The General Council on Finance and Administration (GCFA) of The United Methodist Church offers a tax packet that discusses IRS audit guidelines, tax limits, deacons’ tax status, travel and moving expenses, exempt status for churches, accountable reimbursement policies and more.
GCFA offers a comprehensive Q & A on its website addressing housing allowance issues. It defines the housing allowance and explains how to determine the fair rental value of a parsonage, the cost of a housing allowance, the utility cost exclusion from gross income, record-keeping and more. It also includes samples of a housing allowance resolution, a housing allowance notification by the church and a housing allowance estimate worksheet.
Clergy Taxes and IRS Housing Allowance Exclusion
Reverend Warren in 2002 challenged the IRS ruling disallowing his housing exclusion to the extent that it exceeded the fair rental value of his home. He won by majority vote in Tax Court but later was challenged on appeal by the IRS. The appeal process lead to ratification of the Clergy Housing Allowance Clarification Act of 2002. The Church Alliance’s role in resolving the dispute is documented in From Warren Case to New Law by then Wespath Benefits and Investments Counsel Scott Zapel.
The actions taken by the Church Alliance in 2002 did not prevent another case from arising to challenge the constitutionality of the housing allowance exclusion. A November 2013 case in the U.S. District Court for the Western District of Wisconsin—Freedom From Religion Foundation, Inc., et al. v. Jacob Lew, et al. (FFRF v. Lew)—determined that Code §107(2)—the clergy housing allowance exclusion—is unconstitutional. The decision rendered by the judge in FFRF v. Lew, is under appeal by the U.S. government (as of June 23, 2014). The judge stayed the effect of her ruling until all appeals have been exhausted. A summary of the Church Alliance’s actions in opposition to that finding follows. Additional information will be posted when it becomes available.