A group including Michael Newdow has filed suit, attacking the ministerial housing deductions as unconstitutional.
Currently, the IRS exempts the value of housing provided (the “parsonage” exemption), or the amount of a “housing allowance” in lieu of a parsonage. In 2000, the IRS tried to limit the housing allowance to Fair Rental Value of the pastor’s home; it picked RIck Warren, author of the Purpose Driven Life and pastor of Saddleback Community Church, as a test dispute. While the IRS lost at the district court level, ministers were afraid the 9th Circuit would strike the entire exemption as unconstitutional.
As a result, congress passed the ” Clergy Housing Allowance Clarification Act
of 2001,” confirming the IRS position.
Newdow, and 21 members of the Freedom from Religion Foundation have filed suit on constitutional grounds, in an effort to force the 2001 question again. It does not, apparently, attack the availability of an exemption, but rather the requirement that the allowance be compensation for services performed in the exercise of a religious ministry — requiring the government to make a determination as to what constitutes religious ministry.
An very interesting case to follow, especially for churches and ministries that depend on the housing allowance to make sometimes meagre wages into something liveable.