Church Finances and Business: Update on the Housing Allowance need to pass along two bits of news on the “housing allowance” ministers of the gospel are allowed to exclude from their federal taxable income.


The Internal Revenue Code allows ministers of the gospel to exclude from their gross income the amount of their pay designated as a housing allowance, but only up to their actual cost of obtaining housing and only if the pay is earned as part of their ministry. This is, of course, a huge tax benefit and helps countless ministers and missionaries.

I go over this in more detail in these earlier posts:

Tax Guide for Church Leaders

More Missionaries and Taxes Regarding Housing

Church Finances and Business: Further on the Housing Allowance

PLR 201023008 (Feb. 26, 2010)

The IRS has released a recent private letter ruling finding that employees of a church-sponsored orphanage qualify for the housing allowance if they are ministers of the gospel.

It seems probable from the facts spelled out in the ruling that this is a Church of Christ-affiliated orphanage —

The Church consists of a confederation of churches under congregational government. For theological reasons, the Church does not have a central governing body and does not term itself a denomination. However, congregations of the Church form a closely-knit federation with common doctrines and goals, tied together by their conservative theology and traditions. Congregations cooperate with one another to establish and maintain “parachurch” institutions, including colleges, nursing homes, and charitable organizations, with which the Church has a symbiotic relationship.

The Church does not have a creed. Church rules and requirements are only those from the Bible. Numerous verses from the Bible speak of the requirement to provide for widows and orphans, and therefore it is a requirement of the Church, and all Church congregations provide support for orphans.

The question ruled on is whether the orphanage is is “an integral agency” of the Church, such that the ministers employed by the orphanage are employed by the “church” in some sense so that their ministry is for the church. The IRS found that it is, despite the utter absence of any central denominational government to oversee the orphanage because of its relationship to its supporting churches. As a result, “properly designated rental allowances paid to managers, executives, supervisors, or administrators who are ordained, licensed or commissioned ministers” will qualify for the housing allowance.

Now, this fails to answer the more difficult (to me) question of just who is an “ordained, licensed or commissioned” minister in a Churches of Christ. Nonetheless, the ruling will save taxes for some ministers — which seems good to me.

Freedom from Religion Foundation, Inc. v. Geitner

The Freedom from Religion Foundation, Inc. has filed suit against Treasury Secretary Tim Geitner asserting that the housing allowance in unconstitutional as impermissibly favoring religion. The government moved to dismiss the complaint on several grounds, and the District Judge has ruled that the question must go to trial.

It’s clear from a reading of his opinion that it’s likely he’ll find the statute unconstitutional.

Some efforts that have a legitimate secular purpose will, however, go too far and cross the line between accommodation and establishment. See Amos, 483 U.S. at 334-35. Such is what plaintiffs allege in this case. Regardless of Congress’s motive in passing § 107 and regardless of whether § 107 has an effect of reducing government entanglement with religion by keeping ministers out of the § 119 exemption, plaintiffs have alleged sufficient facts which, if accepted as true, “leave open the possibility” that an objective observer would determine that § 107 goes too far in aiding and subsidizing religion by providing ministers and churches with tangible financial benefits not allowed secular employers and employees. Winn, 562 F.3d at 1012.

In sum, the court believes that plaintiffs have sufficiently alleged that a reasonable and objective observer would perceive § 107 as endorsing religion and as having a predominantly non-secular effect. At this stage in the proceedings, it is not implausible on the face of plaintiffs’ Complaint that § 107 fails to satisfy the second prong of the Lemon test. Plaintiffs have therefore stated facts sufficient to withstand a motion to dismiss on their challenge to the enforcement of § 107.

I’ll spare you a detailed analysis, as these things can become quite technical, and this judge’s decision will not be the final word. Anything he decides will certainly be appealed to the Court of Appeals for the Ninth Circuit (famously liberal) and likely to the Supreme Court.

However, it’s important that ministers and church leaders be aware that the housing allowance is under challenge and may not be with us much longer.

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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21 Responses to Church Finances and Business: Update on the Housing Allowance

  1. Clint says:

    Thanks for this important info. I passed it along to all the ministers and elders I could find in my email contacts. I have a few friends who work for children's homes who may benefit from this.

  2. Aussie Pete says:

    Thanks for the heads up. Of course the "not with us much longer" you close with will be a matter of years, not months, given the nature of the court system.

  3. Cary says:

    Jay, as long as we are on financial issues in ministry, I am wondering if you are aware of the fairly recent ability of ministers to eliminate all or much of their student debt by combining the new Income-Based Repayment plan (which calculates monthly payments based on AGI) with the Public Service Debt Forgiveness program that eliminates outstanding loan balances to employees of 501(c)(3) organizations after ten years of employment.

    With this setup, I have reduced my monthly payments from $400 to zero. After 120 of these "payments" while employed as a minister, my balance will be forgiven.

    This potentially allows all ministers to write off most or all of their seminary debts.

    I think your blog would be a good place to make this information more widespread. Let me know if you want more details. I've been thinking about writing an article explaining the process in detail.

  4. Todd Collier says:

    Cary, tell me more please.

  5. Cary says:

    I don't want to hijack the comment thread with largely unrelated information to the post, so if you'd like details, email me at cary[at]catsforchrist[dot]org.

  6. RLBaty says:

    I guess I missed seeing this when it was first posted.

    Jay, you are welcome!

  7. Jay Guin says:


    I find this case deplorable. I oppose anything that harms the kingdom of God.

  8. Charles says:

    The Treasury Secretary's name is spelled "Geithner."

  9. RLBaty says:


    What some might call "harm", others would call "discipline"; and it can be a good thing.

    If there be any "discipline" as a result of the FFRF IRC 107 suit or findings from the Grassley inquiry, I think it can be properly determined to be the result
    of the actions of those who would be "religious".

    From a biblical point of view, I think the scriptures do have somewhat to say how such appropriate discipline may be both unpleasant and proper.

    If there was interest, we could return to the discussion of the part members of the churches of Christ have played in the development of the conditions giving rise to the need some see for such discipline as suggested by the FFRF suit and the Grassley Report.

  10. RLBaty says:

    The Grassley report raises two issues for consideration–


    > Should the parsonage allowance be
    > limited to a single primary residence
    > or to a specific dollar amount?


    > To withstand further constitutional
    > scrutiny, should section 107 be amended
    > to broaden its applicability?

    Jill Gerber, Grassley's press secretary, reportedly

    > "We found the basis for a serious
    > stakeholder discussion of tax policy issues
    > that would affect ministries and churches,
    > such as whether the parsonage tax allowance
    > should be limited for those who have multiple
    > mansions and lake houses, tax-free."

    As we saw in the Rick Warren case, the religious community was mostly concerned with its political power and ability to preserve IRC 107 in its
    present form and administration.

    Have things changed?

  11. Jay Guin says:


    The lawsuit that is the subject of this post seeks to void the housing allowance entirely. It's not about abuse. It's an argument that the housing allowance shouldn't be allowed at all.

    I and most others would agree that the housing allowance rules should not be abused. I have no problem with Congress acting to eliminate practices that Congress considers abusive.

    I have a LOT of problem with seeking to have the courts find the housing allowance unconstitutional. It would place a large financial burden on countless small churches — especially those who provide their ministers with a parsonage.

    And for many churches, loss of the housing allowance will often force them to pay a higher salary to their ministers, just to pay more taxes. And this will take money from missions, orphanages, and other good works.

    Therefore, because finding the housing allowance unconstitutional will hurt kingdom work, I find the lawsuit deplorable and shameful.

  12. RLBaty says:


    Discipline has its consequences, and I don't think appropriate consequences, such as you try to promote, are any argument against the discipline.

    (If we all got the same tax free, limited housing allowance, then we could all give more to the church and make up for any inconvenience to the preacher in getting used to paying taxes like the rest of us.)

    The 9th Circuit previously hinted at the unconstitutional nature of IRC 107, Judge Shubb
    has hinted at it, Grassley's report hinted at it, and many others have for years hinted at it.

    The religious community has had more than enough time to cure the constitutional doubts about IRC 107 and they would not. So, I figure they have no platform upon which to stand and complain that others are doing what should have been done back when Rick Warren's case was before the Court.

    Even now, as in the Warren case, Congress and the President could act to moot the IRC 107 suit by eliminating the constitutional issues and the abuses.

    Alas, the Grassley report indicates Congress and the President are not likely to be in any hurry to take it on; perhaps realizing that you, Jay, Rick Warren, et al are formidable foes…at least politically.

    So, they may let the IRC 107 case play out and then put off any corrective action they may be forced to take on the evil atheists and activist judges. That's already been hinted at as well.

  13. RLBaty says:


    I also like the following comment in that other thread which you added your endoresement to a few minutes ago:

    > Anyone who is offended by an honest
    > review and discussion is less certain of
    > their position than perhaps they would like
    > others to know…

    I think you and your readers will easily see how that concept finds its application to testing the constitutional merits of IRC 107 and, perhaps, using the effort to, at a minimum, help compel Congress and the President to act swiftly to cure its well-known ills.

  14. RLBaty says:


    Here's a deal your consideration:

    You are especially well positioned (e.g., being a tax lawyer with an opinion, church leader, and public speaker) to be interviewed as representing the opposition view by the FFRF for airing on their radio program.

    How about we work together to see if the FFRF might go for a deal like that.

    It only takes a few minutes of your time for the telephone intereview.

    As you may be aware, they have already interviewed a former IRS Appeals Officer (me), former IRS lawyer, and Irwin Chemerinsky, but they were all supportive of the suit.

    Your interview would provide some balance to their coverage of the suit as it develops.

    What do you think. Can we try and work together to get that interview for you??

  15. RLBaty says:


    Coincidentally, I just received an invitation to speak at an event next month on the campus of Colorado State University; with an assigned topic being the FFRF IRC 107 lawsuit.

    I accepted the invitation.

    Details to follow.

    Jay, let me know if there is anything specific you may want me to pass along to that crowd and what interest, if any, you might have in working to get you on FreeThought Radio for that interview as representing the opposition viewpoint.

  16. RLBaty says:

    Here's how the Baptists are reporting on the Grassley Report story:

    Baptist Press
    Posted on Jan 19, 2011
    by Michael Foust

    WASHINGTON (BP)–In a move that could have a major impact on the tax status of churches and pastors nationwide, an independent national commission of religious and financial experts will review several church-related tax issues — such as the limitations of the pastoral housing allowance…

    The ranking GOP member of the Senate Finance Committee, Grassley said in a separate statement that

    > "legislation should be the last resort."

    The commission will be known as the Commission on Accountability and Policy for Religious Organizations and will be led by Michael Batts…

    In its 61-page memo, Grassley's staff raised a number of issues that the commission will study and that could have major implications for churches.

    Among them:

    > — Whether the income tax exclusion for
    > pastoral housing allowances should be
    > limited.

    The "size of the housing allowance" is at issue, Batts said.

    > "The stated concern is that the housing
    > allowance is being used in ways that
    > perhaps Congress may not have originally
    > intended — perhaps in terms of the
    > amounts that are being granted as housing
    > allowances to fund the cost of expensive
    > homes,"

    Batts said.


    Yep, looks like they are going to let the FFRF IRC 107 suit takes it course so as not to ruffle the feathers of Rick Warren and his lobbyists again; while they try to figure out how to salvage the tax free benefit for all those basketball ministers and others.

    I figure there is no way to cure what ails IRC 107 without legislation or a ruling from the Court that it is unconstitutional.

  17. Jay Guin says:


    I can't think of a reason that I'd want to be involved with the Freedom From Religion Foundation.

    Their website says,

    "The history of Western civilization shows us that most social and moral progress has been brought about by persons free from religion."

    I can't discuss public policy with anyone so deluded about history and reality.

  18. RLBaty says:

    Jay, you wrote:

    > "I (Jay Guin) can't think of a reason
    > that I'd want to be involved with the
    > Freedom From Religion Foundation."


    > "I (Jay Guin) can't discuss public
    > policy with anyone so deluded…"

    I did it.
    Kyle Butt did it.
    Others have done it.

    It's what people do.

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