Parsons Can Live Tax Free in Homes Provided by Church? - Well, It Depends Upon What the Word “Home” Means

 Gosh,  It Doesn’t Seem That Hard

Although the U. S. Constitution forbids the establishment of a state religion, it does not forbid various tax breaks for members of the clergy.  One of these tax breaks is the right to receive a housing allowance or the right to live in church provided housing without have to pay income tax on the benefit.



What We Think the Congress Had
in Mind for a Parsonage Allowance



Under a provision of the tax code known as the parsonage allowance, first passed in 1921, an ordained clergy member may live tax-free in a home owned by his or her religious organization or receive a tax-free annual payment to buy or rent a home if the congregation approves.

Now this does not seem unreasonable on its face, after all the clergy provide a public service and if their congregation wants to provide them with a small cottage in which to live, it seems ok not to tax the clergy on the value of housing, something that would be taxable to any other person.

The question of whether or not a clergy may live in multiple homes tax free would not seem to be an issue.  Churches are not wealthy, and for many of them just providing one home for their clergy would  be taxing (no pun intended) their resources.  But of course there is always somebody.

The U.S. Tax Court ruled that Phil Driscoll, an ordained minister and Grammy Award-winning trumpeter who went to prison for tax evasion, didn't owe federal income taxes on $408,638 provided to him by his ministry to buy a second home on a lake near Cleveland, Tenn.

Leaving aside the issue of an ordained minister going to jail for tax evasion (tax evasion does seem outside the normal ministry doesn’t it), and how he got $408,000 from his ministry to buy a second home, what is the court’s reasoning here?



What Some Clergy Call a Parsonage



In a 7-6 ruling, a panel of Tax Court judges sided with Mr. Driscoll's argument that the word "home" is equivalent to "homes," just as "child" is interpreted to mean "children" elsewhere in the tax code.



You can see the confusion.  For example, Mrs. Dismal Political Economist thinks she has only one home, even after The Dismal Political Economist pointed out to her that her “home” means “homes” and that she should be satisfied with the many "homes" she has.

Well, for those who want to “reform” the tax code, seems like the Tax Court has pointed out a good place to start.