WASHINGTON (BP)–The House of Representatives weighed in on the legality of a cap on the housing tax exemption for clergy April 16, approving without opposition a bill designed to preserve the longstanding allowance.
The House voted 408-0 for the Clergy Housing Allowance Clarification Act, H.R. 4156. The bill would clarify the exemption by amending the Internal Revenue Code to make clear the allowance should not exceed the “fair rental value” of a house, including “furnishings, appurtenances such as a garage, plus the cost of utilities.” The bill would codify the revenue ruling which the IRS had been using for years.
A Senate version of the legislation has not been introduced, but senators could consider the House-approved measure.
The House acted on the bill only six days after it was introduced by Rep. Jim Ramstad, R.-Minn. The speed with which representatives moved came in reaction to a threat by a federal appeals court to strike down the allowance as unconstitutional. A panel of 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.
“It is important to get this in the black-letter law and thereby put the full force of Congress behind the clergy housing allowance,” said Richard Land, president of the Southern Baptist Ethics & Religious Liberty Commission. “The almost unprecedented speed, as well as the unanimous vote, by which this legislation passed the House of Representatives illustrates both the urgent need for the legislation and Congress’ support for maintaining the allowance.”
Lawyers from the SBC’s Executive Committee, Annuity Board and ERLC have worked to see the exemption is preserved.
In a written statement, Ramstad called the Ninth Circuit’s consideration of the housing allowance “judicial overreach on the part of America’s most activist circuit court.”
“The court could invalidate the clergy housing allowance any day, and that’s why today’s speedy consideration of my legislation by the House was so crucial,” Ramstad said. “The House has done its job in a bipartisan way, and now the Senate needs to step up to the plate, pass this bill and prevent a disastrous tax increase on America’s clergy.”
While Ramstad’s bill would not settle the issue of constitutionality, he and other supporters hope that by clarifying the “fair rental value” language formerly used by the Internal Revenue Service, it will set the stage for settlement in a pending case, thereby ending the Ninth Circuit’s threat to the allowance.
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 members of the clergy paying an additional $2.3 billion in taxes during the next five years.
The question of the allowance’s constitutionality came when the Ninth Circuit received the case, Warren vs. Commissioner of Internal Revenue. 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. In interviews, Chemerinsky already has said he believes the allowance is invalid. The panel requested both parties in the case submit briefs as well. The deadlines for the briefs are in May. Neither party, however, has challenged the exemption’s constitutionality.
The potential crisis for pastors and churches began not as a challenge of the allowance’s constitutionality but of the IRS’ application of a limitation on it.
Rick Warren, pastor of Saddleback Valley Community Church, a large and highly influential Southern Baptist church 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, Warren 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 recap of the dispute, 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 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 IRS appealed the ruling.
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 not apply to taxable years before 2001. Amended tax returns could be filed without penalty or interest under the bill.
The bill’s section on congressional findings and purpose was removed before passage. In his floor speech, Ramstad said the portions were stripped from the bill to follow the practice of the Ways and Means Committee on tax measures. “However, the fact that it has been deleted does not, let me repeat that, does not, reflect the lack of support [for the findings and purpose] within the House or among the bill’s sponsors,” Ramstad said.
Those interested in contacting their senators about the legislation may do so by accessing www.erlc.com/capitolhill.
–30–
