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Clergy tax exemption garners increasing scrutiny



Nonprofit charities control $2 trillion in assets in the United States. These charities fall under the Internal Revenue Service's tax code category 501(c)(3), a provision that allows charities and other nonprofits, both religious and secular, to be exempt from federal income taxes.

Many of these charities are churches, and the smaller they are, the more likely their ministers rely on exemptions provided by statute, including a provision for an income-tax-exempt housing allowance.

On May 14, The Associated Press reported that the Carter County assessor had canceled a property tax exemption for clergy. The old policy treated homes owned by clergymen and women the same as church-owned parsonages for tax purposes. The move has resulted in official protests from clergy in Ardmore. The tax exemption in Carter County was different than the one allowed in federal law.

Tax-exempt status has been coming under fire for several years, including an appeals court decision clarifying the right of clergy to apply income tax-exemption to a housing or parsonage allowance.

Since 1921, the IRS has allowed clergymen and women to take a percentage of their income as tax-exempt housing allowance, a privilege that is not extended to secular nonprofits. In 1971, the revenue service limited the benefit to the lesser of either the "fair market rental value" of clergy members' homes, their church-provided housing allowance or their actual housing expense.

In 1996, the IRS determined that Southern Baptist pastor Rick Warren " author of "The Purpose Driven Life" and pastor of Saddleback Church in Southern California " had exceeded the cap. The U.S. Tax Court sided with Warren in 2000 and eliminated the cap on housing allowance.

When the IRS appealed, the 9th U.S. Court of Appeals asked for a friend of the court brief from University of Southern California law professor Erwin Chemerinsky. As a result of his investigation, Chemerinsky urged the court to declare the housing allowance unconstitutional. He considered it a violation of the establishment clause, particularly since secular nonprofits were not afforded the same benefit.

Congress rushed to pass the Clergy Housing Allowance Clarification Act of 2002. The bill was signed into law, thereby granting clergy of any recognized religion the housing allowance, with the IRS's rental value cap.

American Atheists and Americans United for the Separation of Church and State have opposed the tax-exempt housing allowance for the reasons Chemerinsky delineated."Greg Horton

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