wfn.org | Congress spares clergy housing allowance

[NewsDesk <NewsDesk@UMCOM.ORG>]

May 9, 2002    News media contact: Joretta Purdue7(202) 546-87227Washington
10-71B{216}

WASHINGTON (UMNS) - Swift action by Congress appears to have saved a key
federal income tax exemption for clergy members: the housing allowance.

The Clergy Housing Allowance Clarification Act of 2002 has been sent to
President Bush, who is expected to sign it soon. The House of
Representatives passed the bill on April 16, and the Senate approved it on
May 2.

The United Methodist Board of Pension and Health Benefits supported efforts
to keep the allowance. "The general board, through the Church Alliance, got
involved to protect the housing allowance for clergy retirees because if it
were declared unconstitutional, they would find themselves subject to
substantially more tax and would find that a severe hardship," explained
Scott Zapel, an attorney with the board, which is based in Evanston, Ill.

The Church Alliance includes the staff heads and legal representatives from
pension boards of 32 denominations. The organization became concerned when a
dispute between a clergyman and the Internal Revenue Service regarding a 9th
District Court of Appeals ruling appeared likely to declare the existing
exemption unconstitutional, Zapel said.

The clergyman's claim of actual expenses greater than the fair rental value
of his home had been supported by a tax court but appealed by the IRS. In
considering the appeal, the judges in the 9th District Court expressed
concern about the constitutionality of the idea of any such exemption, which
was added to the tax codes in 1954 to create equity between clergy who were
provided free parsonages and those who were not, Zapel said.

Under previously existing law, the tax exemption on clergy housing costs was
limited by what the church or a similar body declared as a housing
allowance. That, in turn, was limited by the actual amount spent. The IRS
said that this amount could not exceed the fair rental value of the
dwelling. The clarifying act adds: "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," Zapel
explained.

With Bush's signature, the bill would go into effect as of April 16, 2002.
Filings before that date will be under the old wording without the
additional language. The clergyman and the Justice Department acting for the
IRS have agreed to abide by the clarification and withdraw the appeal
currently in court. 

Preservation of the tax exemption applies to active as well as retired
clergy. Zapel said it is especially important to people who retired with the
expectation that this portion of their income would not be taxed. 

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United Methodist News Service
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