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Answered in 7 hours by:
10/14/2016
Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 4,054
Experience: 20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
Verified

Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.

First, please know that it is very common for the IRS to deny Form 4361 if the initial requirements of the form are not met. Some common

reasons for initial denial are:

An applicant failed to sign the document.

Ministers confuse changing faiths as enough justification for a Form 4361 which is incorrect. The conscientious-objection statement needs to be filled in and included and a simple change of ordination does not meet the criteria of the IRS.

Sometimes denials are granted due to insufficient income earned prior to the filing period or wrong language was used on the form.

The following link contains excellent information you will find helpful:

http://www.thepastorstaxman.com/how-to-make-sure-clergy-social-security-exemption-is-approved/

I have made you an offer for a phone call. Please feel free to accept or deny the offer after you have reviewed the above information. If you do accept, please provide a time that is convenient to call you. I am located in Eastern time.

Thank you and best regards,

Barb

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Customer reply replied 1 year ago

Barbara, happy to do the phone thing. Just waking up here on the west coast.

Have you actually worked with the IRS on a denied 4361?

It wasn't an initial requirement issue. It was a request for additional information that I did not respond to promptly. Am about to...

We'll need to arrange a time for the call. I'm mostly OK this morning

I have not actually worked with the IRS on a denied 4361. If that matters to you, I can opt out so another expert can assist.

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Customer reply replied 1 year ago

thank you for the transparency. Please opt out so another may assist.

I'm opting out now.

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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7,211
Experience: Extensive Experience with Tax, Financial & Estate Issues
Verified

Another expert here....................

I am familiar with court cases dealing with untimely or late filing of the 4361 & over the years have dealt with denials of the 4361, but the specific facts of each set of circumstances are unique and the one thing I can tell you right off the bat is that the IRS (in several court cases) relies on the untimely filing of Form 4361 be a legitimate reason to deny the exemption from SE taxes despite the argument that would otherwise qualify for the exemption from SE taxes.

By way of illustration, in one case "DAVID AND GAIL VIGIL, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent", there was a dispute as to whether or not the Form 4361 was timely filed & approved, and the stipulated facts included the fact that in a subsequent year's audit, the IRS field auditor accepted a copy of a "completed" Form 4361 and determined that the minister was in fact exempted from Self-Employment tax. However, in a subsequent year's examination, neither the client nor the IRS could produce an APPROVED FORM 4361 and the SE exemption was denied. This was after searches of both the IRS and Social Security records failed to produce a record of an Approved 4361. The Court noted that the Social Security Administration keeps such records for 75 years. The point being that timely filing is critical to consideration of any tax filing requirements. Absent some catastrophic reason for failing to respond on a timely basis to an IRS request for information, I'm afraid you may be fighting an uphill battle. Reasons such as hospitalization, death in the family, bankruptcy, casualty losses, etc. would be reasons that may allow additional time to meet proscribed timely filing.

Let me know how you wish to proceed.

Steve G.

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Customer reply replied 1 year ago

Steve, I'd like to proceed.

How do we do so?

*********** cell

Well, I see that you left your cell number, but the site suppresses any personally identifying information, so if you would like a telephone consultation, I'm happy to offer that; however, the site charges extra for that as a Premium Service (I don't control that & don't have any option except to make as estimate of cost beyond a basic telephone call if the matter involves more than a 15 - 30 minute call).

However, I don't like to get involved with extra charges unless I feel there's a reasonable chance of providing worthwhile assistance, so I would prefer that you give me some idea of what the basis for the denial was. I should tell you that where there is a request for additional information, that wasn't responded to on a timely basis, the general position of the IRS is to disallow the application and that being the case, it would normally put you outside time requirements, just as if you never filed in the first place. So, as long as you understand that, and appreciate the fact that your options may be very limited, I'll start the process of initiating a telephone consultation. Just let me know if you still want to proceed.

Steve G.

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Customer reply replied 1 year ago

Basis for denial: IRS requested Articles of Incorporation

Have not responded yet.

Articles are for name of corporation; license is in name of DBA. Have copy of Articles and DBA certificate. Denial was in June 2016 after filing in May... grapevine says I may need to, in essence, refile from scratch. Looking for guidance. Just filed form 1040 and would like to file form 1040X to reclaim Self Employment tax.

Are you talking about the Articles of Incorporation of the Church that you are affiliated with?

What license are you referring to?

Refiling from scratch would merely involve sending what you already sent plus what they asked for. There's no harm in that if you are still within the initial time period for an original filing.

Steve G.

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Customer reply replied 1 year ago

Great! Housing allowance granted Feb 2014, so I believe I'm within the initial time period for an initial filing.

The Church licensed (rather than ordained) me to be a minister.

Should I start from scratch or send the application, license, denial letter, the requested Articles, and the DBA statement?

Sorry for the delay in responding; I had appointments away from my office today.

This how the due date of the 4361 is expressed by the IRS instructions to form 4361:

"When to file. File Form 4361 by the due date,
including extensions, of your tax return for the
second tax year in which you had at least $400
of net earnings from self-employment, any of
which came from ministerial services.
"

That would appear to be the due date for the 2015 return, including extensions, which was 10/17/2016 if you filed for an automatic extension to file Form 1040 for 2015.

However, the granting of a Housing allowance in February 2014 isn't relevant to the timely filing issue. As you can see from the instructions to Form 4361, the key is the year you received earnings as a minister. Even if that was 2014, the timely filing requirement has expired.

So, if you are to continue to seek exemption from Social Security Taxes; the only potential viable alternative is to respond to the IRS's request for additional information. Starting over, doesn't appear to be an realistic option.

As an aside, I feel compelled to ask whether or not you have considered all of the ramifications of being excluded from Social Security coverage. One of the most significant benefits of being covered under Social Security, is the disability coverage should any unexpected accident or illness cause you to be unable to perform your normal duties as a minister. Also, the retirement benefit is substantial and should factor into your decision to seek exemption from Social Security; these benefits extend to your family members also if qualified to seek benefits under you earnings record. As a retired CPA, I can tell you that without the retirement benefits from Social Security, I would have a difficult time maintaining my current lifestyle. In addition, if you are married for at least 10 years, even if you were to be divorced, your ex-wife(s) would be eligible for benefits under your earnings record.

Steve G.

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Customer reply replied 1 year ago

Ha! Typo!

1) First earnings as a minister in 2015.

2) Have very carefully considered the exclusion from Social Security. For me it is not a close call.

Sorry for the mis-statement. Please answer in that light.

There's no change in my thoughts on the best way to proceed.

Respond to the IRS request for information.

If that fails and your tax returns do not reflect any income from your ministry until 2015, then nothing is lost as you will have until 2017 until October 15, 2017 if you obtain an automatic extension to refile your application.

Moreover, don't miss any deadlines again.

As far as the overall question, I sincerely ***** ***** you continue to be healthy and don't need the Social Security Safety Net. You will be the 1st person in 45 years that I have counseled that reached the conclusion that you have, including several members of the clergy. But I respect your decision and presume that you have considered all the relevant facts as they impact your personal situation.

Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7,211
Experience: Extensive Experience with Tax, Financial & Estate Issues
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