Rasmussen v. Commissioner, T.C. Memo. 1994-311.
Background. Ministers are able to exclude from their income (for federal income tax reporting purposes) that portion of their compensation that is designated by the church as a housing allowance—to the extent they in fact use the allowance "to provide a home." The biggest expense for most ministers who own their homes is their monthly mortgage payment. When ministers who own their homes pay off their mortgage loan they lose a big housing expense and reduce the value of the housing allowance. Many of these ministers have obtained home equity loans, or a conventional loan secured by mortgage on their otherwise debt-free home, in order to include their loan repayments as a housing expense. The argument is this—since these loans are secured by a mortgage on the minister's home they are a legitimate housing expense since the minister will lose the home if the loan is not paid. The IRS issued a ruling in 1991 that disallowed this practice. The Tax Court recently addressed the same issue and agreed with the IRS position.