Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 78-6

1978-1 C.B. 273

Sec. 408
Sec. 1402

IRS Headnote

Ministers; individual retirement account contributions. In determining a minister's net earnings from self-employment under section 1402 of the Code, contributions to an individual retirement account established by the minister, whose church does not have a qualified retirement plan for its employees, are neither excludable from gross income nor deductible as a trade or business expense; Rev. Rul. 68-395 distinguished.

Full Text

Rev. Rul. 78-6

Advice has been requested whether, under the circumstances described below, amounts paid by a minister into an individual retirement account will reduce the minister's net earnings from self-employment for purposes of the Self-Employment Contributions Act of 1954 (chapter 2, subtitle A, Internal Revenue Code of 1954), as in the case of "employer contributions" described in Rev. Rul. 68-395, 1968-2 C.B. 375.

A duly ordained minister, who is a common law employee of a church, conducts religious worship and performs sacerdotal functions according to the prescribed tenets and principles of the church. Although a common law employee, the minister is treated as a self-employed individual for purposes of the Self-Employment Contributions Act of 1954 pursuant to the provisions of section 1402(c) of the Act. The minister has not filed for an exemption, under section 1402(e), from the tax imposed by that Act.

The minister's church has not established a qualified retirement plan for its employees and, as a result, the minister set up an individual retirement account under section 408(a) of the Code. The minister's contributions to the account are deductible under section 219 in arriving at adjusted gross income in accordance with section 62.

Section 1402(a) of the Act provides that the term net earnings from self-employment means the gross income derived by an individual from any trade or business carried on by such individual, less the deductions allowed that are attributable to such trade or business.

Section 1.1402(a)-2(a) of the Income Tax Regulations provides, with certain exceptions not here material, that income that is excludable from gross income under subtitle A of the Code is not taken into account in determining net earnings from self-employment.

Rev. Rul. 68-395 holds that "employer contributions" of a church to an annuity plan are not taken into account in determining a minister's net earnings from self-employment to the extent that such amounts are excludable from gross income under section 403(b) of the Code. The "employer contributions" included a salary reduction that the minister agreed to take, which amount was matched by the church and the total contributed to the annuity plan.

The minister's contributions, in the instant case, to the individual retirement account are not excludable from gross income and thus are not excludable from the computation of net earnings within the meaning of section 1.1402(a)-2(a) of the regulations. In addition, although the contributions are deductible in arriving at adjusted gross income in accordance with section 62 of the Code, they are not deductions attributable to the minister's trade or business within the meaning of section 1402(a) of the Self-Employment Contributions Act of 1954.

Accordingly, the amounts paid by the minister into the individual retirement account will not reduce the minister's net earnings from self-employment for purposes of the Self-Employment Contributions Act of 1954.

Rev. Rul. 68-395 is distinguished.