WASHINGTON (BP)–Legislation to protect a longstanding housing tax exemption for ordained ministers and other clergy has been introduced in the U.S. House of Representatives.
Rep. Jim Ramstad, R.-Minn., introduced the Clergy Housing Allowance Clarification Act, H.R. 4156, April 10. The bill is designed to preserve the exemption by amending the Internal Revenue Code to make clear the allowance does not exceed the “fair rental value” of a house.
The bill was introduced in response to the possibility, if not probability, a federal court will strike down the clergy housing exemption as unconstitutional. The Ninth Circuit Court of Appeals announced in March it is reviewing the constitutionality of the allowance, even though neither side in the related case challenged the exemption.
The House leadership has given the legislation high priority. A vote is scheduled April 16, according to a congressional aide. A two-thirds majority will be required to suspend the rules and bring the bill up for a vote.
The head of the Southern Baptist Convention’s public policy agency applauded Ramstad’s action.
“It is absolutely imperative that Ramstad’s bill pass in light of the aggressive and hostile behavior of the Ninth Circuit Court of Appeals in which the judges give every indication they are going to try to declare the clergy housing allowance unconstitutional,” said Richard Land, president of the Ethics & Religious Liberty Commission. “This legislation would put into black-letter law an IRS regulation and thus give firmer ground by putting the full force of Congress behind the clergy housing allowance.”
Lawyers from the SBC’s Executive Committee, Annuity Board and ERLC have worked on the issue.
Since 1921, pastors and other religious leaders have been able to deduct from federal taxes a portion of their income for housing. This allowance has been especially helpful in enabling small churches to have a fulltime pastor.
Abolition of the allowance would have a highly negative impact on pastors and other congregational leaders, as well as churches and other religious bodies. It has been estimated loss of the allowance would result in those affected by the change paying an additional $2.3 billion in taxes during the next five years.
“Thousands of American ministers need our help to stop this travesty,” Ramstad said in a written statement. “Nearly every clergy member in every denomination relies on this tax benefit.”
Ramstad introduced his bill in response to signals sent by a panel of appeals court judges. The Ninth Circuit received the case on appeal by the Internal Revenue Service, and a divided three-judge panel announced it would consider whether it should weigh the exemption’s constitutionality and, if so, whether the allowance would pass the test under the First Amendment’s ban on government establishment of religion.
The panel appointed Erwin Chemerinsky, a professor at the University of Southern California Law School, to write a brief on those issues for the court. The panel requested both parties in the case to submit briefs as well. The deadlines for the briefs are in May. Neither party, however, has challenged the exemption’s constitutionality.
In interviews, Chemerinsky already has said he believes the allowance is invalid.
“Government can’t subsidize religion,” he told the Los Angeles Times. “Religion is treated differently by the Constitution. 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.”
Ramstad told the Associated Press, “Talk about a classic case of judicial overreach. This case has been hijacked by a left-wing activist court in San Francisco.”
Ramstad and the bill’s other supporters hope legislation can be enacted before the Ninth Circuit renders what they would consider a disastrous decision. Their intention is to provide a settlement to the case, Warren vs. Commissioner of Internal Revenue, while affirming the IRS “fair rental value” language. The parties involved would have to agree to end the case.
The potential crisis for pastors and churches began not as a challenge of the allowance’s constitutionality but of the Internal Revenue Service’s application of it.
Rick Warren, pastor of Saddleback Valley Community Church, a large and influential Southern Baptist congregation in Lake Forest, Calif., sued the IRS after an agent assessed his home’s value at far less than its worth and thereby reduced the housing allowance, he said. The IRS penalized Warren for the years 1993-95 for the difference between the IRS valuation and the exemption from taxable income he claimed.
In an April 12 letter being drafted for his website, www.pastors.com, Warren said his wife, Kay, and he “decided to challenge the vagueness of the revenue ruling that allowed agents to arbitrarily assess the value of a parsonage without any objective standard.” He is not opposed to the “fair market rental value” clause IRS uses if the “IRS will define a ‘fair’ written, objective standard to be used by all IRS agents,” said Warren, who wrote the book “The Purpose Driven Church.”
In May 2000, a U.S. Tax Court in California decided in Warren’s favor by a 14-3 vote. The court ruled the exemption in the code is limited “to the amount used to provide a home, not the fair market rental value of the home.”
The bill by Ramstad would add the following language to the tax code: “And to the extent such allowance does not exceed the fair rental value of the home, including furnishings and appurtenances such as a garage, plus the cost of utilities.” The amendment would take effect April 10 and would not apply to taxable years before 2001. Amended tax returns could be filed without penalty or interest under the bill.
Those interested in contacting their members of Congress about the legislation may do so, and obtain additional information, by accessing www.erlc.com/capitolhill.
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