Federal maneuvers may alter tax status for parsonages

Saturday, May 11, 2002

From wire reports

Pastors and priests do get a break on their taxes for housing provisions, and the exemption will continue for now. The tax exemption has been challenged and awaits a ruling from the 9th U.S. Circuit Court of Appeals in San Francisco.

To make sure that the tax exemption continues, Congress recently passed legislation that will clarify the tax code. The provision, similar to that allowed for military personnel, says that clergy won't be taxed on the portion of their income that is used for housing expenses. It awaits presidential approval.

The legislation was a pre-emptive strike against the Court of Appeals which questioned the constitutionality of the tax credits.

The constitutionality issue of tax credits for clergy began when the Internal Revenue Service questioned a California pastor's $79,999 housing deduction. The IRS said the Rev. Rick Warren could only base his exemption on fair market rental value and couldn't include any other expenses for housing. Warren, pastor of Saddleback Community Church in California and author of "The Purpose-Driven Church," appealed the IRS ruling and won.

The IRS appealed the case to federal court.

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