HOUSING ALLOWANCE
LATE BREAKING DEVELOPMENTS!
CLERGY HOUSING ALLOWANCE
CLAIRIFICATION ACT OF 2000
On March 5, 2002, the U.S. 9th Circuit Court of Appeals
issued a preliminary ruling in Warren v. Commissioner, 2002 WL338134 (9th Cir.
2002). In its ruling, the court questioned whether the tax free housing allowance is
constitutional.
On May 20, 2002, I received an e-mail from Richard Hammar, tax
attorney and editor of Church Law & Tax Report. He was responding to a technical
question I had raised regarding the 9th Circuit decision. Here is his response.
"As you may have heard, the Clergy Housing Allowance
Clarification Act of 2002 passed both houses of Congress by unanimous votes over the past
few weeks. The President will soon sign it. This law reinstates the annual rental value
limit on the nontaxable portion of a housing allowance. The legislation has the effect of
rendering the Warren case moot. The law is effective only for tax years beginning after
2001."
If you have been calculating the housing allowance using the
"fair rental value" method, the new law will probably not be significant.
However, if you have been claiming all actual costs as a housing allowance, you should
plan to review your allowance calculation just as soon as guidelines become available.
I have recommended that churches become compliant just as soon as
the new law is signed. Also, be aware that the IRS has already established a Market
Segment Specialization Program (MSSP) to train auditors specifically to audit ministers
tax returns. If you are "one of the chosen few" to be audited, the housing
allowance is virtually guaranteed to be scrutinized.
Watch for additional articles as information becomes available.
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