House approves bill to protect minister-housing allowances
April 19 2002 by Robert Marus , Associated Baptist Press

House approves bill to protect minister-housing allowances | Friday, April 19, 2002

Friday, April 19, 2002

House approves bill to protect minister-housing allowances

By Robert Marus Associated Baptist Press

WASHINGTON - The U.S. House of Representatives may have short-circuited an anticipated constitutional challenge to a special tax privilege enjoyed by American clergy - but future threats to the arrangement still loom.

On April 16, the House passed the Clergy Housing Allowance Clarification Act on a 408-0 vote. The bill, sponsored by Rep. Jim Ramstad (R-Minn.), was intended to pre-empt a case now before the U.S. 9th Circuit Court of Appeals, based in San Francisco.

Legal observers say the court will likely use the case to overturn tax exemptions for ministerial housing expenses. This perk - provided for in the federal tax code since 1921 - has enabled many small and low-income congregations to hire full-time pastors, rabbis or priests.

The exemption means that ordained clergy can deduct housing expenses - often including rent, mortgage payments, utilities and even furniture purchases - from their taxable income, as long as the deduction amount is approved by the clergy person's religious governing body.

The case now before the 9th Circuit originally stemmed from an Internal Revenue Service dispute with Rick Warren, a nationally known pastor and author of The Purpose-Driven Church. Warren's Saddleback Valley Community Church in suburban Los Angeles is affiliated with the Southern Baptist Convention.

The IRS, in auditing some of Warren's tax returns, said he was claiming too high an amount of his income as his tax-free housing allowance. Warren attempted to claim $79,999 - about 80 percent of his income from the church - as a housing allowance, but the IRS auditor asserted that $59,479 was the maximum Warren could claim. The auditor relied on an IRS standard - not found in the original law providing for clergy housing tax exemptions - of "fair rental value" being the cap for the amount clergy could claim under the housing allowance. However, the IRS never clarified how to determine "fair rental value" in such cases.

Warren challenged the standard, claiming that it gave IRS auditors too much latitude in determining what "fair rental value" was. A California tax court ruled 14-3 in his favor.

The IRS appealed the ruling, and it ended up in the 9th Circuit. That's when an unexpected development took place. A three-judge panel of the court voted 2-1 to ask for briefs from both sides as to whether the housing allowance tax exemption for clergy was constitutionally acceptable. The majority judges appointed a University of Southern California law professor, Erwin Chemerinsky, to weigh in on the issue with a brief on the constitutionality of the practice. The professor has been asked to file his brief by May 3.

Chemerinsky has already said publicly that he believes exempting clergy housing costs from taxes violates the Establishment Clause of the First Amendment. That clause prevents the government from supporting or endorsing religion. "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," he told the Los Angeles Times newspaper.

Several observers, including Ramstad, have termed the 9th Circuit's move "judicial overreach" because neither Warren nor the IRS is challenging the allowance's constitutionality. Frank Sommerville, a Dallas attorney who specializes in clergy tax law, said the 9th Circuit has no right to decide whether housing allowances violate the First Amendment.

"Since the parties are not in dispute over the constitutionality, then we believe the court doesn't have authority or jurisdiction to decide the procedural issue," he said in a phone interview. Sommerville participated in oral arguments before the 9th Circuit on behalf of Warren's case.

Sommerville pointed out that the government provides housing-allowance tax exemptions to other professionals as well, such as U.S. military personnel and U.S. employees living overseas.

As for the strategy behind Ramstad's bill, it would codify and slightly clarify the IRS's "fair rental value" standard in the hopes that it would lead to dismissal of the 9th Circuit case before the court could decide the constitutional question.

It rushed through the House in just over a week, an unprecedented amount of time. The bill had the support of the Church Alliance, which represents the benefits-administering arms of several Jewish, Catholic and Protestant denominations - including the Annuity Board of the Southern Baptist Convention.

However, Ramstad's bill does nothing to prevent future, more direct constitutional challenges to the exemption. That's why the National Association of Church Business Administration (NACBA) - while supporting the measure - has noted problems with the legislative quick fix. Another question: "(Ramstad's bill) still raises the question, 'how do you define the fair rental value?'" said NACBA's education director, Phill Martin. "There are not clear guidelines to help in that case. That is part of what brought the issue to a court battle in the first place."

Martin is a member of Wilshire Baptist Church in Dallas and is moderator-elect of the national Cooperative Baptist Fellowship.

Martin's concerns may end up being moot. A version of Ramstad's bill still has to be introduced and passed in the Senate and signed into law by President Bush before the 9th Circuit rules on the case, which may happen as early as the first week of May. As of mid-April, no senators had introduced such legislation in the Senate, nor was the House version of the bill scheduled for an introduction into the Senate.

The bill is House Resolution 4156.

The case before the 9th Circuit is Warren vs. Commissioner of Revenue.

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4/19/2002 12:00:00 AM by Robert Marus , Associated Baptist Press | with 0 comments
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