Court to review parsonage tax break

Christian Century, April 10, 2002

A congressman says he will introduce legislation to protect an 81-year-old tax exemption for church parsonages after a federal appeals court questioned its constitutionality. Minnesota Republican Jim Ramstad, who is on the influential Ways and Means Committee, said the Ninth U.S. Circuit Court of Appeals in San Francisco has "hijacked" the case of a megachurch pastor to push its own agenda.

The case involves Richard "Rick" Warren, pastor of the large Saddleback Community Church of Lake Forest, California, about 50 miles southeast of Los Angeles, who used the law to deduct $79,999 on his house in 1998. Warren relied on a 1921 statute giving clergy an exemption for their housing costs.

According to the Washington Times, the Internal Revenue Service disputed Warren's deduction and said he could deduct only $59,479, which it determined to be the "fair market rental value" of his home. Warren appealed to a federal tax court, which ruled in his favor.

The IRS, however, took the case to the appellate court in San Francisco, which asked a University of Southern California law professor to draft arguments why the 1921 law should be reviewed and possibly overturned. Two of the three justices supported reviewing the law. Justice Stephen Reinhardt, in his order, said the law may violate the Constitution's separation of church and state and result in "an unconstitutional windfall at the public's expense." He said he was not making a definitive ruling but merely looking for more information. Justice Richard Tallman, in his dissent, said the review is "wholly unnecessary" and argued that the court had overstepped its bounds by "inflating this case to constitutional stature."

Ramstad said he will introduce a bill that would block the court from revoking the parsonage exemption. "Thousands of American ministers need our help to stop this travesty," he told the Times. Ramstad said removing the exemption could result in clergy's paying $2.3 billion more in taxes over the next five years. "Rather than deciding the narrow issue present in the case, which is whether the IRS had the authority to limit the allowance, the court hijacked the case and turned it into a challenge of the very constitutionality of the allowance," he said.

Indeed, the parsonage allowance is seen as unconstitutional by Edwin Chemerinsky, the law professor appointed by the Ninth U.S. Circuit Court to write a brief. "Government can't subsidize religion," Chemerinsky told the Los Angeles Times. John Eastman, Warren's attorney, told the newspaper he will argue that the tax exemption is not a subsidy but "an accommodation of religion" similar to the tax-free property of churches.

Warren is a Southern Baptist pastor whose income was supplemented from sales of his audiotapes and books like The Purpose-Driven Church. He declined to be interviewed by the Times but said in an e-mail that his legal fees to date have been double the amount the IRS offered to settle the case. "We were fighting for a principle," Warren said

The threat to housing allowances for an estimated 850,000 clergy has put the pension boards of most major denominations on high alert, including the Episcopal Church's Church Pension Fund. Unless Congress intervenes, wrote CPF president Alan Blanchard in an April 3 letter to Episcopal clergy, the result "would cause an unprecedent tax increase and burden for clergy," reported the Episcopal News Service.

Blanchard said his pension board is working with counterparts in 32 Protestant, Catholic and Jewish organizations to support Ramstad's bill in the House even though the legislation would go along with the IRS's more restrictive interpretation to limit the clergy deduction to the fair market value of the housing. In a press release, Ramstead said, "By codifying the original IRS revenue ruling, my legislation is designed to resolve the pending court case without risking a disastrous tax increase on America's ministers."