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Is it Time to Reconsider your Pastor's Housing Allowance?

What church treasurers need to know about a recent Tax Court case.

Warren v. Commissioner, 114 T.C. 23 (2000)

Background. In one of the most significant clergy tax cases in recent years, the United States Tax Court ruled that a housing allowance is nontaxable for income tax reporting purposes so long as it is used to pay for housing-related expenses. The court threw out the annual "rental value" test that the IRS adopted in 1971, which limited nontaxable housing allowances for ministers who own their homes to the "annual rental value" of their home. The court's decision will have a direct and immediate impact on many ministers. Church treasurers should be familiar with the application of this ruling to their pastor or pastors. This article will tell you what you need to know.

The housing allowance. Section 107 of the Internal Revenue Code provides that "in the case of a minister of the gospel, gross income does not include … the rental allowance paid ...

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Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

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  • August 1, 2000

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