The National Republican Senatorial Committee blasted on its website ICYMI, “How Raphael Warnock Avoids Income Taxes“. It’s a strong criticism of the practice, which Republican lawmakers defended as recently as 2018.
When the 7th Circuit considered the constitutionality of the income tax exemption for cash subsidies for clergy housing, 17 members of Congress—all Republicans— signed the agreement from the First Freedom Institute, defending tax benefits. So it seems strange that the NRSC would characterize “exclusion from the parish” as “tax evasion” when it benefits a senator who is also the senior pastor of one of the most historically significant churches in the country.
The NRSC refers to Alana Goodman’s story at Free Washington Lighthouse – How Raphael Warnock Avoids Income Tax – Warnock Pays No Income Tax on $90,000 “Parish Position Aid” from Atlanta Church. Goodman quoted me in this story as saying that helping Senator Warnock to become a priest struck me very well, but not maddened.
When she was interviewing me, she told me that she was a newcomer to the parish. I realize I may have made a mistake in saying that the exception is millions for televangelists and some mega-pastors of mega-churches. Probably should have said hundreds of thousands.
About the rectory
Section 107 of the Code – Value of Rectory Rent – is short enough to reproduce in full:
26 USC § 107 – Rental value of the parsonage
In the case of a minister of the Gospel, the gross income does not include –
(1) the rental value of the house furnished to him as part of the compensation; or
(2) rent allowance paid to him as part of his compensation, to the extent used by him to rent or provide accommodation, and to the extent that such allowance does not exceed the fair rental value of the house, including furniture and fixtures, such as a garage, plus the cost of utilities.
Note the non-inclusive language (he, he) and the Christian reference (minister of the gospel). That tells you it’s been around a long time. The first part has its roots in the 1920s. In the case of a building next to a church where a minister is to live, it would seem to duplicate – Section 119 – Boarding or accommodation furnished for the convenience of the employer, but there have been freedom of religion concerns about the level of control. which would be necessary to apply the latter to the vicarage. The home rental cash relief was introduced into tax law in the 1950s and was amended in the 1990s.
Many people, including tax experts and myself, believe that the cash exclusion is bad tax policy that leads to many abuses. And there was serious concern about the constitutionality of this provision. Judge Barbara Crabb of the US District Court for the Western District of Wisconsin has twice ruled that 107(2) was unconstitutional. The Seventh Circuit overruled it the first time based on standing. Then on March 15, 2019 in lawsuit by the Freedom from Religion Foundation the appellate court ruled:
FFRF argues that § 107(2) renders to God what is Caesar’s. But this tax provision comes into play between the junctures of the Freedom of Exercise Clause and the Establishment Clause: neither enjoined by the former nor prohibited by the latter. We conclude that § 107(2) is constitutional. The judgment of the district court is REVERSED. (emphasis added)
About Ebenezer Baptist Church
Senator Warnock is the pastor of Ebenezer Baptist in Atlanta, Georgia. Now you and I both know this is important, but you have to consider some younger readers who may not know. In my opinion, Ebenezer Baptist Church is the most historically significant church in the United States in the 20th century. I would be willing to discuss this with you, but you would have to come up with a church that had a pastor who has a federal holiday in his honor. Next year, Martin Luther King Day will be January 16.
To make sure, I registered with a friend Jerilyn James Lee, who runs a fantastic site about the contribution of black troops to the victory of the Union in the Late Troubles. I asked her if Ebenezer had a special meaning. She wrote to me:
Undoubtedly. Its historical significance extends far beyond Atlanta. Ebenezer is “holy ground” in all black communities, regardless of denomination. To be called Ebenezer’s pastor is more than an honor; he is the gatekeeper of one of the most significant spaces in US history and civil rights.
Senator Warnock therefore occupies a very prestigious chair.
What is the problem?
I spoke with Fran Brown, managing partner of CapinCrouse, a national CPA firm specializing in faith-based organizations. Fran and I were partners together at CCR LLP, a regional firm that was acquired by a national firm not quite the Big Four. i see from this video that CapinCrouse is more his type of firm. You can catch Fran at about 0:30 saying, “It’s about the Kingdom of God.”
In any case, Brown did not think that a $90,000 housing allowance for the pastor of a large, prestigious congregation was anything special. He also confirmed that there is no limit on the percentage of compensation that can be awarded as housing benefit. As noted in s 107(2), the allowance exclusion is limited to the rental value of the house.
Republicans lead on ‘tax dodging’
The issue was sparked by concerns over Senator Warnock’s adherence to the rules regarding outside salaries. However, both the NRSC and Goodman’s article refer to the exemption as “tax avoidance.” And that’s just wrong.
Rayleigh’s first law of tax planning – “It is what it is. Struggle with him,” he said. I happen to think that the parsonage exemption is terrible tax policy and probably actually harmful to religion. However, I remember looking into the minister’s return, calling him and suggesting that he ask his congregation to assign more of their compensation as housing benefit The anthem of my generation of tax collectors is a quote from the Learned Hand:
“Time and time again, the courts have said that there is nothing wrong with arranging your affairs in such a way that taxes are as low as possible. All do so, rich or poor; and all do right, for no one is bound to pay more than the law requires: taxes are forced exactions, not voluntary contributions. Demanding more in the name of morality is a simple right.”
Do all tax advisors think this way? Well, according to my unscientific poll, 98% yes.
Professor Adam Chodorow of the Sandra Day O’Connor College of Law at Arizona State University wrote a friendly court in support of the Foundation for Freedom from Religion in the Seventh Circuit case. It is clear that he is not a supporter of the exclusion of the parsonage. However, he finds Senator Warnock’s criticism absurd, saying in an email:
“This is not a case where someone is stretching the law or finding a dubious loophole. Punishing Warnock for receiving a tax-free allowance would be the equivalent of criticizing him for buying tax-exempt bonds or paying capital gains tax. It is not hypocritical to advocate for a tax increase while taking full advantage of the existing provisions of the code.”
Natalie Allison and Burgess Everett have Republicans are trying a pocket game to smear Warnock on Politics.
Paul Streckfus picked up the Politico story EO Tax Journal. He said:
“As has been pointed out in these pages, Section 107 Parish Relief is a huge advantage for relevant ministers, especially those on high incomes and high housing costs, but is very unfair to the rest of us, especially where apply to all who are associated with the church. as a minister. In Warnock’s case, section 107 limits the housing benefit exclusion to the lower of the actual housing costs or the fair rental value. Any relief in excess of this is not subject to Article 107.’
For in-depth information, check out mine Collection of church state taxes with an emphasis on the problem of pastoral care.