The clergy housing allowance, that magnificent tax break provided by Uncle Sam to ordained ministers which allows them to exclude from income taxes a sizable chunk of their clergy income, is under scrutiny. Nothing new here. Among the many lawsuits the Freedom From Religion Foundation keeps juggling is one that seeks to have the cash clergy housing allowance unconstitutional. The FFRF website describes their suit thusly,
FFRF is asking the court to rule the provision unconstitutional because it provides preferential and discriminatory tax benefits to ministers of the gospel. The section “directly benefits ministers and churches, most significantly by lowering a minister’s tax burden, while discriminating against the individual plaintiffs, who as the leaders of a nonreligious organization opposed to governmental endorsements of religion are denied the same benefit.” Clergy are permitted to use the housing allowance not just for rent or mortgage, but for home improvements, including maintenance, home improvements and repairs, dishwashers, cable TV and phone fees, paint, towels, bedding, home décor, even personal computers and bank fees. They may be exempt from taxable income up to the fair market rental value of their home, particularly helping well-heeled pastors.
The FFRF won a federal district court judgment a couple of years ago but it was overturned on appeal because the plaintiffs (couple of FFRF employees) lacked standing. They think they have this point addressed. I’m told that we can look for a ruling this Summer. Perhaps the court will time it with the SBC annual meeting in June for maximum weeping and gnashing of teeth.
A weighty paper by Professor Adam Chodorow of Arizona State University is arguing that the allowance is unconstitutional. I’ve read the 57 page paper, “The Parsonage Exemption,” but then I am retired and have time for such things. I prefer the summary article by my CPA friend from north of the Mason-Dixon Line, Peter Reilly, who has taken an interest in the housing allowance. Why should a busy semi-retired pastor do the heavy lifting when someone as astute as Peter is willing to do it? He quotes the Professor,
Placing the parsonage exemption in its proper tax context makes clear that (1) other tax-free housing provisions and exemptions for religious organizations cannot provide the parsonage exemption constitutional cover; (2) the parsonage exemption involves significantly more entanglement than would the generally applicable housing provision; (3) permitting ministers to receive taxfree housing violates the core tax principles of horizontal and vertical equity; and (4) other exemptions for religious organizations cannot justify the parsonage exemption.
To the average Southern Baptist pastor or staff member (or professor, or Christian school basketball coach, or teacher, ordained of course) all these arguments are more impenetrable than the smattering of Koine Greek that most of us know and more like Hebrew which reads backwards and doesn’t use regular letters. We will be spectators on the matter, although we expect our lobbying arm, the Ethics and Religious Liberty Commission, to speak up for us and file a heavy amicus on the case.
I’ve discussed this matter enough to know that my clergy brethren like to appeal to a couple of justifications for taking part of their salary in cash and being able to spend that, income tax free courtesy of our wonderful government, on living in their owned or rented domicile.
- I deserve a housing allowance for my home just like ministers who are required to live in church-owned parsonages because I am expected to entertain church folks, have receptions, and maybe hold prayer meetings at my home. Sorry, this is about as asthenic an argument as can be advanced. (I alliterate out of respect for my brethren who think this way).
- I deserve a housing allowance because I have to pay self-employment taxes, all of it, on my entire salary and the housing allowance. Woe is us on this point. But this is irrelevant to the constitutionality of the cash housing allowance.
- It’s a small tax break. I need it. This might be the best argument.
There are some messy, confusing, conflicting church-state issues. This is one that would both stink and sting if it is ruled unconstitutional.
We may just have to trust the Lord no matter what.
_______
The photo is Dave Miller’s house. He can exclude from income tax up to the fair rental value of the house, furnished, with utilities…if the church pays him that much.
If I recall correctly, religious tax emption was based on the principle of religious freedom, since taxation was viewed as a form of control.
Read the professor’s paper. He tackles the several church-state issues involved. It seems unseemly to me to insist that clergy need this tax break to uphold their religious freedom. After all, they didn’t have a cash housing allowance for about 40 years after the income tax was adopted. And, as layman Bob notes below, clergy get a double tax break if they itemize interest on their mortgage.
That house is not Dave Miller’s. He is not into Georgian architecture. Also, he doesn’t like Greco-Roman statuary. Furthermore, Iowa is so cold that there is never a time when the lawn is green.
News items have more impact when the illustrations are in-sync with the text.
On a more serious note. I really don’t know what to say regarding the idea of allowing pastors to have some portion of their salary be tax free.
Roger OKC
I’m not sure how I feel about this one … I can see both sides. But last I heard, ministers could deduct the interest expense on their mortgage, which they seemed to be paying with untaxed income anyway. And that sure doesn’t seem right.
It may be just something like double dipping that brings the whole thing to an end.
If we lose the housing allowance, we should no longer be required to pay self-employment tax. If we’re going to be treated like regular employees in that aspect, we should be treated like regular employees in all aspects related to taxation. I haven’t run the numbers, but for those of us with modest incomes and lots of deductions, we might come out better in that scenario. Unfortunately, the pain of making up the difference in FICA payments would then fall on the churches we pastor.
Adam is correct — “then we should no longer be required to pay self-employment tax.”
However — the full-time evangelist would not have a church to pay their part of the tax. Nor, retired ministers — and probably other types of ministers not employed directly by a congregation.
I get what you are saying, but the full-time evangelist is more truly self-employed. There is no real sense in which I am self-employed, but the IRS views me that way for the purposes of collecting self-employment taxes.
I get the religious freedom reasons for the way things are, but those same reasons apply to the housing allowance. If the argument of religious freedom is found to be lacking with regard to the housing allowance, it should also be found lacking with regard to FICA.
The two aren’t related, Adam, except for the minor point that they both affect the humble parson’s pocketbook. The history is different.
There’s a simple work around for that. Ask your church to pay you a social security equivalent amount.
Different history does not = unrelated. They are very much related. Either pastors should be treated as normal employees of their church for tax purposes or they should not. The IRS should not have their cake and eat it too at the expense of pastors all across this country.
As a CPA and licensed minister I have thought how easy it would be to (1) establish a church, (2) file a form 4361 to opt out of self-employment tax, (3) donate $3,000 monthly to the church, and (4) have the church prepare a W-2 showing only an annual housing allowance of $36,000. Result: I recognize a $36,000 charitable contribution (with some risk of audit) plus my mortgage interest & property deduction, and pay no income tax on $36,000 of income. I’m guessing someone has already pursued this (legal) strategy. But I think it might be time to pay heed… Read more »
In this world of toil and tribulation, in which ministers of the gospel are sometimes subject to the unreasonable expectations of others, the ridicule of skeptics and the loneliness of a calling in which one’s first name becomes “Brother,” the significant financial benefit of our illustrious, double dipping, clergy favoring, “keeping-one’s-head-above-water” Housing Allowance exclusion from income proudly stands as a brightly shining beacon, a harbinger of the heavenly light we will not experience until we walk on streets of gold, an occupational perk that in some minor way acknowledges the fact that all heroes do not ride in limousines, walk… Read more »
Frankly, other than the increased expense it would cost my church, I’d be happy to lose the housing allowance if I can also shed the self-employment status. It would make filing my taxes much easier. I’m tired of people thinking pastors like me receive some kind of tax benefit that is either non-existent or very minimal. Lot’s of laypeople know about the housing allowance, even if they don’t really understand it. Most do not realize that pastors pay 100% of their FICA while those who work normal jobs for an employer only pay 50%. I’ve heard of churches justifying meager… Read more »
You are arguing for the government to tax all churches. Might want to think about that.
IRS didn’t decide anything. Clergy asked to be self employed. There’s more to this than has been put here.
I know about getting tapped for quarterly tax payments. But, rather than ask the government to force churches give every clergy employee a raise, why not let the minister ask for it himself? The additional dollars are the same to the church.
Churches already have employees who are not ministers. They already have to pay half of FICA for those employees. Why not ministers as well? How is that any more intrusive? Also, my previous church did give me additional funds to cover half of my self-employment taxes. But those funds are then also subject to income taxes and self-employment taxes. My previous church figured that in and payed me enough to cover that too. But it ended up costing them more in the long run to do that than if they had been allowed to pay that money directly to the… Read more »
One may be convinced that the HA and SECA taxes are related but the latter doesn’t figure into the legal arguments for or against the constitutionality of the former. But this is the usual route these discussions go. It may be that we end up without the HA while still paying SECA taxes, but I think the HA will survive.
Pay your tithe. Pay your taxes. Complain about either or both if necessary.
If the end result is that Roman Catholic monks living in a church-provided residence do not pay taxes upon the value of their lodgings but Southern Baptist church planters living in an apartment do, then that end result amounts to what I (and many) regard as an unconstitutional favoring of one ecclesiology over another and of wealthy, propertied churches over poor ones.
That’s been part of the argument but another section of the tax code covers employees who are required to live in employer provided housing for the convenience of the employer. The constitutional challenge doesn’t aim at that one. There’s the wrinkle of the social security taxes on this. I don’t know all the details of RC monks relative to SS and medicare, taxes and benefits. I’d defer to my more monkish Southern Baptist colleagues. The HA challenge is aimed, as you know, at the cash allowance which supposedly was justified by clergy being stalwart opponents of Communism and to equalize… Read more »
That may well be the outcome, but regardless of what the courts eventually say, it is helpful, I think, for us to clarify what we (believers) think about the matter. Your posts help us to do that, and I am therefore thankful for them. I do know and perceive the differences between employer-provided housing and employee-purchased housing. That’s why I rather carefully chose the example of a church planter. I live in a parsonage. Some churches do not have a parsonage because they are affluent and prefer to let a pastor choose and pay for his own house. On the… Read more »
I’ve linked two legal scholars on the cash housing allowance. One calls it constitutional; the other unconstitutional. Both call it bad tax policy. Nothing in the history or argumentation seems overwhelming for either side. I’m not seeing the church planter example as very overwhelming either. It may be that Joel Osteen, Stephen Furtick, Phil Driscoll et al drive the decision because of the absurdity of those cases. If those are the reason for pauper church planters getting the income tax exclusion, the whole business might be better junked. The Minnesota federal district judge who ruled against it in 2014 will… Read more »
William, what will you do with all of this guilt when nine justices say it’s Constitutional? 🙂 The Professor’s newest article seems to do a workman-like job of laying out the history, before jumping to his preferred conclusions about today’s ideal tax theory. It may be true that the IRS, from 1954 forward, has become increasingly suspect and restrictive of cash-reimbursement fringe benefits for housing. However, the cash side of the Housing Allowance was codified in 1953. In Walz, the Supreme Court said states can’t pass a special tax break for religious persons. It does not say that, given a… Read more »
Lawyer Jon has no doubt actually read the earlier decisions and the law review article. I appreciate his contribution here. Maybe it’s billable hours for some client. 🙂
Oof. If I had clients willing to pay for my comments at sbcvoices, I wouldn’t roll around on the fourth day. 🙂 Whether I’ve misintuited your feelings on “our sacred tax benefit” or not, I don’t resent the post — keep raising the issue! We probably share a fear of pastoral asthenia in this area, though we may differ on the source of the weakness. Maybe some day, I can get a minister to answer before this layman: “The church funds used for the pastorium shouldn’t be taxed, and not because we made a deal with the IRS. Hands off… Read more »
Maybe as a trade off, us, and any other self employed person, will no longer have to consider health insurance as income and pay taxes on it as well.
Heck, I finally just paid the IRS off with monthly installments because salary/housing and everything else barely covers the bills, of which I have few, let alone taxes, which I do have deducted, at least what I can afford to. I guess they want to get back to receiving that monthly check from me ?
I cannot see how the housing allowance is unconstitutional. I can see how it could be considered bad tax policy.
The federal judge that found it unconstitutional said, “…the exemption provides a benefit to religious persons and no one else, even though doing so is not necessary to alleviate a special burden on religious exercise.” Thus, a violation of the establishment clause of the first amendment. Others, like you and me, don’t share the finding. The Federal appellate court didn’t rule on her decision, just on the lack of standing of the plaintiffs. This time around I expect that the decision will be the same at the district level but will wind through the courts, perhaps to the Supreme Court.… Read more »
But aren’t there tax breaks given to lots of people that aren’t given to others? Are ALL of them unconstitutional? Our tax code is riddled with “benefits” for some and not for others….it’s the way it is. Besides (originally) the Constitution does not prohibit the government from acting favorably towards religion in general (so long as actions are impartial)… It only prohibits the govt from Establishing a religion or prohibiting the exercise of religion. The clergy housing allowance does not establish official religion and does not prohibit the people from free exercise and as far as I know it’s extended… Read more »
Tarheel,
I agree.
There are tax breaks all over the place. We should gratefully accept any and all we can get.
David R. Brumbelow
The law review article I linked above, professor Chodorow’s, does a good job of giving the guiding precedents. You guys don’t work but a day and a half every week. You’ve got time. Read the 50 or so page document.
Most of Tarheel’s rulings don’t drive the decisions.
One observer of these matters noted that judicial decisions in these area aren’t particularly satisfying to any side.
William, I understand that liberal interpretation’s that are not originalist in nature will disagree with what I said above… But the Constitution does not forbid favorable treatment of religion… It only forbids governmental establishment of religion or government suppression of religion… The ministers housing allowance does neither.
As long as these anti religion groups continue to go around judge shopping – which is the common liberal practice – they will continue to get favorable rulings.
Hopefully though at some point the constitution will prevail.
In fact – it should be argued that striking it down *simply because* it benefits religion is in fact unconstitutional. (which is what that judge in Minnesota did in his ruling)
Correction to my 11:16 comment….
*It only forbids governmental establishment of religion or government suppression of religious excercise/expression. The clergy housing allowance does neither.
“She” not “he.” Baptist Press attacked the judge back in 2014. Her previous rulings are worth noting but I’d rather see us address some of the issues. There is considerable ire at clergy over this sweet tax break.
“There is considerable ire at clergy over this sweet tax break.”
Then those opposed should contact their legislators and ask them to overturn the law permitting the cash HA. Then those legislators will have to answer to their other constituents regarding the matter. Our forebears would start a revolution over unelected judges forming tax policy.
Those who disagree with Adam should forego their constitutional rights?
Well, baptists preachers are supposed to tell folks what they should do…and I do my share.
Who’s suggesting that anyone should forgo their constitutional rights? The way to have laws you disagree with overturned is through the legislative process. That’s all I said. I’m happy for those who want the HA overturned to make their argument for that. But they should be making their argument to the legislature not the judiciary. Just because you disagree with a law doesn’t make it unconstitutional.
“…But they should be making their argument to the legislature not the judiciary. Just because you disagree with a law doesn’t make it unconstitutional.”
Amen and Amen.
Also, this issue is not the only one that this statement is wholly true for!
“There is considerable ire at clergy over this sweet tax break.” There is considerable ire against all sorts of “groups” who get tax breaks not available to ones who are ired….but that does not make such breaks unconstitutional. People have ire toward the “rich” for thier “sweet tax breaks” are they unconstitutional too…. The housing allowance – bad tax policy? Maybe. Abused? certainly! – just like other tax statutes….but even random abuse does not make the HA unconstitutional… I (and I’d venture to say most clergy who receive the HA) would be on board with tweeks to the relevant statutes… Read more »
I am a layman so I am not in a position to say a thing regarding the tax situation that pastors have. However, from personal experience I can observe that differing tax situations can really get your attention. I used to work for a Fortune 500 company in Silicon Valley as a Microcode Development Manager. After retirement, I started doing the same thing as a consultant. I had to send the IRS tax payments every quarter based upon a “rule of thumb” guide provided by the IRS. At the end of the year I owed the IRS an additional $18,000… Read more »
I am a huge fan of the flat tax. Everybody pays 10% regardless of income. It would simplify everything and take away all these crazy exemptions.
Religious exemption based purely on a Constitutional basis is one thing, but incorporation under 501(c)(3) introduced quite another, which was to generally silence the church in the political realm in fear of getting tax exempt status revoked. In this sense, 501(c)(3) has acted in effect as a bribe to throttle clergy influence.
“Under the Internal Revenue Code, all section 501(c)(3) organizations are absolutely prohibited from directly or indirectly participating in, or intervening in, any political campaign on behalf of (or in opposition to) any candidate for elective public office.”
Irrelevant here, Doug, but a good topic.
I’ll admit to incendiary posts and comments but unless there’s something I see that’s news or is interesting about the HA, I generally let the subject lie. I thought the article by the prof was a good treatment of the relevant statutes, decisions, and issues. I always get invited to give back my HA if I don’t like it (I like it) and the reaction seems to be that we ought not to talk about such tawdry things, as if we might harm our chances of keeping it when folks find out about it. It’s a thankless task but I’ll… Read more »
I just do not think that the determination as to whether we keep it or not should be in the courts at all….its not violating the religious establishment clause, or the religious prohibition clause in any way shape form or fashion – and if you or anyone else wants to get rid of it – the work to change the tax code – and that is done through congress not the courts…well at least its supposed to be. I ask again: How is Joe blow taxpayer hurt any more because I as a pastor get a HA and he does… Read more »
I’ll bite. Your neighbor Mr. Blow is not directly “hurt” by you receiving a housing allowance. He is indirectly “hurt” as a citizen-debtor to the public debt which results from the preference in the same way all tax preferences hurt all citizens (at least taxpayers) some and directly benefit those who receive the preference. Your example of the child tax credit is entirely apropos. But surely we all know why it is of interest to the courts, particularly those with judges who hold to a more activist perspective. The march of secularism proceeds apace, and the fact that any church… Read more »
Tarheel pronounces that the HA doesn’t violate the establishment clause. Pity that his word isn’t ex cathedra. We deal with the reality we have not the one we wish we had.
Adam and Tarheel declare the courts to be an inappropriate venue for deciding the law here. Maybe so but it’s the system we have. Again, the reality we have…
The paper and the earlier decision address the issues.
Alright then faux king of all snark William the wise – tell me without touting some revisionist liberal activist jumbo jumbo – how a clergy HA that is allowed without preference to clergy of all religions “establishes a religion” in the sense the founders meant the clause?
Given that the specific context of the Founding Fathers was of an “established church” being one that received tax money, there’s not one. After all, the Founders didn’t really plan on an income tax at all, since it took an amendment to make that happen. But, if you want to go down that road—tax breaks for paid clergy provide a governmental prop-up which benefits churches paying clergy. Therefore, the government advantages religious groups who believe in paid clergy while those who believe in volunteer leadership and tent making receive no such advantage. Therefore, the local Mormon elder is underwriting the… Read more »
Tarheel, read the article. He makes the case. I don’t buy his conclusion but think he touches the relevant issues.
You express your opinion as if it’s settled law. The whole point is that it is not. I don’t think we make much progress by going ad hominem on this.
Next time I’ll use a photo of your tax free mansion.
William,
And you speak as if your parroting of others opinions is settled law. It’s not.
What is settled law is the code that is currently in effect and without demonstration that it’s actually unconstitutional (beyond some people don’t like it and it’s a break others don’t get – as neither of these make it unconstitutional) it should be left alone by courts.
If people want to change the tax legislation – they need to do it… Imagine this… Legislatively … and not judicially.
Judicial remedies are available and may be employed. We use them. The other side uses them. We don’t like when the other side uses them because they are more likely to be successful.
Again, I’ve linked knowledgeable people who address the issues and come out on opposite sides. My parrots are far more expert than I or anyone here…and they don’t parrot each other.
See you in Phoenix where we can settle this the Baptist way, over food.
From what I’ve read, this conversation has been limited to local (presumably, senior) pastors. I’d also state up front I’m far from an expert in this area, but interested in William’s thoughts especially. So…What about those “ministers” benefiting from the HA in other contexts? For example, my church history professor father gets the HA, yet he has colleagues who perform basically the same job (teaching religion) at the same school who are not ordained and thus do not benefit from the HA — which is a nice perk. Or consider a denominational context. I’m not ordained, didn’t go to seminary,… Read more »
Some of those people are likely getting an HA outside of the guidelines–there is more to the IRS test for “what is a minister” than just ordination.
But that’s probably a whole ‘other discussion.
IRS Publication 525 states: “The home or allowance must be provided as compensation for your services as an ordained, licensed, or commissioned minister.” A tax commentary service comments that “To benefit from the exclusion, the residence or rental allowance must be provided as compensation for the functions commonly performed by a clergyman.” Is the church history professor’s HA compensation for his “services as an ordained, licensed, or commissioned minister”, particularly when other non-ordained faculty do not receive the HA? Here’s the answer from the IRS regulations: “Examples of specific services the performance of which will be considered duties of a… Read more »
“Integral agencies” Is the key. Those permit ordained basketball coaches to receive the HA.
There’s a long list of IRS questions that attempt to help decide who is a minister. Ordination settles most of the issues but one can see why the IRS has to have some guide for this even though no one wants some bureaucrat deciding who is a minister and who is not.
The issues get complex. But it’s fun to delve into them.
BDW, your musing about online ordination reminded me of something that happened when I was a young preacher. A man had chosen church music as his profession. After several years as a full time music director, apparently his and his church’s views changed after studying tax theology. He became called into the ministry of music and was ordained by his church.
BTW, I think the HA is a nice tax break, constitutional, not too costly to the federal treasury. I believe a cap on the maximum amount (cash, not parsonages, dont want the Cardinal to give up his diocese owned palace) would solve the absurdity of the mansion dwelling brethren and sistren excluding enormous sums from income taxes. The cap could be what a four star general gets. I don’t know how to fix what some see as the abusive practice of ancillary church agency employees (basketball coaches et al) receiving they HA?
I like my HA. I take advantage of it. I like that tithes to our church are deductible. Neither of these are hills to die on for me. I will take advantage as long as allowable, but my life and ministry will not be changed when they are gone.
Steve Young