May 21, 2002

Bush signs legislation protecting clergy housing allowance

by Jan Nunley

(ENS) President George W. Bush signed legislation May 20 that confirms that clergy can continue to exempt the fair rental value of housing from their income taxes. The bill, HR 4156, confirms established Internal Revenue Service policy that has previously lacked the force of law. The so-called "parsonage exemption" dates back to 1921.

It is expected to halt the progress of a court case, Warren v. Commissioner, currently pending before the 9th Circuit Court of Appeals in San Francisco, which threatened to declare the housing allowance unconstitutional and would have cost American clergy $500 million each year.

The Justice Department will file a motion in the 9th Circuit Court requesting a dismissal of the Warren case without a decision on the merits. The plaintiff, the Rev. Rick Warren, founder and pastor of Saddleback Valley Community Church in Saddleback Valley, California, is expected to join in that motion. "Clergy are not the only category of taxpayers who are eligible for this kind of benefit. It also applies to military personnel and some college/university personnel who share some of the same housing issues and problems with clergy," commented the Rev. James Wilson, executive director of the Episcopal Church's Clergy Deployment Office. "It helped to even the playing field with respect to some tax issues where clergy have a disadvantage, such as the requirement that clergy pay self-employment tax for Social Security. Even where a so-called social security allowance is provided, it has to be in the form of additional taxable income because of this peculiarity in the tax code."

The Church Alliance, an ecumenical coalition of 32 pension boards from Protestant, Catholic and Jewish denominations that promotes legislation to strengthen church benefit programs, worked with members of Congress and federal agencies to clarify the statute. The legislation amends the Internal Revenue Code to provide that the clergy housing allowance is limited to the fair market rental value of a house.

The clergy housing tax exemption is justified on the basis that that clergy are expected to be available to their congregants at all hours and their homes are frequently used for church functions. Loss of the exemption would have been especially hard on small congregations and churches, synagogues, mosques and temples in rural areas.

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--The Rev. Jan Nunley is deputy director of Episcopal News Service.