Copyright (c) 2002 Tax Analysts
Tax Notes Today
APRIL 17, 2002 WEDNESDAY
DEPARTMENT: News, Commentary, and Analysis; News Stories
CITE: 2002 TNT 74-3
LENGTH: 591 words
HEADLINE: #3
2002 TNT 74-3 HOUSE UNANIMOUSLY CLEARS BILL TO ADDRESS CIRCUIT'S

CONSTITUTIONAL PARSONAGE ALLOWANCE EXCLUSION QUERIES. (Section 107 --

Rental Value of Parsonage) (Release Date: APRIL 16, 2002) (Doc 2002-9265 (2 original pages))

CODE: Section 107 -- Rental Value of Parsonage

SUMMARY:

The House on April 16 approved legislation intended to address questions raised in the Ninth Circuit regarding the proper valuation and constitutionality of the parsonage allowance exclusion under section 107(2).

H.R. 4156, the Clergy Housing Allowance Clarification Act of 2002, introduced April 10 by House Ways and Means member Jim Ramstad, R-Minn., would amend section 107(2) of the code with language clarifying the proper amount to be excluded from the gross incomes of "ministers of the gospel" for compensatory housing allowances. As amended, section 107(2) would limit the parsonage exclusion to an amount that "does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities." (For the text of H.R. 4156, see Doc 2002-9258 (2 original pages).)

According to the text of the legislation, the bill is intended to "minimize government intrusion into internal church operations and the relationship between a church and its clergy." The amendments are also intended to "recognize that clergy frequently are required to use their homes for purposes that would otherwise qualify for favorable tax treatment, but which may require more intrusive inquiries by the government into the relationship between clergy and their respective churches with respect to activities that are inherently religious."

AUTHOR: Harris, J. Christine
Tax Analysts

TEXT:

Release Date: APRIL 16, 2002

H.R. 4156, the Clergy Housing Allowance Clarification Act of 2002, introduced April 10 by House Ways and Means member Jim Ramstad, R-Minn., would amend section 107(2) of the code withlanguage clarifying the proper amount to be excluded from the gross incomes of "ministers of the gospel" for compensatory housing allowances. As amended, section 107(2) would limit the parsonage exclusion to an amount that "does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities." (For the text of H.R. 4156, see Doc 2002-9258 (2 original pages).)

According to the text of the legislation, the bill is intended to "minimize government intrusion into internal church operations and the relationship between a church and its clergy." The amendments are also intended to "recognize that clergy frequently are required to use their homes for purposes that would otherwise qualify for favorable tax treatment, but which may require more intrusive inquiries by the government into the relationship between clergy and their respective churches with respect to activities that are inherently religious."

In an April 10 press release, Ramstad said the legislation was also designed to "prevent America's clergy from facing a devastating tax increase." Citing the Ninth Circuit's recent constitutional challenge to section 107(2), Ramstad said the court has "hijacked" the issues presented in Richard D. Warren et ux. v. Commissioner, No. 00-71217 (addressing the proper valuation of the section 107(2) exclusion), instead of "deciding the narrow issue presented."

Although the parties had not challenged the constitutionality of the provision and had advised the lower court not to do so, on March 5 the Ninth Circuit ordered a law professor to serve as amicus curiae and requested that the parties submit supplemental briefs on the section's constitutionality. In a concurring opinion to the order, Judge Stephen Reinhardt wrote that "a 'just resolution' of th[e] case may well mean no deduction . . . if the statute violates the Establishment Clause." (For the full text of the Ninth Circuit's order requesting supplemental and amici briefs on the parsonage exclusion, see Doc 2002-5526 (10 original pages) or 2002 TNT 44-12. For the Tax Court's decision in Richard D. Warren et ux. v. Commissioner, 114 T.C. No. 23, see Doc 2000-13875 (18 original pages) or 2000 TNT 96-8.)