Rev. Rul. 57-118

Advice has been requested as to the procedure to be followed by a minister, a citizen of the United States, in order to obtain self-employment coverage under the provisions of the Self-Employment Contributions Act of 1954 (chapter 2, subtitle A, Internal Revenue Code of 1954), pursuant to the provisions of the Social Security Amendments of 1956, approved August 1, 1956, with respect to earnings for services performed in the exercise of his ministry as a minister, in a foreign country, whose congregation is composed predominantly of citizens of the United States.

Section 1402 of the Self-Employment Contributions Act of 1954 provides, in part, as follows:

(c) TRADE OR BUSINESS.-The term `trade or business', when used with reference to self-employment income or net earnings from self-employment, shall have the same meaning as when used in section 162 (relating to trade or business expenses), except that such term shall not include-

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(4) the performance of service by a duly ordained, commissioned, or licensed minister of a church in the exercise of his ministry * * *;

* The provisions of paragraph (4) shall not apply to service * * * performed by an individual during the period for which a certificate filed by such individual under subsection (e) is in effect. * * *

Section 1402(e) of the Self-Employment Contributions Act of 1954 provides, in part, as follows:

(1) WAIVER CERTIFICATE.-Any individual who is (A) a duly ordained, commissioned, or licensed minister of a church * * * may file a certificate (in such form and manner, and with such official, as may be prescribed by regulations made under this chapter) certifying that he elects to have the insurance system established by title II of the Social Security Act extended to service described in subsection (c)(4) * * *.

(2) TIME FOR FILING CERTIFICATE.-Any individual who desires to file a certificate pursuant to paragraph (1) must file such certificate on or before the due date of the return (including any extension thereof) for his second taxable year ending after 1954 for which he has net earnings from self-employment (computed, in the case of an individual referred to in paragraph (1)(A), without regard to subsection (c)(4) * * * of $400 or more, any part of which was derived from the performance of service described in subsection (c)(4), * * *.

(3) EFFECTIVE DATE OF CERTIFICATE.-A certificate filed pursuant to this subsection shall be effective for the first taxable year with respect to which it is filed (but in no case shall the certificate be effective for a taxable year with respect to which the period for filing a return has expired, or for a taxable year ending prior to 1955) and all succeeding taxable years. An election made pursuant to this subsection shall be irrevocable.

Section 1402 of the Self-Employment Contributions Act of 1954 provides, in part, as follows:

(a) NET EARNINGS FROM SELF-EMPLOYMENT.-The term `net earnings from self-employment' means the gross income derived by an individual from any trade or business carried on by such individual * * *; except that in computing such gross income * * *

(8) an individual who is-

(A) a duly ordained, commissioned, or licensed minister of a church * * *; and

(B) a citizen of the United States performing service described in subsection (c)(4) as an employee of an American employer (as defined in section 3121(h) or as a minister in a foreign country who has a congregation which is composed predominantly of citizens of the United States , Underscored language added by section 201(g) of the Social Security Amendments of 1956. shall compute his net earnings from self-employment derived from the performance of service described in subsection (c)(4) without regard to section 911 (relating to earned income from sources without the United States) and section 931 (relating to income from sources within possessions of the United States.

Section 201(m) of the Social Security Amendments of 1956 reads, in part, as follows:

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(2) (A) Except as provided in subparagraph (B), the amendment made by subsection (g) shall apply only with respect to taxable years ending after 1956.

(B) Any individual who, for a taxable year ending after 1954 and prior to 1957, had income which by reason of the amendment made by subsection (g) would have been included within the meaning of `net earnings from self-employment' (as such term is defined in section 1402(a) of the Internal Revenue Code of 1954), if such income had been derived in a taxable year ending after 1956 by an individual who had filed a waiver certificate under section 1402(e) of such Code, may elect to have the amendment made by subsection (g) apply to his taxable years ending after 1954 and prior to 1957. No election made by any individual under this subparagraph shall be valid unless such individual has filed a waiver certificate under section 1402(e) of such Code prior to the making of such election or files a waiver certificate at the time he makes such election.

(C) Any individual described in subparagraph (B) who has filed a waiver certificate under section 1402(e) of such Code prior prior to the date of enactment of this Act, or who files a waiver certificate under such section on or before the due date of his return (including any extension thereof) for his last taxable year ending prior to 1957, must make such election on or before the due date of his return (including any extension thereof) for his last taxable year ending prior to 1957, or before April 16, 1957, whichever is the later.

(D) Any individual described in subparagraph (B) who has not filed a waiver certificate under section 1402(e) of such Code on or before the due date of his return (including any extension thereof) for his last taxable year ending prior to 1957 must make such election on or before the due date of his return (including any extension thereof) for his first taxable year ending after 1956. Any individual described in this subparagraph whose period for filing a waiver certificate under section 1402(e) of such Code has expired at the time he makes such election may, notwithstanding the provisions of paragraph (2) of such section, file a waiver certificate at the time he makes such election.

(E) An election under subparagraph (B) shall be made in such manner as the Secretary of the Treasury or his delegate shall prescribe by regulations. Notwithstanding the provisions of paragraph (3) of section 1402(e) of such Code, the waiver certificate filed by an individual who makes an election under subparagraph (B) (regardless of when filed) shall be effective for such individual's first taxable year ending after 1954 in which he had income which by reason of the amendment made by subsection (g) would have been included within the meaning of `net earnings from self-employment' (as such term is defined in section 1402(a) of such Code), if such income had been derived in a taxable year ending after 1956 by an individual who had filed a waiver certificate under section 1402(e) of such Code, or for the taxable year prescribed by such paragraph (3) of section 1402(e), if such taxable year is earlier, and for all succeeding taxable years.

(F) No interest or penalty shall be assessed or collected for failure to file a return within the time prescribed by law, if such failure arises solely by reason of an election made by an individual under subparagraph (B), or for any underpayment of the tax imposed by section 1401 of such Code arising solely by reason of such election, for the period ending with the date such individual makes an election under subparagraph (B).

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Prior to the enactment of the Social Security Amendments of 1956, the earnings derived by a minister, a citizen of the United States, for the performance of service in the exercise of his ministry outside of the United States generally, did not constitute `net earnings from self-employment' unless such service was performed in the employ of an `American employer,' as that term is defined in section 3121(h) of the Federal Insurance Contributions Act (chapter 21, subtitle C, Internal Revenue Code of 1954). Under the Amendments, a minister can now qualify on an elective basis for such coverage with respect to the performance of service in the exercise of his ministry if (1) he is a citizen of the United States performing services in the exercise of his ministry as a minister in a foreign country, (2) his congregation is composed predominantly of citizens of the United States, and (3) he files a properly executed waiver certificate of Form 2031.

The provisions of section 1402(a)(8)(B), as amended, apply with respect to the taxable years ending after 1956, except, that in order to place this newly included group of ministers on an equal footing with other ministers previously covered, provision is made in the Amendments whereby this newly included group of ministers may, for taxable years ending after 1954 and before 1957, elect retroactive self-employment coverage under the Act with respect to their earnings for such services in a foreign country.

A minister who is serving a congregation in a foreign country composed predominantly of citizens of the United States and who does not desire retroactive coverage with respect to earnings from any such services performed during taxable years ending after 1954 and before 1957 may elect coverage effective with the year 1957 by filing Form 2031 on or before the due date for filing his income tax return for that year or if he desires to elect coverage effective with the year 1958 he has until the due date for filing his tax return for that year to file his Form 2031.

Pending the issuance of the regulations, a minister who desires retroactive self-employment coverage for 1955 or 1956, or both, should make an election in the form of a written statement, addressed to the District Director of Internal Revenue, as hereinafter designated, indicating that, by reason of the Social Security Amendments of 1956, the minister desires to have the Federal insurance system established by Title II of the Social Security Act extended to his ministerial services beginning with the particular taxable years ending after 1954 and prior to 1957 for which he desires retroactive self-employment coverage. No such election shall be valid unless the individual making the election has filed a waiver certificate, Form 2031, pursuant to the provisions of section 1402(e) of the Act, prior to making such election or files a waiver certificate at the time he makes such election. The statement should be dated and signed by the minister and should clearly state that it is an election for retroactive self-employment coverage under the Self-Employment Contributions Act of 1954. In addition, the statement should include the following:

(1) The name and address of the minister.

(2) His social security account number, if he has one.

(3) That he is a duly ordained, commissioned, or licensed minister of a church.

(4) That he is a citizen of the United States.

(5) That he is performing services in the exercise of his ministry in a foreign country.

(6) That his congregation is composed predominantly of citizens of the United States.

(7) (a) That he has filed a waiver certificate. (If so, he should state where and under what circumstances the certificate was filed and the taxable year for which it is effective.); or (b) That he is filing a waiver certificate with his election for retroactive coverage. (If so, show the taxable year for which it is effective.)

(8) That he has or has not filed income tax returns. If he has filed such returns, state the years for which they were filed and indicate the District Director of Internal Revenue with whom they were filed.

The time limitation for electing retroactive self-employment coverage depends upon whether the minister has previously filed a waiver certificate. The following are the time limitations:

(1) A minister who has filed his waiver certificate before August 1, 1956, or who files his waiver certificate on or before the due date of his tax return (including any extension thereof) for his last taxable year ending prior to 1957, must, in order to obtain retroactive coverage, make his election on or before the due date of his return (including any extension thereof) for his last taxable year ending before 1957, or on or before April 15, 1957, whichever is later.

(2) A minister who has not filed his waiver certificate on or before the due date of his tax return (including any extension thereof) for his last taxable year ending before 1957 must, in order to obtain retroactive coverage, make his election on or before the due date of his tax return (including any extension thereof) for his first taxable year ending after 1956.

The waiver certificate on Form 2031 should be filed in triplicate with the District Director of Internal Revenue for the district in which is located the legal residence or principal place of business of the individual who executes the certificate. If such individual has no legal residence or principal place of business in the United States, Puerto Rico, or the Virgin Islands, such certificate should be filed with the office of the District Director of Internal Revenue, Baltimore 2, Maryland. A minister in the newly included group must report his self-employment income on Form 1040, U.S. Individual Income Tax Return, including completed Schedules C and SE. This filing must be done even though the minister is not subject to the Federal income tax. If a minister has previously filed an individual income tax return for a year for which he elects retroactive coverage, he should file an amended Form 1040, including completed Schedules C and SE. A minister who elects retroactive coverage beginning with 1955 should file his income tax return or amended income tax return for 1955 with his district director of internal revenue at the same time he files his request for retroactive coverage and his waiver certificate, Form 2031 (if one has not already been filed). No interest or penalties will be assessed against a minister for late filing, if the failure to file a return within the time prescribed by law arises solely by reason of an election pursuant to the provisions of section 201(m)(2)(B) of the Social Security Amendments of 1956 for the period ending with the date the minister makes an election thereunder.

The instructions in this Revenue Ruling are interim in nature and are subject to modification by regulations to follow. However, any such modification shall not render invalid any act performed pursuant to, and in accordance with, the provisions of this Revenue Ruling.