The income tax exclusion of the housing allowance for ministers of the gospel per I.R.C. section 107: First Amendment establishment of religion or free exercise thereof - where should the Warren court have gone?

South Dakota Law Review, Summer, 2009 by John R. Dorocak

1. INTRODUCTION--CONSTITUTIONAL QUESTIONS AND THE
      ROLE OF THE TAX PRACTITIONER/PROFESSOR

II. THE LEADING CASE--WARREN V. COMMISSIONER
      A. FACTS
      B. ORIGINS OF SECTION 107

III. THE INTERVENTION ATTEMPT
      A. THE TAX COURT DECISION
      B. THE NINTH CIRCUIT COURT ORDERS

IV. UNANIMOUS CONGRESSIONAL RESPONSE--ANOTHER
      ATTEMPT TO STIPULATE AWAY THE CONSTITUTIONAL
      QUESTION?

V. A PROCEDURAL SUGGESTION--REMAND ON A JUDICIAL
      SUA SPONTE CONSTITUTIONAL QUESTION
      A. NINTH CIRCUIT'S REASONING
      B. DISSENTERS: JUDGE TALLMAN AND JUSTICE FRANKFURTER
      C. MARBURY V. MADISONAND THE REQUIREMENT OF CONTROVERSY
D. ANOTHER MATTER: SUIT FOR INJUNCTION OR DECLARATORY RELIEF

VI. FIRST AMENDMENT RELIGION CLAUSES TAX CASES: TEXAS
      MONTHLY, INC. AND WALZ--EVOLUTION AND
      DEVOLUTION IN CONSTITUTIONAL LAW DEVELOPMENT

VII. THE ARGUMENTS: PROFESSORS RAKOWSKI AND
      ZELINSKY--SHOULD THE COURT OF ORIGINAL
      JURISDICTION IN TAX CASES SEEK NORMATIVE
      SOLUTIONS OR RATIONALIZE PRECEDENTS? WHAT IS
      THE ROLE OF THE FRAMERS' INTENT?
      A. PROFESSOR ZELINSKY
      B. PROFESSOR RAKOWSKI
      C. PROFESSOR ZELINSKY'S NORMATIVE APPROACH AND
          PROFESSOR RAKOWSKI'S RESORT TO PRECEDENT

VIII. REINTERPRETING CON LAW FOR THE TAX PROFESSOR
      AND THE TAX PRACTITIONER

IX. OTHER FIRST AMENDMENT/TAX CASES OF INTEREST

X. THE FUTURE: THE ROLE OF (TAX) COURTS AND OTHERS

I. INTRODUCTION--CONSTITUTIONAL QUESTIONS AND THE ROLE OF THE TAX PRACTITIONER/PROFESSOR

The exclusion of the housing allowance paid to "ministers of the gospel" from federal income tax under the Internal Revenue Code (I.R.C) Section 107 both presents a unique tax issue and raises constitutional issues under the Establishment and Free Exercise Religion Clauses of the First Amendment. (1) Neither taxpayers nor the Internal Revenue Service (I.R.S.) seem to want to raise these issues. (2) In Warren v. Commissioner, (3) the Ninth Circuit Court of Appeals raised the constitutional questions, appointed an amicus to brief those questions, but then prevented that amicus from intervening in the same case when the parties, the taxpayers and I.R.S., filed a joint stipulation to dismiss the appeal. Now, some five years since Warren, no one has attempted to litigate whether allowing ministers of the gospel to exclude housing allowances under I.R.C. section 107 is an unconstitutional establishment of religion under the First Amendment, or rather a permissible accommodation of religion, or even a necessary exemption to allow free exercise under that same amendment. (4)

This somewhat unusual posture, of supposedly adverse parties stipulating to end litigation, has led to an academic debate as to the lower courts' role in subsequent litigation when faced with United States Supreme Court constitutional precedents and varying interpretations thereof. (5) To put this controversy in terms that likely pragmatic (tax) practitioners and academicians might more easily understand, the g6uestion becomes whether practitioners could, under revised I.R.C. section 6694, (6) continue to advise on and sign tax returns and avoid a preparer penalty if claiming a parsonage exclusion on the tax return? I.R.C. section 6694, as revised by the Emergency Economic Stabilization Act of 2008, requires that a practitioner have "substantial authority" in order to avoid a practitioner penalty where there is not disclosure of a filing position on the tax return. (7) Presumably, a tax preparer signing a return prepared for a "minister of the gospel" would need to perform the substantial authority calculation, taking into account whether the exclusion violates provisions of the First Amendment. (8) Or, to place the issue in another compliance setting, additional questions arise: first, whether an industrious tax informant under I.R.C. section 7623(a), as revised, could seek to collect a discretionary reward of up to 15% of amounts collected from various informed-upon ministers, (9) and second, must the I.R.S. explore the unconstitutionality of the exclusion given Congress's penchant to close the now-fashionably dubbed "tax gap?" (10)

This article will first review the leading case of Warren v. Commissioner, including the Tax Court decision in favor of the taxpayer, the two Ninth Circuit orders, the attempt of the court-appointed amicus Professor Erwin Chemerinsky to intervene, and the unanimous congressional response. Also, the article will suggest an alternative procedure that the Warren court might have employed, review the arguments made by, among others, Professors Eric Rakowski and Edward A. Zelinsky on Section 107's constitutionality, and examine the leading United States Supreme Court First Amendment religion and tax cases, Texas Monthly, Inc. and Walz. (11) Finally, the article will consider other cases of interest and the future role of the Tax Court or another court that might take up this matter.

II. THE LEADING CASE--WARREN V. COMMISSIONER

A. FACTS