The minister’s housing allowance has been challenged in court. There have been several challenges in recent years, but last month, Judge Barbara Crabb once again ruled the housing allowance as unconstitutional, favoring a religious group. As of now, it is anticipated that the order will be stayed, meaning it will not be enforced, pending appeals. Once the appeals are exhausted, the order would take effect. Obviously, this would take at least a couple of years.
The case was heard in the Seventh Circuit Court of Appeals and would apply to ministers in that circuit, which includes the states of Illinois, Indiana, and Wisconsin. It would become a national precedent binding on ministers in all states if affirmed by the United States Supreme Court-an unlikely outcome because the Supreme Court accepts less than 1 percent of all appeals. The IRS does have the discretion to follow or not follow the ruling on a national basis. Most likely they would follow it nationally, in order to give consistency to the law nationwide.
Richard Hammar has expressed the opinion that there is a 60 percent chance that the housing allowance will ultimately be disallowed.
Three things to note:
1. There are numerous groups who are putting up a vigorous defense in favor of the housing allowance. Of course, the best defense in the world will not do any good if the law is seen as unconstitutional but there are a lot of people on our side.
2. Judge Crabb did suggest a legislative solution, which is reasonable and feasible as a matter of tax policy. She suggested to amend the code to expand the availability of a housing allowance to taxpayers “who work for tax exempt organizations under § 501(c)(3) and are on call at all times.” Such an amendment would cover most clergy, but few enough employees of secular charities to be feasible as a matter of tax policy. This would take an act of Congress. In the past, Congress has looked favorably on housing allowance issues, so it is a real possibility.
3. The provision of a parsonage is not a part of this, so churches would be free to provide a parsonage to its ministers.
Obviously, many ministers have purchased houses based, in part, on the availability of the housing allowance. Two suggestions are provided along this line. It would be prudent for ministers to postpone any housing purchase decisions until the dust settles and we see what the ultimate outcome is. Secondly, churches should be encouraged to “make their ministers whole,” increasing compensation to cover the additional tax liability of the minister should the housing allowance ultimately fail.
Have a question? Contact John Stancil
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Dr. John Stancil (My Bald CPA) is Professor Emeritus of Accounting and Tax at Florida Southern College in Lakeland, FL. He is a CPA, CMA, and CFM and passed all exams on the first attempt. He holds a DBA from the University of Memphis and the MBA from the University of Georgia. He has maintained a CPA practice since 1979 with an emphasis in taxation. His areas of expertise include church and clergy tax issues and the foreign earned income credit. He prepares all types of returns, individual and business.
Dr. Stancil has written for the Polk County Business Journal and has presented a number of papers at academic conferences. He wrote the Instructor’s Manual for the 13th edition of Horngren’s Cost Accounting. He is published in the Global Sustainability as a Business Imperative, Green Issues and Debates, The Encyclopedia of Business in Today’s World, The Palmetto Business Review, The CPA Journal, and in the NATP TaxPro Journal. His paper, “Building Sustainability into the Tax Code” was recognized as the outstanding accounting paper at the annual meeting of the South East InfORMS. He wrote a book entitled “Tax Issues Faced by U. S. Missionary Personnel Abroad ” that will soon be published.
He has recently launched a new endeavor, Church Tax Solutions, which presents online, on demand seminars on various church and clergy tax issues.
1 comment on “Minister’s Housing Allowance Update”
When I was first hired as a civilian employee of the Dept of Defense my grade was the functional equivalent of a 2nd Lieutenant in the Army. Base pay for a 2nd Lieutenant was about 2/3 of what I got but I had to pay for my housing, health insurance and full retail for things my Army counterpart could get a lower prices at the PX. This made us approximately equal except nobody saluted me and I didn’t have to worry about dodging bullets.
If I was employed by a secular IRC 501(c)(3) organization and able to receive tax free housing as suggested by Justice Crabb it would not take much to convince me to take a corresponding reduction in taxable compensation. Net result, no change to me. I suspect that is how it would shake out. Nothing changed except the bookkeeping.
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