Court Probing Parsonage Tax

CIRCUIT COURT PROBING "PARSONAGE" TAX BREAK FOR CLERGY

Could an obscrure tax court case mark the beginning-of-the-end for an unconstitutional perk which benefits clergy?

Following oral arguments in an obscure tax case involving a California minister, a federal appellate panel of the 9th U.S. Circuit Court is examining the constitutionality of an IRS provision which permits a tax exemption for ministers and other clergy.

   The move comes in connection with WARREN v. COMMISSIONER OF INTERNAL REVENUE. The case originated in tax court, and pertains to filings made by Rev. Richard D. Warren of the Saddleback Valley Community Church in Orange County, California. According to the San Francisco Daily Journal, a publication for the legal community, Warren received approximately $100,000 in salary in 1995 from the Baptist church trustees, all of which he defined as a "housing allowance." Using Section 107(2) of the IRS Code, Warren thus deducted the entire amount and paid no taxes. The return was challenged by the IRS, which argued that only the fair market rental value of the parsonage was deductible; but the tax court sided with the minister, and the IRS appealed.

   Last week, in an atmosphere which the Journal described as "unusual and quarrelsome," a judicial panel voted to look into the constitutionality of the IRS statute and consult University of Southern California law professor Erwin Chemerinsky about the matter. Jurists argued over the move, however, with Judge Richard C. Tallman saying, "I believe it injudicious to appoint an amicus curiae ("friend of the court") to attack the constitutionality of the parsonage income tax exclusion when no one but the other panel judges improvidently wish to reach that issue."

   Panel Judge Stephen Reinhardt countered, "Our colleague obviously has a passionate desire that we permit the religious tax deduction, whether constitutional or not." Reinhardt had earlier opined that before the WARREN case could be taken up the Circuit Court, that body may have to examine the constitutional implication of the "parsonage exclusion." The issue, Reinhardt wrote is "to what tax deduction is Reverend Warren entitled? If ... under the constitution, Rev. Warren is not entitled to any tax deduction at all because such a deduction would violate the First Amendment, then it is not possible to decide the case on non-constitutional grounds and reach the correct result."

    There has not been a constitutional challenge to the exemption since it became part of the IRS code. "The government would never raise the constitutionality of its own regulation," said Dr. Chemerinsky, "and the ministers wouldn't want to disturb their tax deduction.

   "This is for churches, synagogues and mosques a really big deal."

   Indeed, the case has become pivotal for the little-known National Association of Church Business Administration which describes itself as "an interdenominational, professional, Christian organization which exists to train, certify and provide resources for those serving in the field of church administration." The group hired attorneys in 2000 to file amicus briefs when the WARREN case began winding its way through the courts. Also joining in the amicus are a Presbyterian church in Houston and an interdenominational church from Newark Texas.

   The case is potentially explosive for several reasons.

   One issue is to what extent courts must confine themselves when faced with the question of constitutional inquiry. Judge Tallman, the lone jurist opposed to testing the legality of the parsonage exemption cited the "wise counsel" of former U.S. Supreme Court Justice Felix Frankfurter, who in 1958 wrote:

"But it is not the business of the Court to pronounce policy. It must observe a fastidious regard for limitations on its own power, and this precludes the Court's giving effect to its own notions of what is wise or politic."

   Judge Reinhardt disagreed, saying it was the obligation of the court to review constitutionality.

   "No case our colleague can locate, not even the ghost of Justice Frankfurter, can help him avoid this inescapable fact..."

   Another issue is whether in the current political climate, the legal system wants to take on the burden of possibly overturning what the religious community definitely considers to be a sacrosanct practice, that of not imposing a tax on clerical property, and whether the exemption violates the First Amendment. Neither of the parties in WARREN -- the minister and the Internal Revenue Service -- wish to question the constitutionality of the exemption. Lurking in the background is the 1989 case of TEXAS MONTHLY v. BULLOCK, where the U.S. Supreme Court held that a sales tax exemption on Bibles and other religious materials was unconstitutional. The Ninth Circuit is locked in a similar position, since the "parsonage exclusion" applies solely to clerics.

   In BULLOCK, three high court justices opined that to be constitutional, any tax exemption must include nonreligious groups or publications. Three others wrote that the practice constituted an exemption specifically aimed at religious instruction and content, and thus violated the First Amendment.

   "I am surprised that it's come to this," said Frank Sommerville, an attorney hired by the NACBA. "It puts all 850,000 ministers, priests and rabbis in the U.S. at risk of losing the housing allowance..."