Originally published on Forbes.com Dec 26th, 2012
Since close to the dawn of my tax blogging career I have been following the “parsonage exclusion”. Code Section 107 allows a “minister of the gospel” to exclude from taxable income the portion of compensation designated as a housing allowance, provided it is spent on housing. The two controversies that have been swirling around for the last couple of years have been whether the minister can use the allowance on multiple houses and whether the allowance is constitutional at all. Neither question is fully resolved.
The Tax Court ruled in favor of trumpet playing minister of the Gospel, Phil Driscoll, on the multiple house issue, but the IRS won on appeal to the Eleventh Circuit. Reverend Phil was not able to get the Supreme Court interested in hearing his appeal. The constitutionality has not been ruled on up till now, because of the problem of “standing”. It is hard to get “standing” to challenge somebody else’s tax break. The Freedom From Religion Foundation figured out a clever way around the problem by designating payments to some of their officers as housing allowances. U.S. District Judge Barbara Crabb, Western District of Wisconsin, ruled that there was “standing’ for the suit to proceed. Don’t hold your breath waiting for a decision.
I’m going to go out on a limb and say that I have covered this issue more thoroughly than any other tax blogger. I would be happy to have someone prove me wrong. Well maybe not happy, but you get the point. I’m not much of a constitutional purist myself. I actually think that they are rather rare. Activists and advocates tend to use the Constitution like a drunk uses a lamppost. More for support than illumination. I thought that Professor Edward Zelinsky made a pretty good argument for the constitutionality of the provision, but it is a rather nuanced argument and people who look at the issue as a simple church/state separation issue tend to come down on the other side including the Presidential candidate, I persuaded to weigh in on the issue.
Well here is the latest and I’ll bet you are reading it here first. Retired IRS Appeals Officer Robert Baty has launched a petition drive to repeal Code Section 107. Here is the text of the petition:
I propose that Congress act to repeal Internal Revenue Code Section 107 that allows “ministers” income tax free income.
Internal Revenue Code section 107 allows ONLY “ministers” to receive unlimited amounts of income tax free income as long as it is spent on housing. The IRS has extended the benefits to employees of many private, non-church organizations such as the basketball coach at Pepperdine University. Many tax and legal scholars have written and spoken on the issue of its obvious UNconstitutionality, but there has been no political will to repeal the law or modify it to curb abuses and make it constitutional. Only in recent years has judicial effort been made to have the law ruled UNconstitutional, but that litigation could take many more years when Congress and the President could resolve the issue quickly. The President should take a leadership role in proposing that the law be repealed
Here is a link if you would like to “sign” the petition. The site is on the “We The People” section of whitehouse.gov. The petition has not yet reached the threshold where it becomes search-able on the site. Take a look here if you are curious as to the type of company it will be keeping once it passes the threshold.
I won’t be signing the petition myself. I think that the parsonage exclusion is generally a rather modest benefit. Its elimination after nearly seventy years would be a serious blow to many small congregations. I think the most egregious abuses could be remedied by putting a dollar cap on the allowable exclusion. That is hardly a constitutionally pure opinion, but like I said, I am not a constitutional purist, much as I admire them.
You can follow me on twitter @peterreillycpa.