Skip to comments.Religious liberty & ministers' tax exemption
Posted on 11/28/2013 9:41:01 PM PST by Graybeard58
WASHINGTON (BP) -- A federal judge has ruled that an Internal Revenue Service exemption that gives clergy tax-free housing allowances is unconstitutional (see Baptist Press story posted Nov. 25). In her ruling U.S. District Court Judge Crabb claims, "Some might view a rule against preferential treatment as exhibiting hostility toward religion, but equality should never be mistaken for hostility."
Despite the judge's claim, appealing to "equality" is not enough to make the action non-hostile toward religion nor is it in line with previous court decisions. Not only has the Supreme Court previously stated that the Establishment Clause prohibits hostility against religion as much as it prohibits the establishment of a state religion, it has also noted that its "precedents plainly contemplate that on occasion some advancement of religion will result from governmental action."
But aside from the question of constitutionality, the clergy exemption raises a question that many people -- whether religious or not -- are likely to be wondering: Why exactly do ministers receive a tax exemption for their housing allowance?
To answer the question we must first consider how taxation of church property, including clergy housing, has historically been considered.
Since at least the time when Joseph served in Pharaoh's Egypt, religious property has been exempt from certain forms of taxation (Genesis 47:26). The practice continued in the Roman Empire and through medieval Europe and was part of the common law, which America adopted from England. The common law granted tax exemptions to established churches and, through the equity law tradition, to all churches. From the 15th century to the 19th century, most pastors lived in the parsonage, a house provided by the church. Housing was thus a form of non-cash payment that was exempt from taxation since the parsonage was church property.
By the early 20th century, though, both clergy housing and taxation had changed considerably. So in 1921, Congress passed the Revenue Act, which exempted from the gross income of ministers the rental value of any "dwelling house and appurtenances thereof" provided by a church as part of clergy compensation. This parsonage exemption, however, applied only to ministers who lived on property owned by their church and disadvantaged ministers whose churches provided a housing allowance rather than a church-owned parsonage.
In 1954, Congress amended the tax code to allow ministers to exempt a portion of their income to the extent used by the minister for housing. According to the Senate Report at the time, the purpose of this addition was to eliminate the disparity in the tax code between ministers who lived in a church-owned parsonage and those who were given a stipend with which to secure housing.
The clergy, of course, are not the only ones to receive such an exemption. Congress included several categories of tax-free housing allowances to demonstrate a willingness to give tax breaks to classes of taxpayers who have little choice about their personal living space, such as members of the military, members of the Peace Corps, members of the Foreign Service, etc.
As CPAs Peter J. Reilly, a taxation specialist, and Frank Sommerville, a nonprofits specialist, explain: "Whether the employer provides a cash allowance or a home, each benefit serves the same purpose; that is, often the employer's needs affect the living space needs of its employees. Many times, these classes of employees frequently relocate, thus preventing them from settling down and hindering long term close friendships. Further, the employers frequently require them to use their homes to conduct employer business. Additionally, the employee's place of service may not be desirable. These employees must reside where their employer requires and must frequently use their residence for employer business. Some employees sacrifice amenities that most citizens take for granted, such as long term stability in one locale and privacy" (Forbes, Sept. 6, 2012).
The constitutionality of the parsonage exemption would be difficult to challenge since it has been encoded in statutory law for nearly a hundred years. That is why critics of clergy exemptions have focused on the housing allowance.
The obvious counter might appear to be for churches to simply buy a parsonage and directly provide housing for their ministers. But this ignores the fact there may be theological reasons based on church polity for not providing a parsonage. As Justin Butterfield, Hiram Sasser and Reed Smith explain in an article for The Texas Review of Law and Politics, a "congregation's choice to offer a housing allowance rather than allow the minister to live in a church-owned dwelling is not one of mere accounting or convenience, but rather one rich with theological and ecclesiastical underpinnings" (see http://bit.ly/17VhYLa).
The parsonage exemption, for instance, provides a preference for institutional churches whose ecclesiastical properties are owned by a central governing body (e.g., Roman Catholic). Smaller, independent local churches often have less money to provide a parsonage. It also presents a bias in favor of wealthy, established churches over younger congregations and church startups. For instance, how could a congregation that can't even afford a church building afford to buy a parsonage?
Because of this reality, the courts cannot allow the parsonage exemption and exclude the housing exemption without showing preference for certain religious groups over others.
Both the parsonage and pastor housing exemption are part of a legal tradition that serves to prevent the entanglement of the state in ecclesiological concerns. By her decision, though, Judge Crabb has -- albeit unintentionally -- incorporated a form of denominational favoritism into the tax code. In her attempt to prevent an imaginary violation of the Establishment Clause, she has inadvertently created a real infringement.
Joe Carter is director of communications for the Ethics & Religious Liberty Commission of the Southern Baptist Convention. This article first appeared at the ERLC's website (www.erlc.com) on Nov. 25.
As I have stated on more than one occasion here on FR, I belong to a church that, from its inception, refused to apply for any government tax exempt status. All members are well aware that any money donated to the church is in no way tax exempt.
This gives us the freedom to preach what we want, when we want and invoke the name of Jesus without government interference.
We can, from the pulpit, give our opinion on all things religious and political without fear of government interference.
Our pastor is a graduate of Liberty University and not some radical individual intent on some anti government crusade, just a well grounded individual wanting to preach the Gospel of Jesus without government meddling.
Our church is growing in leaps and bounds. However, when the church begins to reach the 300 number, we split off and establish another church. We never want to be caught up in the mega church syndrome.
Excellent analysis as to why Federal Judge Crabbs ruling should be overturned on appeal. She was snookered by the arguments of the anti religion plaintiffs.
I have long advocated that but it falls on deaf ears.
To easy to accept the government largess ... freedom to preach the gospel is becoming more and more under the control of the government.
The deaf ears will suddenly become open when it is to late. Just as German pastors discovered shortly before the beginning of WWII.
Way to go brother!!! As it should be.
Churches must stop this tax exemption slavery, it limits truth
Maybe the old horse went to the same ACLU led alma mater as did Hugo Black?Check her history and you may find the root of her prejudice and ignorance.
Churches are automatically exempt under 501 C (3) without filing for an exemption.
The First Amendment (Amendment I) to the United States Constitution prohibits the making of any law respecting an establishment of religion, impeding the free exercise of religion, abridging the freedom of speech, infringing on the freedom of the press, interfering with the right to peaceably assemble or prohibiting the petitioning for a governmental redress of grievances. It was adopted on December 15, 1791.
For what it’s worth, there is no “church tax exemption”. What is permitted is individual taxpayers deducting their charitable contributions from their income. Churches are lumped into that category, and the donations of contributors can be deducted.
There is no one, now or ever in my memory, who claims to have filed a 1040 as a church on their collection plate offerings. It just doesn’t happen. It isn’t constitutional. It would be Congress making a law restricting free exercise of religion.
This article isn’t exactly right either. I do pay social security taxes on my housing allowance, and if I had a parsonage, I’d pay social security taxes on the fair market value of that parsonage. Additionally, I’m consider by the IRS to be SELF-EMPLOYED for social security purposes on that parsonage. That means I pay almost 14% on that allowance.
Personally, I do consider my location in this area to be a benefit for the church I pastor, and therefore, it is an expense for pastors and not a benefit to pay for housing in an area they will not end up in. To illustrate, many pastors I know are paying on their own house in the area in which they will someday retire (or saving for that house.)
Why? Because they don’t get to keep the church parsonage or the house they are making payments on in the area where they are currently residing for the benefit of the church they pastor.
However, my friends, when all is said and done, this is ALL an illusion created by the fact that we have an income tax instead of taxing citizens fairly.
You explain to me why it’s fair in this system to tax a minister’s salary as an EMPLOYEE, but to tax his housing as self-employed. There’s only one reason for that, and it is to get the maximum amount of cash from another class of citizens.
Do away with the unjust income tax and replace it with a tax at point of sale....as envisioned by our Founders.
Until the income tax is done away with, we all must wonder why we aren’t taxed only on our profit and not on our gross income. We can’t very well live on the street. Housing, utitlities, transportation, clothing, food, and insurance are ALL costs of doing business as a family.
Why is it taxed at all?
Churches do not apply to be exempt, they are exempt by statute. Donations to churches are deductible whether the church formally applied or not.
Do you or the church pay real estate taxes on the parsonage?
It’s not a hostile question, just curious.
Church property is not taxed
My brother does not pay SS
He get a deduction on his home because he has meetings there sometimes
Parsonages and church buildings are not taxed...again for the same reason...violation of first amendment.
It would be congress passing a law that restricted free exercise.
The only way your brother is exempt from SS is if he has officially filed a conscientious objection to social security (I think the Amish do the same). That avenue is open to all ministers (and citizens, too, I believe), but for many of us it would be a lie to claim that our religion forbids our trusting a governmentally directed group retirement plan. I do believe that some (the Amish) have such an objection, but I don’t believe it’s true of most.
It used to be that ministers were considered self-employed for both income and social security. Not so now. Now they are employees for income tax purposes. Therefore, he can take the business usage of a portion of the home deduction that is available to all of us....including Amway salesmen :>)
Which gets us back to the foolishness our government has us engaged in by virtue of the idiotic income tax. Your brother has to determine how many square feet of his house applies to “business usage” and then he has to determine fair market value of the house, and then list all the house expenses, and then take the percentage deduction of the portion that is business usage.
As opposed to paying sales tax at the register on a furnace filter when he buys one.
All I know about the SS is he doesn’t pay, he hasn’t for 35 yrs
Of course the house deduction is available to him as everyone, he and my sisterIL have always had their own home and not church provided
My parents had a church provided home in the beginning but didn’t like the fact that some church people felt it was theirs as well, so after about five years they bought a house
Well off to fix breatfast, watching my brother study and just remembering he wanted bacon and eggs this morning .... so have a good day