Q. Suppose that just the eligible living expenses that were incurred by a pastor while alive are eligible for the housing allowance exclusion and subsequently, just the dollars distributed to the extent of those expenses would qualify. Is it the responsibility of the pastor/surviving spouse/accountant to determine so in the year of death, the distribution and 1099 would most likely resemble those in a scenario in which the pastor passes away before a distribution is taken in a given year?
A. It is the way it is worded in IRS Revenue Ruling 72-249 and IRS Publication 517. Remember, it is the accountant that will have the responsibility to determine what really is the official “qualified” housing allowance. The employment agreement of the pastor may also delineate what expenses qualify as part of the housing allowance. In some cases the pastor is provided under their employment agreement $X per month. If the pastor dies the accountant would need proof that the pastor had those expenses before the date of death.