Housing allowance for clergy challenged in court
A lawsuit challenging the constitutionality of the long-standing federal and state tax exemptions for housing allowances provided by churches and religious institutions to members of the clergy has been allowed to proceed in federal court.
The Christian Examiner on-line reports:
The lawsuit was filed by the Freedom from Religion Foundation in October 2009 challenging Section 107 of the Internal Revenue Code.Section 107 states that “In the case of a minister of the gospel,” gross taxable income does not include the rental value of a home furnished as part of compensation or, notably, the housing allowance paid as part of compensation.
Clergy have been allowed to deduct their housing allowance since the 1950s. For most churches, a housing allowance has taken the place of providing a home or parsonage to augment clergy’s often-meager salaries.
The May 21 ruling denied the U.S. Department of the Treasury’s motion to dismiss the case. U.S. District Judge William Shubb ruled that “plaintiffs have alleged sufficient facts” to proceed with the lawsuit.
Shubb also wrote that if the alleged facts are true, that “leave[s] open the possibility” that “Section 107 goes too far in aiding and subsidizing religion by providing ministers and churches with tangible financial benefits not allowed secular employers and employees.”
Alan Blanchard, president of Church Pension Fund for the Episcopal Church, warned in a letter, that unless Congress steps in, the court may declare the housing allowance exemption unconstitutional. A decision like that he wrote, "would cause an unprecedented tax increase and burden for clergy."
I'm a little confused about this story. Alan Blanchard hasn't been President of the CPG for a number of years now. There was an effort to overturn this section of the IRS Code several years ago, when Blanchard *was* President. Is it possible the story is in some kind of time-loop?
Bruce Robison
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May 28, 2010 4:25 PM
Well, I started by checking Snopes, and then doing a search on Google News. I found the decision here. So, this is current. This subject has come up before, and the quote from Alan may be from a previous suit.
I've lived with the housing allowance exemption for almost 30 years, and I'm not so sure I couldn't live without it. The clergy-specific parts of the tax code allow me to deduct housing allowance from my income, but of course that isn't a reduction in my taxes per se, but only on the income I pay taxes on. On the other hand, I also pay Self Employment Tax in lieu of paying Social Security Tax. I also pay my own Medicare taxes. Because I'm clergy, and making quarterly tax prepayments, there's no withholding to soften that blow. There's also no replacement payment from my institution to cover the difference (something I know some congregations pay). Sometimes it seems the 7.5% of my income that I pay in Self Employment and Medicare taxes is just about equal to the actual reduction in my income taxes as a result of my housing allowance.
There is, or at any rate used to be, a non-clergy group that receives housing allowance. That is military personnel living off base. The connection is that both are professions that have historically provided housing. That connection has helped in the past, although there has been disagreement as to whether legislators were less inclined to offend military officers or religious communities. That may not help in this case, if this goes to adjudication. Of course, if this goes far enough a Supreme Court most of whose justices are Roman Catholic will have jurisdiction.
Marshall Scott
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May 28, 2010 10:28 PM
Amen. To ask parochial RC clergy, most of whom receive very small stipends, to pay tax on the value of housing provided (what would be fair rental value for the Archbishop's palace at St Patrick's NY?) without limit (there is a limit on the self-employment part) would be devastating.
And what about the religious orders -- are they next? Just because someone has made a "vow of poverty" and yet has all earthly needs provided (room and board) --- and may have no cash income, still receives a tangible benefit in housing.
Talk about a social experiment!
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May 29, 2010 1:29 PM