Real Estate: Will Church Ministers Lose Tax-Free Housing?

1,000 Year-Old Church, near Dijon, France

A federal judge in Wisconsin has ruled that housing write-offs for ministers, priests, rabbis and other clerics are unconstitutional, a violation of the First Amendment’s establishment clause.

At issue was the question of whether clergy are entitled to a tax-free rental allowance under 26 U.S.C. § 107. This federal legislation — first passed in 1954 and amended in 2002 — allows “ministers of the gospel” to receive such a write-off. However, despite the specific language of the legislation, the IRS has broadly interpreted the term “ministers of the gospel” to include non-Christians. What it has not done is include non-believers, meaning that the leaders of the Freedom from Religion Foundation, the atheist group that brought the suit in Madison, WI, are not entitled to a housing deduction.

According to the Pew Research Center, “the number of Americans who do not identify with any religion continues to grow at a rapid pace. One-fifth of the U.S. public — and a third of adults under 30 — are religiously unaffiliated today.”

“Plaintiffs’ alleged injury,” said Federal District Judge Barbara B. Crabb, “is clear from the face of the statute and that there is no plausible argument that the individual plaintiffs could qualify for an exemption as ‘ministers of the gospel.'” Crabb then ruled that the law was unconstitutional and ordered the IRS to end the deduction.

Not only does the law discriminate against non-believers, said the judge, it also discriminates against religious faiths which do not have clergy. In addition, it allows clerics with a parsonage allowance to obtain income tax-free which can be used to pay down a mortgage — and to then write off mortgage interest and property taxes.

Church Ministers and Tax-Free Housing

How much is involved? In 2002 it was estimated that the value of deductions for clerical housing allowances, parsonages, rectories, presbyteries and vicarages amounted to $2.3 billion over five years. Because ministers are allowed to deduct fair market housing costs, including mortgage payments, utilities and furnishings, the bigger the home the bigger the deduction.

There is no doubt that the ruling will be appealed, until then the judge’s ruling is on hold.

26 USC § 107 – Rental value of parsonages

In the case of a minister of the gospel, gross income does not include —

(1) the rental value of a home furnished to him as part of his compensation; or

(2) the rental allowance paid to him as part of his compensation, to the extent used by him to rent or provide a home and to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities.

Source: Legal Information Institute, Cornel University Law School

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1 Comment on "Real Estate: Will Church Ministers Lose Tax-Free Housing?"

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  1. Norman says:

    >>>The case, decided in the District Court for the Western District Of Wisconsin, will likely be appealed to the Chicago-based 7th U.S. Circuit Court of Appeals, which covers the states of Wisconsin, Illinois and Indiana.”

    See: Federal judge: Clergy tax-free housing allowance is unconstitutional

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