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The Grassley staff report and the pastoral housing allowance

The Grassley staff report written by Pattara and Barnett [PDF] also cites some of the history of the way the pastoral housing allowance has run afoul of the IRS in the past. The pastoral housing allowance, for those just joining us, is a provision in the tax code that allows “ministers of the gospel” to receive money from their churches tax-free as a housing allowance; it is meant to parallel the tax-free benefit received by pastors who have use of a parsonage paid for by their church.

The examples cited by the staff report are meant to summarize the case law, and are not intended to be representative either of typical use of the allowance or of extreme uses of the allowance. Here’s a quick rundown:

  • 1987: PTL was paying not less than $2000 a month to Jim Bakker as a housing allowance, plus picking up his utility bill, which ran $1000-2000 a month. That’s a really soft number, but it works out to at least $36000 a year for a $1.3 million house.
  • 1993: Leroy Jenkins was using a parsonage in Ohio and taking the allowance for a second house in Florida where he was spending most of his time conducting crusades. The IRS denied the allowance for the Florida house. No amounts are given.
  • 1995: Walter V. Grant was taking $175,000 a year as a housing allowance before he was imprisoned for tax evasion.
  • 1993-5: Rick Warren takes allowances ranging from $76,300 to $84,278 as a housing allowance each year for a house purchased in 1992 for $360,000.

The court case surrounding the Warren allowance mushroomed (pages 13-15) and ended up in front of the Ninth Circuit Court of Appeals [link] where Establishment Clause issues were raised and not entirely resolved; one of the results was the Clergy Housing Allowance Clarification Act of 2002 (CHACA) [link] which limited future allowances

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

and exempted anyone who exceeded the new guideline in previous years

no person shall be subject to the limitations added to section 107 of such Code by this Act for any taxable year beginning before January 1, 2002

Section 2(b)(3) effectively settled Warren’s case in his favor and had the side effect of making the examples above, all pre-2002, legal.

CHACA continues to be interpreted fairly generously, at least in some quarters. Fred Southard, the recently retired Chief Financial Officer from Crystal Cathedral, was taking almost all of his compensation as a housing allowance:

According to court documents, Southard received $132,019 out of his total $144,261 compensation in the form of a housing allowance in 2009. Southard has been with the Crystal Cathedral since 1978. He owns a home in Newport Beach assessed at $2.3 million, property records show. [link]

In other words, Mr Southard’s tax attorney would have you believe that the fair rental price plus utilities for a $2.3 million house in Newport Beach was $11,000 a month.

This brings up two more issues: 1) apparently anyone can be a “minister of the gospel” for tax purposes provided they have a church to pay them; the Grassley staff point out that Paul Crouch of TBN fame ordains various station managers and department heads to this end, and 2) the allowance is not capped.

This certainly seems like a lot of money, especially when compared to the national average:

Note that the U.S. Bureau of Labor Statistics reports that the average housing expenditure for all households in the United States in 2007 was $16,920. (page 14)

Remember that the Rick Warren we’re talking about here, who is taking a $6000-7000 a month housing allowance isn’t the best-selling author we know today. That didn’t happen until 2002 [link]. In 1994 he was just a megachurch pastor from California.

I have a hard time making sense of these numbers; if I had to estimate my own housing costs they’d come out somewhere near the 2007 average. I’ve been to a couple of pastors’ houses here in the Santa Fe area, and while they were nicer than mine, etc. it’s hard to imagine that their expenditures were twice mine (say $32,000 a year). I have a hard time believing that any pastor needs a million-dollar house, and an even harder time believing that if he needs a million-dollar house that he should be able to pay for it and maintain it tax-free.

Even allowing for that it’s hard to comprehend a preacher taking 90% or more of his compensation in the form of a housing allowance. That seems dishonest both to the letter and the spirit of the law. I think if I were attending a church where the pastor were taking even a $50,000 tax-free housing allowance it would give me pause.

Anyway, in conclusion, I hesitate to mention this now, but we will need to think about what this means later when we come back to the case of Joyce Meyer; it’s important to remember that she’s the star pupil of the Grassley investigation for having made some changes and joined the ECFA, so it may be helpful to look at how she treats the housing allowance.

 

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