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Senate OKs bill to protect clergy housing allowance

WASHINGTON (BP)–The U.S. Senate has approved without opposition a bill designed to protect a longstanding housing tax exemption for ordained ministers and other clergy.

The Senate vote completed swift congressional action on the measure, which President Bush is expected to sign into law. Senators agreed to the Clergy Housing Allowance Clarification Act, H.R. 4156, by unanimous consent May 2. The House of Representatives approved the same bill in a 408-0 vote April 16.

Congressional approval came barely three weeks after the bill was introduced by Rep. Jim Ramstad, R.-Minn. The highly unusual speed with which Congress moved came in reaction to a threat by a federal appeals court to strike down the allowance as unconstitutional. A panel of the U.S. Ninth Circuit Court of Appeals announced in March it was reviewing the constitutionality of the allowance.

“I’m grateful the Senate leadership responded so quickly to my request for expedited consideration of this critical legislation,” Ramstad said in a written statement. “One misguided court is literally trying to tax our clergy out of house and home.”

Since 1921, pastors and other religious leaders have been able to deduct from federal taxes a portion of their income for housing. This allowance has been especially helpful in enabling small churches to have a full-time pastor.

Ramstad’s legislation is intended to preserve the exemption by amending the Internal Revenue Code to make clear the allowance should not exceed the “fair rental value” of a house, including furnishings, accessories and utilities.

While the bill would not settle the issue of constitutionality, its supporters believe it will end the Ninth Circuit’s threat to the allowance by codifying the “fair rental value” language formerly used by the Internal Revenue Service. The legislation could provide a way for both sides in the Ninth Circuit case to resolve the dispute. It would not prevent a future challenge to the allowance’s constitutionality, however.

Lawyers from the Southern Baptist Convention’s Executive Committee, Annuity Board and Ethics & Religious Liberty Commission, as well as other religious organizations, have worked for the exemption’s preservation.

“I am delighted that both the House and the Senate have moved with such alacrity to seek to provide as much protection as possible for the clergy housing allowance in our tax code,” ERLC President Richard Land said. “The passage and signing of Rep. Ramstad’s Clergy Housing Allowance Clarification Act will provide far greater protection against judicial challenges than previously existed for the clergy exemption.”

The bill would add the following language to the tax code: “And 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.” The amendment would not apply to taxable years before 2001. Amended tax returns could be filed without penalty or interest under the bill.

Abolition of the allowance would have a highly negative impact on pastors and other clergy, as well as churches and other religious bodies. It has been estimated loss of the allowance would result in clergy paying an additional $2.3 billion in taxes during the next five years.

Congress reacted after the Ninth Circuit signaled a likelihood it would strike down the housing allowance. After the court received the case as an appeal by the IRS, a divided three-judge panel announced it would consider whether it should weigh the exemption’s constitutionality and, if so, whether the allowance would pass the test under the First Amendment’s ban on government establishment of religion.

The panel appointed Erwin Chemerinsky, a professor at the University of Southern California Law School, to write a brief on those issues for the court. The panel requested both parties in the case to submit briefs as well. The panel set May deadlines for the briefs. Neither party, however, challenged the exemption’s constitutionality.

In interviews, Chemerinsky said he believes the allowance is invalid.

“Government can’t subsidize religion,” he told the Los Angeles Times. “Religion is treated differently by the Constitution. If the government wants to subsidize journalists because it feels they aren’t paid enough, I don’t have any problem with that. But if they want to do the same thing with regards to religion, they can’t.”

The potential crisis for pastors and churches began not as a challenge of the allowance’s constitutionality but of the IRS’ application of it in a case titled Warren vs. Commissioner of Internal Revenue.

Rick Warren, pastor of Saddleback Valley Community Church, a large and highly influential Southern Baptist church in Lake Forest, Calif., sued the IRS after an agent assessed his home’s value at far less than its worth and thereby reduced the housing allowance, he said. The IRS penalized Warren for the years 1993-95 for the difference between the IRS valuation and the exemption from taxable income he claimed.

In a letter to readers of his Web site, www.pastors.com, Warren said his wife, Kay, and he “decided to challenge the vagueness of the revenue ruling that allowed agents to arbitrarily assess the value of a parsonage without any objective standard.” He is not opposed to the “fair market rental value” clause IRS uses if the “IRS will define a ‘fair’ written, objective standard to be used by all IRS agents,” said Warren, who wrote the book Purpose Driven Church.

In May 2000, a U.S. Tax Court in California decided in Warren’s favor by a 14-3 vote. The court ruled the exemption in the code is limited “to the amount used to provide a home, not the fair market rental value of the home.” The IRS appealed the ruling to the Ninth Circuit.