Originally published on Forbes.com June 30th, 2014
In November of 2013, Judge Barbara Crabb declared that Code Section 107(2), which allows payments of housing allowances to “ministers of the gospel” to be free of income tax, unconstitutional. Whatever else her decision may have done it gave a great boost to ecumenism as the amicus briefs flowing into the Seventh Circuit supporting the government’s defense of the statute’s constitutionality, brought together, for example, the Ethics and Religious Liberty Commission of the Southern Baptist Convention, The Diocese of Chicago and Mid-America of the Russian Orthodox Church Outside of Russia, The International Society for Krishna Consciousness and The Islamic Center of Boca Raton. Among the arguments that the defenders of 107(2) make is that there is a similar benefit for the military. On that small point, the recent Tax Court decision in the case of Christopher Ambrosius is instructive.
Christopher Ambrosius retired from the Army as a first sergeant in 2003. During 2010 he worked for the Baltimore City Public Schools System earning $69,735. He thought that he should only have to pay taxes on $36,993 of that amount. The reason for that belief was the special job he held for BCPSS. He was an instructor in the Junior Reserve Officer Training Corps program. I’m sure that JROTC is different than when I was a member of the Xavier High School Regiment, but I think its quite likely that at least superficially First Sergeant Ambrosius was performing a job similar to one that he might have had in the Army.
The lads and lasses he instructed in things like military decorum, first aid, tactics, and map reading, inspected and drilled would be fifteen and sixteen rather than eighteen and nineteen. Still, they would be in uniform some of the time, as would he, and they would address him as Sergeant Ambrosius. Although there are some active-duty personnel assigned to the role, service as instructors for the JROTC program is otherwise restricted to retired military. Their salaries are subsidized by the Department of Defense.
I was not able to make sense of the numbers in the case when I compared them to military pay charts, but it really does not matter. If First Sergeant Ambrosius had been on active duty in the Army, a portion of his pay and allowances would be excludible under Code Section 134. I don’t know how he did his computation, but his housing allowance would have been in the $2,000 per month range, which accounts for most of the difference. His argument went nowhere.
By statute JROTC instructors are not considered to be on active duty. Although their pay is subsidized by the Department of Defense, they are actually employees of the schools where they instruct. So even though First Sergeant Ambrosius had a job that looked a good bit like soldiering that is open only to people who have quite a bit of soldiering experience, by statute the job is not soldiering. Accordingly, none of his pay is excluded from taxable income under Code Section 134.
That type of bright-line clarity does not exist with the parsonage exclusion. Concerns about the establishment clause make the IRS hesitant to draw a bright line. In some denominations, ordination is fairly common. In the Churches of Christ, which has an extreme priesthood of all believers theology, all members are considered ministers. So if you are a faculty member or administrator at one of their colleges, like Pepperdine University, you will qualify to exclude a portion of your pay as a housing allowance under 107(2). Teachers in Orthodox Jewish schools will get tax-free housing allowances depending on gender since women can not be ordained as Orthodox rabbis. There has been a tendency over the years for the applicability of the parsonage exclusion to expand, so that we are not favoring one religion over another.
In reality, the parsonage exclusion is usually a fairly modest benefit. Many preachers would gladly give up their income tax benefit in exchange for a FICA match and a simpler tax return. When it comes to the mega pastors of the mega-churches and televangelists, the abuse is egregious. There is no dollar limit under 107(2). Tax-free housing allowances can and do run into the hundreds of thousands. On top of that churches are not subject to the same requirements of transparency that other not-for-profits fulfill by filing and making publicly available Form 990. Military housing allowances on the other hand are entirely transparent and fairly modest. The highest number I could find when I scanned this table was just over $4,500 per month for a general or admiral in Manhattan.
This case makes clear that defending the parsonage exclusion by reference to military housing allowances is an entirely specious argument.
Afternote
Probably the main reason that I just had to write about this case is the reference to JROTC. My own experience with the program clearly demonstrated that I was ill-suited for any sort of a military career, but I do have very fond memories of the instructors who were among the more colorful members of the faculty. It was a very trying time for them and the country. Having a Jesuit high school be military was not at all disconcerting throughout most of history. Ignatius Loyola had been a soldier after all, but in the late sixties a few blocks north of Greenwich Village, it was rather odd.
The younger Jesuits had friends uptown who were under observation by the FBI for their anti-war activities and became embarrassed by teenagers in Army uniforms saluting them in the street. The active-duty military faculty were just back from Vietnam. As seniors, one of our “blocks of instruction” was counter-insurgency. Still I have to say that Major Smullen and some of the retired sergeants were very effective teachers. I think I remember more from the few weeks of “Psychology of Leadership” than the three years of Greek and Latin.
Many people have trouble believing that I graduated from a military high school, so I have included some photographic evidence
