Abolishing Tax Break for Clergy Housing Allowance?

Denominations and Christian ministries are rallying to fight a legal move that could cost millions of dollars and have a "devastating" effect on their work. They are worried about a threat to a long-standing tax break given to ministers, without which some pastors could not make ends meet.

An appeals court is questioning the constitutionality of the 80-year-old clergy housing allowance following a legal battle between one of the country's best-known pastors and the Internal Revenue Service (IRS).
Judge Stephen Reinhardt of the 9th Circuit Court of Appeals is expected to rule on the issue soon. Meanwhile U.S. Rep. Jim Ramstad, R-Minn., has introduced a bill attempting to head off the possible scrapping of the allowance -- which allows ordained ministers to deduct some of their taxable income for housing costs -- by clarifying that it is limited to the fair market rental of the property.

"Nearly every clergy member in every denomination relies on this tax benefit," he said. "If the housing allowance is invalidated, America's clergy could face a devastating tax increase of $2.3 billion over the next five years." He called the threat to the allowance a "travesty."

The appeals court move follows a four-year fight with the IRS by Rick Warren, pastor of Saddleback Community Church in Lake Forest, Calif., and well known for his "Purpose-Driven" teaching on church growth. In 1996, he challenged an IRS agent's assessment of his new home that valued it below its true worth, eliminating part of Warren's housing allowance.

In a letter to other pastors urging them to help defend the allowance, Warren said the agent made a value assessment without even seeing the property. Warren said that he was told other IRS agents had "bullied" ministers for years and that he took on the IRS "to protect small church pastors from similar abuse."

Although the IRS offered to settle with Warren if he would drop the case, he continued with it -- eventually spending twice the amount of the disputed assessment in legal fees -- to force tax officials to admit there was no standard for determining a property's fair market rental value.

Warren said that it was amazing that while the IRS had not questioned the constitutionality of the allowance, the issue was now being considered by the appeals court. He urged churches and organizations to file "friend of the court" briefs supporting the allowance. Among those backing the campaign are the Evangelical Council for Financial Accountability, Focus on the Family and the Southern Baptists' North American Mission Board.

If the allowance were to be declared unconstitutional, it would have "a devastating effect on churches and other faith-based nonprofit organizations," Warren said. Baptist Press reported that the allowance had been "especially helpful in enabling small churches to have a full-time pastor," and its loss would have a "highly negative impact" on pastors, churches and other religious groups.

Erwin Chemerinsky, the law professor appointed to write a brief on the housing allowance for the appeals court, has said that he believes it is invalid, breaking the church-state barrier. "Religion is treated differently by the Constitution," he told "The Los Angeles Times." "If the government wants to subsidize journalists because it feels they aren't paid enough, I don't have any problem with that. But if they want to do the same thing with regards to religion, they can't."