Ministers are allowed to opt out of Self Employment tax by filing Form 4361 with the IRS. Some refer to this as Social Security. There are a number hoops and hurdles a minister must jump through in order to opt out. Once the Form 4361 is approved, it is irrevocable unless Congress allows it.
An approved Form 4361 is very difficult to replace. Without the approved form, it is hard to convince the IRS and the Social Security Administration that the minister is exempt from Self Employment tax. The courts have allowed the exemption without an approved form where the minister has retained proof that he filed the form.
When I prepare a ministers tax return, I ask if they have opted-out and for a copy of the approved Form 4361. Occasionally a minister will not have a copy of their approved Forms 4361. To make matters worse, they also do not have any evidence of filing the form with the IRS. In the past, I have had little guidance to give to them regarding how to obtain a duplicate of the approved form. However, the IRS recently published a Minister Audit Techniques Guide reviewing all the rules regarding ministers for its agents.
An IRS agent can confirm the exemption by:
- For ministers who filed the Form 4361 after 1988, the agent can order a transcript for the year under audit. Included on this transcript should be an indicator that tells the agent the minister is exempt from Self Employment tax.
- If the transcript is not an option, the agent can contact the Taxpayer Relations Branch at the IRS Service Center where the Form 4361 was filed and request a copy of the form.
- The last option is to contact the Social Security Administration in Baltimore and ask them to provide confirmation of a minister's exempt status.
If you are a minister and cannot locate your approved Form 4361, please call Kenneth Hoffman at 954-591-8290 or email him for assistance in obtaining a copy of your approved Form 4361. It is better to know for sure you are exempt, then to discover you are not exempt when a large tax bill is sent your way.
Kenneth Hoffman counsels Entrepreneurs, Professionals and Select Individuals in taking control of their taxes, and businesses. Discover how I can help you overcome your tax and business challenges. To start the conversation or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday between 8:30 a.m. to 1:00 p.m. for a no cost consultation, or drop me a note.
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