Thursday, April 28, 2011

Why clergy should lose their tax break

Ordained clergy get a tax break through the housing allowance which allows them to exclude expenses on their home. This is true in the case of an owned home, a rented home, or even if the minister lives in a pastorium.

I'd guess that most SBC clergy, folks who have been known to lay awake at night worrying about a ten dollar bill, are keenly aware of and take advantage of this break. Actually, it's a double break in some cases, since the minister gets a deduction on the interest paid on a mortgage and he gets to deduct that a second time because the part of his compensation used to make those payments is paid as a housing allowance, not taxable as income or included in his W-2.

We don't write tax laws. We certainly need not feel guilty for doing what the law allows. I'm all for paying only the tax I owe and not for paying a dime of tax that I don't owe.

But it may surprise folks to understand that if the minister has two homes, he can even use his vacation home in the mountains or at the beach for the tax break.

Megapastors, Christian music rock stars, and televangelists take notice. You don't have to squeeze your membership or viewers for so much money. Poor taxpaying saps can subsidize your multi-million dollar beach condo.

Phil Driscoll, trumpeter (earlier jailed for tax evasion) can be thanked, or blamed, for that. The case is here. The summary below is from the Georgia Baptist Convention:

Phil Driscoll owns two homes. One in Cleveland Tennessee and a lake home outside of Cleveland Tennessee. Phil Driscoll is an ordained gospel minister. Phil Driscoll Ministries paid for both homes and it was excluded from his income under the Pastor's Housing allowance under Section 107 of the Internal Revenue Code of 1986. The IRS felt that to be a bit greedy and assessed him with additional income and fraud penalties.

Rev. Driscoll took the IRS to tax Court. The IRS argued that the use of the word "home" in Section 107 refers only to one home. Rev. Driscoll countered that in Section 7701(m) the Code provides that singular may include plural. Further, the legislative history did not forbid that interpretation. For those reasons the Tax Court ruled in Driscoll, et ux v. Commissioner, 135 TC 27 (2010) that both houses were homes for the purposes of Section 107 and both could be excluded from income.

This double tax break when expanded to multiple homes, cannot possibly be justified and surely some legislative watchdog will push to amend or repeal it. One can hardly object to that.

What a great country! Some high flying ordained ministers get to have taxpayers subsidize their second homes. We may one day lose this tax break (it isn't exclusive to clergy, military receive it as well) because of how it has been greedily applied.


Joe Blackmon said...

I agree, in some cases.

Let's take Bi-Vo Joe. Since he's bivocational he's not a real pastor according to most DOM's and Denominational Suit-n-ties, but as normal human beings like you and I know he is a real pastor. They pay him $12,000 a year which covers his mortgage. I have no problem with him getting a tax break.

Now, let's not even take a cartoon character like Phil Driscol. Let's imagine a Pastor Alan. He pastors a church that pays him $100,000 of its $190,000 that it brings in and he's able to pay extra in addition to his mortgage every month (basically, let's say, an extra payment per month). That guy should be ashamed for taking that kind of salary but he definitily should lose his tax break.

What if the tax break were put on a sliding scale so that folks on the lower end of the earnings scale benefited from it and those on the upper end did not? They could phase it out for AGI or something??

Blake said...

As baptists shouldn't the more alarming thing be that the state offers wealth (money not collected is still a kind of wealth being allowed) to a religious group that it does not offer to the whole populace? Out of the interest of separation between church and state the whole tax break should not be given to clergy.

Jack Carver said...

While this issue is specific to ordained ministers, it certainly illustrates the complicated nature of our tax codes. Seems that I remember a brief period when the IRS ruled that a minister could take the tax free housing income or the tax deductions usually associated with home ownership, but not both. I don't know why that isn't an acceptable approach, but all our convention bigwigs got on the bandwagon and Congress pressured the IRS to relent.

I would like to see the IRS level the playing field by treating ordained ministers like everyone else as it pertains to both income tax and social security taxes.

I would also like to see our tax codes simplified, but the process for simplifying the tax code is extremely complicated.

Christiane said...

Our country has been a place where people who 'serve' have been honored for that service. Our military have had certain protections from tax obligations in special circumstances. For our nation's pastors and religious leaders who 'serve' others, our country has great respect, and will continue to have respect.

If a few people turn 'rogue' and get greedy, I just don't think that they will be able to undermine the solid character of our country's respect towards those who serve in religious fields. Those 'tax breaks' are a 'thank-you', as are those 'clergy parking places' outside of our hospitals.
I don't see this changing in our country.

Peter Reilly said...

Pastor Phil's ministry looks more like a record label than a church. $190,000 was only part of his parsonage exclusion. I really think the simplest thing would be a dollar limiit on the parsonage exclusion possibly based on what the military gets.

Peter Reilly said...

In 2009 Phil Driscoll Ministries (formerly Mighty Horn) paid its president Phil $77,400 in salary and $283,082 in parsonage.

Peter Reilly said...

Meanwhile the Freedom From Religion Foundation is contesting the constitionality of the parsonage exclusion.

William Thornton said...

There was an attempt some years ago to revoke the clergy housing allowance. As i recall, the BJCPA and others successfully fought it on the basis that it was not exclusive to clergy. I don't see a problem with gummit choosing to grant such a break to all clergy. They just can't choose among clergy. The idea of a tax break for a second home is just way over the line of what can be expected or justified.

For most of us ordinary (average income, not mega-) clergy, it's social security that is our big bill Can't do anything about that unless you are willing to lie.

Anonymous said...

"We need not feel guilty for doing what the Law allows."


William Thornton said...

No. Context is the us tax code and certain breaks for clergy.

Peter Reilly said...

Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant. Judge Learned Hand