- The Washington Times - Wednesday, April 3, 2002

Legislators are developing ways to protect an 81-year-old tax exemption on clergy housing that a federal appeals court said could be eliminated for violating the Constitution's "no establishment" of religion clause.
Rep. Jim Ramstad, Minnesota Republican, said he will introduce legislation to stop the court from using a minister's tax case to end the housing exemption for all U.S. clergy, a step that neither the Internal Revenue Service nor the minister requested.
"Rather than deciding the narrow issue presented in the case, which is whether the IRS had the authority to limit the allowance, the court hijacked the case and turned it into a challenge of the very constitutionality of the allowance," said Mr. Ramstad.
"Thousands of American ministers need our help to stop this travesty," said Mr. Ramstad.
The 9th U.S. Circuit Court of Appeals in San Francisco decided last month to consider reviewing the 1921 tax law when the Internal Revenue Service appealed a tax court's ruling.
The lower court had allowed the Rev. Richard Warren to deduct about $20,000 more than the IRS deemed acceptable under the "parsonage" exemption law.
A majority of the appeals court's three-judge panel decided it wanted to consider the law's constitutionality.
"It is possible that any tax decuction that Reverend Warren receives … would constitute an unconstitutional windfall at the public expense," wrote Judge Stephen Reinhard.
"If the exemption, regardless of the amount, is unconstitutional, the statute on which both parties rely would likely have to be invalidated."
In a dissent, Judge Richard C. Tallman said his two colleagues had overreached.
"Inflating this case to constitutional stature is wholly unnecessary," he said. He said the IRS and the minister "clearly stated … they believe the parsonage exclusion is constitutional."
If the housing exemption is stripped away by the appeals court, U.S. clergy could pay $2.3 billion more in taxes over the next five years, Mr. Ramstad said.
Advocates of protecting the exemption said wide support is expected from the 41 Republicans and Democrats on the House Ways and Means Committee, which looks at tax law and is especially interested in tax issues around April 15.
"Every member of Congress has clergy in their district," said one congressional staffer.
The case began in 1998 when Mr. Warren, the Southern Baptist pastor of the 18,000-member Saddleback Community Church outside Los Angeles, deducted $79,999 for his housing costs on a home that cost him $360,000 in 1992.
He argued that this was the real cost of housing, despite an IRS "revenue ruling" in recent decades that the tax exemption for "ministers of the gospel" is limited to "the rental allowance paid" for housing.
In federal tax court, the IRS argued that Mr. Warren could only deduct the "fair market rental value" of his home, which they calculated to be at $59,479.
The federal tax court ruled in Mr. Warren's favor based on the 1921 law passed by Congress, its revision in the 1950s and the more recent revenue rulings by the IRS.
When the IRS appealed that decision, the appeals court ordered law professor Erwin Chemerinsky of the University of Southern California to draft a brief arguing why the 1921 law should be reviewed and possibly overturned.
That argument must be filed by May 3, and then there are 20 days for legal responses.
Mr. Ramstad said he will introduce his legislation next week when Congress returns.
For Congress to kill the case, the new legislation must either say the IRS rental-value rules "apply to pending litigation," or use other wording to pursuade the IRS to withdraw its complaint from the appeals court.
"If the case is resolved because the IRS drops the appeal or the two parties reach a settlement, then the case is moot," said Mr. Chemerinsky, who believes "there's an important constitutional issue here."


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