Church Finances and Business: Recent Case Law on the Parsonage Allowance

If my employer provided me a house, I’d have to pay income tax on the value of the free rent. There’s an exception if living in the housing is required to do the job — such as being a house parent in an orphanage. And there’s an exception for parsonages provided by churches for ministers.

The parsonage exclusion has been expanded so that a minister doesn’t have to pay income tax on the portion of his salary designated a “housing allowance,” to the extent the housing allowance is actually spent on housing. This gives ministers who own their own homes the same tax advantage as ministers who are provided free housing — and allows ministers to build up equity in their homes.

There have been some recent cases significantly impacting this exclusion —

Driscoll v. Commissioner

Driscoll v. Commissioner allows a minister to claim a housing allowance on both his primary residence and a vacation home. (This is not Mark Driscoll of the Mars Hill Church in Seattle). There aren’t many ministers of any denomination who own two homes, but the case is understandably concerning to many, as the minister seems to have overreached. But the Tax Court allowed the exclusion.

Freedom from Religion Foundation v. Geithner

Freedom from Religion Foundation v. Geithner is a case pending in California challenging the constitutionality of the parsonage exemption. It’s produced two published decisions, one refusing to dismiss the case and another permitting a minister to intervene, that is, to join the suit so he could protect his interest in the housing allowance.

Arizona Christian School Tuition Organization v. Winn

In Arizona Christian School Tuition Organization v. Winn, the U. S. Supreme Court considered an Arizona tax credit designed to benefit private schools. The Supreme Court found that the parties challenging the credit did not have standing to challenge the credit. You see, to challenge the constitutionality of a law, the party suing must be somehow personally, significantly affected by the law. The court held,

When the government declines to impose a tax, by contrast, there is no such connection between dissenting taxpayer and alleged establishment.  Any financial injury remains speculative.

In other words, a taxpayer has standing to challenge the expenditure public funds in violation of the First Amendment but does not have standing to challenge a credit — a refusal to tax.

The dissent (the opinion of the minority who disagreed) specifically cites Freedom from Religion Foundation v. Geithner as holding contrary to the majority opinion.

It seems that the challenge to the parsonage allowance may well be thrown out for lack of standing. It’s hard to read the Supreme Court’s decision any other way.

Senator Grassley’s memorandum

One more news item affecting the parsonage allowance: Senator Grassley has written a memo to the Senate Finance Committee summarizing the results of his investigation into tax abuses by certain churches. Among the abuses he found are —

* Improperly naming people as “ministers of the gospel” to allow them to claim the housing allowance.

* Allowing ministers to claim vacation homes as parsonages.

* Concern that the allowance may be defined too narrowly to be constitutional (presumably due to not covering the irreligious).

The bottom line

Continue to claim the parsonage allowance. It’s not been ruled unconstitutional yet.

The odds that it will be upheld look much, much better in light of Arizona Christian School Tuition Organization v. Winn.

Don’t claim exclusions you’re not entitled to. For now, you’re entitled to the exclusion on a second home, because the Tax Court says so. But don’t take unfair advantage of the IRS’s reluctance to challenge who is really a minister to take unfair advantage of the law. On the other hand, if you’re legitimately entitled to the exclusion, by all means, claim it.

Profile photo of Jay Guin

About Jay F Guin

My name is Jay Guin, and I’m a retired elder. I wrote The Holy Spirit and Revolutionary Grace about 18 years ago. I’ve spoken at the Pepperdine, Lipscomb, ACU, Harding, and Tulsa lectureships and at ElderLink. My wife’s name is Denise, and I have four sons, Chris, Jonathan, Tyler, and Philip. I have two grandchildren. And I practice law.
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19 Responses to Church Finances and Business: Recent Case Law on the Parsonage Allowance

  1. RLBaty says:


    Good to see your analysis on all of that.

    As you may be aware, the Government is expected to try and use Winn to get the FFRF suit dismissed; its motion for dismissal being due into Judge Shubb this month. After replies, the case should be ripe for his decision by July 4, 2011.

    I think the FFRF case is distinguishable from Winn, and I'm hoping Judge Shubb will see it that way and determine that the "standing" he previously granted is appropriately sustained.

    Grassley, Congress and the President could have taken speedy action to legislate a resolution to the well-known IRC 107 abuses noted in the Grassley Report and resolve any constitutional doubts about the law. Alas, he passed and gave it over to a religious think-tank that has indicated they'll think about it for about 3 years and then get back to Grassley with some suggestions.

  2. Anne says:

    I've always wondered does the president claim a housing allowance?

  3. leeh says:

    Jay what about ministers that work for other 501C3s ? May they claim a housing allowance?

  4. Robert Baty says:


    It might depend on whether or not the 501(c)(3) is recognized by the feds as an "integral agency" of a church (e.g., like Pepperdine, ACU, et al).

    Also, there was a recent story out of Tulsa about the FFRF being allowed to ordain its employees as "ministers". So, we might see FFRF, I think a 501(c)(3) organization, employees in the future claiming the income tax exempt housing allowances.


    Do you have more to say or dispute regarding that?

  5. Charles McLean says:

    Are the clergypersons who are pocketing money from tax advantages specific only to clergypersons the same clergypersons who want the government to keep its nose out of religious expression? It is, after all, a government subsidy by another name…

  6. Profile photo of Jay Guin Jay Guin says:

    Leeh,Robert is right. The housing allowance requires that you be (a) a minister of the gospel and (b) performing services for a church, denomination, or integral agency.These can both be very technical questions — and often aren’t easily determined, especially in the Churches of Christ, where there is no denominational organization and no ordination process for ministers.Take a look at <a href="… />Most Christian colleges qualify as integral agencies. Many other organizations likely fit the same mold, but the answer requires a detailed analysis of the organization’s structure and a handful of IRS rulings.

  7. Todd says:

    Nice opinion Charles, however as the article states the current Courts seem to disagree. Deciding not to tax a cause isn't the same as giving funds to a cause.

  8. RLBaty says:

    Todd wrote, in part:

    > Deciding not to tax…isn't the same as
    > giving funds to…

    Supreme Court justices in Winn appeared to have differing opinions about when it is the same and when it isn't.

    One group of Supreme Court justices, for purposes of "standing" and their interpretation of the legal text, say there is a BIG difference.

    The other group of Supreme Court justices appear to think otherwise.

    Unfortunately, some think the Winn decision may adversely affect the "standing" Judge Shubb already granted in the FFRF IRC 107 case.

    I hope that is not the case; the legal and factual details in the FFRF IRC 107 case being distinguishable from Winn. Hopefully we will know soon; for that issue should be back on Judge Shubb's desk and ripe for his decision by July 4, 2011.

  9. RLBaty says:

    I might have been a little off regarding the schedule. In rechecking I notice after getting the motions and replies in the FFRF IRC 107 suit, Judge Shubb has a hearing scheduled on the motions on July 18, 2011,
    at 2:00 p.m. After that, I suppose, the "standing" issue will be ripe for Judge Shubb's reconsideration.

  10. Peter Reilly says:

    There really should be a dollar limit on the amount of cash parsonage exclusion. That would eliminate most opportunity for abuse.

  11. Robert Baty says:


    That's a pretty good analysis of the problem at that link to your blog; as far as it goes.

    A limitation (e.g., say $5,000.00) would go a long way on curbing what most reasonable folks would call abuse. A quick fix for one aspect of what ails IRC 107, and yet Grassley couldn't even manage that; the same Grassley that quickly came to the rescue of Rick Warren whose tax case you mentioned.

    The constitutional problem, of course, could be cured by eliminating the "religious test" and simply allowing the benefit to a broad range of "do-gooders", or everyone; if there was the political will to do so. That could be accomplished rather quickly as well.

    The best course would be to simply get rid of IRC 107 altogether.

    That could be done and justified quickest of all, in my opinion. Congress and the President could then simply start over and take as long as they wanted if they thought some kind of tax free housing benefit should be allowed to some special class of folks in addition to what otherwise is allowable.

  12. Peter Reilly says:

    You still have Section 119 which would cover the traditional parsonage situation. The problem is that not everybody, particularly pastor's families, always thinks it is such a hot idea. That is really the rationale for 107 to be constituional.

  13. Charles McLean says:

    It's okay, Todd– my opinion has diverged from that of The Nine on more occasions than this one. I find that not to be an actual argument against it. Whether allowing left-handed people to keep their money while not allowing right-handed people to keep theirs is good policy may be well worthy of debate. But both sides would pretty well understand that they were being treated unequally under the law. Lefty goes home from the tax-collector with his pocket full, his neighbor with his pocket empty. The esoteric differentiations of tax preference versus subsidy are lost when these two fellows later arrive at the grocery store checkout. I would also note that taxing the unpaid street evangelist while not taxing the professional manager whose "ministry" is as the chief administrator for First Enormous Church seems to me to have little if anything to do with granting tax relief to someone who is providing some sort of spiritual benefit to his community.

  14. Robert Baty says:


    The "family" issue is hardly peculiar to ministers. That there is a law that allows the benefit based on a religious test, whether housing in kind or in cash, is what raises the constitutional doubts about it. The Government's motion to dismiss, in light of Winn, should be filed this week. We might guess what that is going to look like, but I'm hoping that the FFRF can rebut the motion and Judge Shubb will differentiate the FFRF IRC 107 suit from the Winn case and let the case proceed on its merits.

  15. Robert Baty says:

    Here's a couple of links to articles published within the last few days and discussing the issue:

  16. Robert Baty says:

    The Government's motion filed Thursday, May 26, 2011, states in its opening
    paragraphs that:

    > Plaintiffs do not have standing to bring this suit
    > because the only injuries they allege are the result
    > of their status as purportedly disadvantaged
    > taxpayers.
    > They have not suffered the type of concrete,
    > particularized injury fairly traceable to §107
    > that is a necessary prerequisite to establish
    > Article III standing.
    > The fact that Plaintiffs have not suffered any
    > injury in fact precludes standing even under the
    > narrow exception established by Flast v. Cohen,
    > 392 U.S. 83 (1968), which allows taxpayers to
    > challenge certain violations of the
    > Establishment Clause of the First Amendment of
    > the United States Constitution.

    It is my opinion that the above claim regarding "injury" is demonstrably false.

    In fact, any of the plaintiffs who pay income tax should be able to calculate,
    quite explicitly and concretely, the injury resulting from their failure to
    qualify for the housing allowance solely because of the religious test of IRC
    107 which prohibits them from claiming the exclusion.

  17. Robert Baty says:

    Preachers rejoicing:

    For reasons not explained by the FFRF, it has given up its present challenge to IRC 107.

  18. Robert Baty says:

    News Flash!

    The FFRF filed a Complaint yesterday in Wisconsin renewing its challenge to IRC 107.

    More interesting to someone like me is the retention in the latest suit of the
    following from paragraph #37:

    > 37. The intricacy of the religious questions
    > arising under §107 create entanglement between
    > the government and religion; difficult determinations
    > must be made, for example, as to whether an
    > organization constitutes an integral agency of a
    > church; the IRS has consistently ruled that ordained
    > ministers who teach at schools that are “integrally”
    > related to churches are performing services within
    > the exercise of a ministry, no matter what they teach;
    > college administrators, and
    > as well as teachers, therefore, qualify for the benefits
    > of §107 if they are ordained as ministers.

    That sounds so like something I might write!

    A case to watch!

  19. Robert Baty says:

    Small world!

    If you haven’t noticed, Driscoll lost his appeal, and the FFRF refiled its challenge to IRC 107. Some have proposed that Driscoll be consider a “cause” for ministers and further appeals be made.

    The latest on that is currently under consideration in two columns in Forbes (see Peter Reilly’s comments above) at:

    The columns each take up two pages and the readers’ comments on the second article take up two pages.

    See y’all there…or not!

    Robert Baty

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