NCPA - National Center for Policy Analysis

Court Reviews Constitutionality of Parsonage Allowance

May 31, 2002

Outside of members of the clergy, probably few Americans are aware of a provision in tax law known as the parsonage allowance. It is, in effect, a subsidy that allows clergy to exempt from federal income taxes a portion of their salary earmarked for housing costs.

A case now before the Ninth U.S. Circuit Court of Appeals in San Francisco challenges the constitutionality of the tax break on First Amendment grounds.

  • Over more than 80 years, the exemption has been broadened to allow clergy to exempt the annual rental value of their homes from their taxable income -- even if they own the home themselves.
  • The case began as a simple tax dispute between a wealthy and highly-paid California preacher and the Internal Revenue Service -- but has now escalated into a constitutional debate whose outcome could have far-reaching implications, particularly for the 850,000 members of the clergy scattered throughout the country.
  • In 1989, the U.S. Supreme Court ruled that religious organizations can't be singled out for tax exemptions -- and that exemptions must apply equally to nonreligious groups.
  • A legal expert involved in the present case at the behest of the appeals court argues that a housing allowance exemption limited only to clergy should also be declared unconstitutional by the same reasoning.

Losing the parsonage allowance would cost churches $500 million a year, according to the National Association of Church Business Administration, hitting small churches the hardest. To continue to support pastors without the allowance, they would have to increase pay, meaning their mission work would go unfunded.

Source: Milo Geyelin, "Court Questions Tax Allowance for the Clergy," Wall Street Journal, May 31, 2002.


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