Will Ministers lose tax-free housing?
As
lawmakers search for ways to reduce the deficit and eliminate special tax
breaks, will ministers lose their special benefit of paying no taxes on
housing? I hope not. But it could happen.
If you aren’t a minister you may not
know that US ministers get special
treatment when they pay taxes. It all
started 90 years ago when ministers and priests were required to live in
“parsonages” provided by the church. Churches wanted their ministers close to
the church so they built parsonages or “manses” for them to live in. This also
meant a minister didn’t have to worry about selling property when they moved to
the next church—they simply loaded up their family and furniture and move on to
the next parsonage. Tax law treated the value of a free parsonage as tax-free
just like the military gets tax-free housing or Alaska Pipeline workers who are
required to live in supplied housing near the job don’t pay taxes on this
housing.
But things changed. Some churches decided to give their minister a
“housing allowance” instead of supplying a parsonage. Ministers like the idea.
They became homeowners and enjoyed any economic gains from inflation. They
could eventually sell a house and buy one to retire in. The IRS began treating this cash “housing
allowance” just like they treated a supplied parsonage—money spent on housing
was tax-free for ministers. In fact getting a housing allowance was thought to
be an even better deal for ministers because they could legally take a “double
deduction” by also subtracting any interest they paid on their house—even
though they had already not paid taxes on it as housing allowance. This caused
a great stampede toward the housing allowance and away form supplied
parsonages.
The tax-free housing allowance is a
nice government benefit to ministers.
While lay persons must pay income taxes on their house payments and utilities,
most ministers don’t have to pay income taxes on the money they use for these
things (within certain limits). We ministers think we deserve it. After all, if
they are going to give big loopholes to millionaire farmers, businessmen and
extend the tax cuts for billionaires we don’t feel bad taking our smaller
benefit too.
But the minister’s housing allowance is
coming under scrutiny. It is likely to emerge again as the
bankruptcy papers from The Crystal Cathedral hit the national news. The Los Angeles Times has already released
some of the papers but the story hasn’t yet broken nationally. The documents
will show that while the Crystal Cathedral was piling up debt headed for
bankruptcy, they paid out more than $800,000 in “housing allowance” to eight
ministers on staff the last 12 months—including all five of the Schuler
children. Maybe Californians consider a $100,000 housing allowance sensible but
my hunch is that most laity and ministers in the rest of the country will think
it is excessive. When this news hits the national media we might see increased
hostility toward the tax-free status of ministerial housing.
But that’s not the greatest threat. Congress has repeatedly defended this tax benefit.
A greater threat is coming in the courts. Dan Busby, President of ECFA keeps
reminding us of a lawsuit that is working its way through the court system. It
will probably eventually reach the Supreme Court. This challenges the IRS code granting
ministers this tax benefit. It argues that tax-free ministerial housing is
unconstitutional since it functionally means government supporting the
“establishment” of religion. This court
case will probably begin the trial period fall, 2011 and will then work its way
up the system. If this case is
eventually won, it would eliminate the cash housing allowance yet might leave
in place the old “provided parsonage.” If that happens
how many ministers and churches could say they need their minister to live in
employer-provided housing to be near the church? How close do we have to be to
our “work site?” If the case is won it would put a crimp on the vast majority
of ministers who own their own homes. It might even create a new rash of
parsonage-building? Or would it?
There is nothing to get too alarmed
about here actually. We should just
“keep our eye on it.” It will take years
for the case to work its way up to the Supreme Court. So it is not an immediate threat. Neither is
the “flat tax” or “fair tax” which has lost steam. In general most of America
wants to leave things as they are for themselves while cutting all the benefits
to others. This pretty well guarantees continuing the
“borrow-and-spend” philosophy of the last decade. So, for the time being, a
minister with a $10,000 housing allowance might get by with paying $1500 less
in taxes. Virtually all ministers consider this a good thing. Many of them give
this money to their church anyway as an extra gift or as a missionary
offering. Ministers would rather give to
the church then the government.
What I’m thinking about this week is
housing allowance and provided parsonages. When my students find out about tax-free housing allowance they all
think it is wrong. They agree it is legal but they think it is wrong to take it
(hey, give them a break—they’re kids who don’t pay their own cell phone bill
yet). They think something unfair is wrong. And since laity have to pay on
their housing expenses they think ministers should pay on these expenses
too. My students raise other housing
questions too, such as “Should ministers pay tithe on their housing allowance? And they ask a trickier one too:
do pastors who live in parsonages pay tithe on the value of their free
parsonages—since we expect laymen to tithe on the money they spend for housing
shouldn’t ministers tithe on this too? I
can’t answer for what ministers do. I
know some stories but not enough to say for sure. What would you tell them?
So, what do you
think?
The
discussion of this column is on Facebook: http://www.facebook.com/home.php?#!/profile.php?id=161502633
Keith
Drury December 7, 2010
www.TuesdayColumn.com