just curious. I wish our pastor could survive on housing allowance only. It would surely help our budget!

[jainen]

>>

I didn't know what "unreimbursed EBE" was so I Googled it and found it means Extraterrestrial Biological Entities. I can understand why some clergy (depending on their religion) might not want to pay those guys back, so I would include it in taxable income.

According to Pub 1345, there are some returns "with rare or unusual processing conditions or that exceed the specifications." Apparently the IRS can't readily warn us about these because the conditions change from year to year. They rely on the software documentation and support program to let you know when you need to paper file. Documentation and support is one of the key factors in why some software costs more than others.

[Lion EA]

Someone mentioned putting $1 of interest on the return as an AGI of $0 seems to reject at e-file. But, I do agree that due diligence suggests you ask some questions. How does he buy food, clean underwear, gas for his car, send birthday cards to family, etc.?

[MAMalody]

Client has a small amount of unearned income, his wife has nontaxable disability income and his house is provied by the church.

[kcjenkins]

I used to have a pastor with very similar situation, [he has since died], who was semi-retired, lived on his savings mostly, but preached for a small country church that only provided the parsonage, no salary, because he did not want them to pay him. That was before efile, but the IRS did not have a problem with taking his check for the SE tax, even tho at 73 he was not going to get anything for it that he was not already entitled to. But he kept the amount to a minimun. I remember in his last year he owed less than $10., all SE tax.