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"My husband has been an ordained minister for over a decade. He completed the paperwork to opt out of social security and medicare taxes (within 6 months of being ordained) and has been filing as such ever since.

We recently learned that through a series of misunderstandings and miscommunications, the paperwork was never properly filed and approved. I realize that if we were to be audited, we would not be able to produce a signed copy of the form 4361, only the unsigned copy, which is on file with us and both churches where he has served over the years. So my questions are the following: What should we expect penalty-wise if we are audited? Is there anything we can do to be proactive and prevent that? And most importantly, where do we go from here? The church where we are currently serving is planning to ordain him again, so does that open the window to resubmit the paperwork? Why or why not? And if not, what is our next step? Thank you!”
Clergy Tax
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John Stancil
It would be difficult to determine, given the information available, the extent of the penalties. In addition, there would be interest on the amount of taxes due. The penalties can be negotiated, but not the interest. It is possible that you may be able to have an offer in compromise. This link from the IRS describes the offer in compromise program. Do not go to any of these tax relief companies that advertise on TV. Find a competent attorney who has experience in dealing with the IRS, and hopefully with church and clergy tax issues. Unfortunately, a second ordination does not open the window for another opportunity to opt out. The only opportunity to opt out must be taken by the due date of the second year in which he has $400 in ministerial earnings. Once that window is gone, there is normally no other opportunity to opt out. If the attorney can find reasonable cause it may be possible for the issue to be reconsidered by the IRS, but I wouldn't count on it
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