A religious residential community qualifies as a "religious order," so its members' support is not taxable wages

Plain-English summary

When people who take religious vows work for their order, the support the order gives them (food, housing, and similar) is exempt from federal employment taxes. This taxpayer is a tax-exempt religious community, inspired by Christian ideals, whose members live full-time in extended-family households caring for adults with developmental disabilities. It asked the IRS to confirm three things: that it is a "religious order," that its full-time members are members of a religious order, and that the room, board, and other support it provides them ("Subsistence") is not taxable wages. Applying the seven-factor test in Revenue Procedure 91-20, the IRS ruled that the community is a religious order and its members qualify as members, even though the community is not controlled or funded by a church (one of the seven factors, whose absence is not by itself disqualifying). As a result, the members' support is not wages for Social Security/Medicare (FICA) tax, federal income tax withholding, or federal unemployment (FUTA) tax. The ruling matters because it lets the community support its members without withholding or paying employment taxes on that support.

Ruling snapshot

• Question: Is the organization a religious order and are its members members of one under Rev. Proc. 91-20, and if so, is the support ("Subsistence") it provides them exempt from FICA, income tax withholding, and FUTA?
• Outcome: Approved (religious-order status confirmed; Subsistence is not wages for FICA, withholding, or FUTA)
• Key authorities: IRC §§ 501(c)(3), 501(a), 3121(b)(8)(A), 3401(a)(9), 3306(c)(8); Rev. Proc. 91-20

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201904008 [Third Party Communication:
Release Date: 1/25/2019 Date of Communication: Month DD, YYYY]
Index Number: 501.00-00, 501.03-20,
3121.02-08, 3402.00-00 Person To Contact:
------------------, ID No. -----------------
Telephone Number:
-------------------
----------------------- Refer Reply To:
------------------------ CC:TEGE:EOEG:EO2
------------------------------------- PLR-115468-18
----------------------- Date:
------------------------------ October 29, 2018

Legend
Organization = --------------------------------------
State = -------------
Residents = -----------
Members = --------------------------------------------------------------------------------------------
Subsistence = ------------------------------------------------------------

Dear ----------------:

  This letter responds to your letter from your authorized representative dated April

18, 2018 and subsequent correspondence submitted on behalf of Organization.

FACTS

   Organization is recognized by the Internal Revenue Service as a tax-exempt

organization described in I. R. C. § 501(c)(3) and exempt from federal income tax under
I.R.C. § 501(a) of the Internal Revenue Code.1 It is a religious residential community
located in State. Organization is inspired by Christian ideals and structured around
many daily religious observances, as well as celebrations of festivals of the Christian

1
The Internal Revenue Code of 1986, as amended, to which all subsequent I.R.C. § references are
made unless otherwise indicated.
PLR-115468-18 2

year. It adheres to the tenets of -----------------------. However, Organization is not under
the control and supervision of a church or convention or association of churches.

   Organization lives out the ideals and worldview of -------------------- through its

dedication to the care and well-being of adults with developmental disabilities
(“Residents”) in its residential community. The community also includes Members who
care for Residents and the Members’ children. The Residents, Members, and
Members’ children live together full-time in extended family households and work
together maintaining the community.

   Members are those individuals who have been in continuous residence at the

Organization’s facility for at least three years, have completed a prescribed course of
studies in --------------------, have completed a discernment process within the
Organization regarding the suitability of their intended permanent commitment to the
community, and have been accepted into an intended permanent residence in the
community. Members agree to strive to live out of ideals requiring moral and spiritual
self-sacrifice and dedication to the goals of the Organization at the expense of their
material well-being.

    Members live and work full-time at the Organization’s facility. They are devoted

full-time to the fulfillment of Organization’s spiritual and religious goals. Members
pledge to faithfully abide by the ideals of the Organization and are held to that standard.
Common and private prayer, reading of Christian scriptures (in light of ----------------------
interpretations), the Bible evening, offering service, and celebration of Christian festivals
are integral to the lives of Members. The Members’ caring for Residents is the
Organization’s core religious objective.

   Subsistence is provided by the Organization to Members without cost to the

Members and without regard to their economic contribution to the community. In
practice this includes meals, lodging, clothing, the use of automobiles, costs of travel,
and medical insurance. Members are also given a modest annual cash allotment for
three-to-four week vacations outside the community. In the case of Members who have
school-aged children, Organization covers the cost of education at two local private
schools with a philosophy similar to that of the Organization. In the case of Members
with college-aged children, the Organization provides such Members with an annual
sum to offer partial aid in support of the college expenses of such children.

ISSUES

1. Whether the Organization is a religious order described in Rev. Proc. 91-20, 1991-1
   C.B. 524.

2. Whether the Organization’s Members are members of a religious order as described
   in Rev. Proc. 91-20.
   PLR-115468-18 3

3. Whether Subsistence constitutes wages for purposes of I.R.C. §§ 3121(a), 3306(b)
   and 3401(a).

Ruling Requests Number 1 and Number 2

Law and Analysis

    The term "religious order" is not defined in the Code or regulations.

Organizations and individuals may request rulings from the Service on whether they are
religious orders, or members of a religious order, by following the procedures in Rev.
Proc. 91-20.

   Rev. Proc. 91-20 states that the Service will use these characteristics, as set

forth below, in determining whether an organization is a religious order and whether an
Individual is a member of a religious order.

   1. The organization is described in I.R.C. § 501(c)(3) of the Code.

   2. The members of the organization vow to live under a strict set of rules
   requiring moral and spiritual self-sacrifice and dedication to the goals of the
   organization at the expense of their material well-being.
   3. The members of the organization, after successful completion of the
   organization’s training program and probationary period, make a long-term
   commitment to the organization (normally more than two years).
   4. The organization is, directly or indirectly, under the control and supervision of a
   church or convention or association of churches, or is significantly funded by a
   church or convention or association of churches.

   5. The members of the organization normally live together as part of a community
   and are held to a significantly stricter level of moral and religious discipline than
   that required of lay church members.
   6. The members of the organization work or serve full-time on behalf of the
   religious, educational, or charitable goals of the organization.
   7. The members of the organization participate regularly in activities such as
   public or private prayer, religious study, teaching, care of the aging, missionary
   work, or church reform or renewal.

  Generally, the presence of all the above characteristics is determinative that the

organization is a religious order. On the other hand, the absence of the characteristic
that the organization is an organization described in I.R.C. § 50l(c)(3) is determinative
PLR-115468-18 4

that the organization is not a religious order. The absence of one or more of the other
enumerated characteristics is not necessarily determinative in a particular case.

 With respect to the characteristics set forth in Rev. Proc. 91-20, Organization does

not satisfy characteristic number 4. The Organization is not either directly or indirectly,
under the control and supervision of a church or a convention or association of
churches, and is not significantly funded by a single church or convention or association
of churches.

  The Organization satisfies the other characteristics in Rev. Proc. 91-20 for a

religious order, and the Members satisfy the other characteristics in Rev. Proc. 91-20 for
members of a religious order. Accordingly, based on our consideration of all the facts
and circumstances, we conclude that Organization is a religious order and that the
Members are members of such religious order.

Ruling Request Number 3

   Law and Analysis

    Taxes under the Federal Insurance Contributions Act (FICA) apply to

remuneration for employment as defined in I.R.C. § 3121(b). Section 3121(b)(8)(A)
excepts from employment, for FICA tax purposes, service performed by a member of a
religious order in the exercise of duties required by such order.

   In this case, we have determined that Organization is a religious order and that

Members are members of such religious order. The services performed by Members
for Organization are duties that are required by Organization’s community. Accordingly,
pursuant to I.R.C. § 3121(b)(8)(A), the Subsistence earned by Members for services
performed by them as members of Organization, a religious order, does not constitute
wages subject to FICA taxes.

   I.R.C. § 3401(a) provides that the term “wages” for income tax withholding

purposes means all remuneration for services performed by an employee for his
employer, with certain exceptions. I.R.C. § 3401(a)(9) excepts from the definition of
wages, for income tax withholding purposes, remuneration for services performed by a
member of a religious order in the exercise of duties required by such order.
Consequently, pursuant to I.R.C. § 3401(a)(9), the Subsistence earned by Members for
services performed by them as members of Organization, a religious order, does not
constitute wages subject to federal income tax withholding.

   I.R.C. § 3306(b) provides that the term “wages” for purposes of the taxes

imposed under the Federal Unemployment Compensation Act (FUTA) means all
remuneration for employment, with certain exceptions. I.R.C. § 3306(c)(8) excepts from
the definition of “employment,” for FUTA tax purposes, any service performed in the
PLR-115468-18 5

employ of a religious, charitable, educational or other organization described in
§ 501(c)(3) that is exempt from federal income tax under § 501(a). Therefore, because
Organization is described in I.R.C. § 501(c)(3) and is exempt from federal income tax
under I.R.C. § 501(a), pursuant to I.R.C. § 3306(c)(8), the Subsistence earned by
Members for services performed by them as members of Organization, a religious
order, is not subject to FUTA tax.

  This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3)

provides that it may not be used or cited as precedent.

   Except as expressly provided herein, no opinion is expressed or implied

concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter.

     In accordance with the Power of Attorney on file with this office, a copy of this

letter is being sent to your authorized representative.

   A copy of this letter must be attached to any income tax return to which it is

relevant. Alternatively, taxpayers filing their returns electronically may satisfy this
requirement by attaching a statement to their return that provides the date and control
number of the letter ruling.

  The rulings contained in this letter are based upon information and

representations submitted by the taxpayer and accompanied by a penalty of perjury
statement executed by an appropriate party. While this office has not verified any of
the material submitted in support of the request for rulings, it is subject to verification on
examination.

                                    Sincerely,



                                    Taina E. Edlund
                                    Senior Technician Reviewer
                                    (Tax Exempt & Government Entities)

Enclosure (1-)