Warren v. Commissioner, 2002 WL 338145 (9th Cir. 2002)
In one of the most significant clergy tax cases in recent years, the United States Tax Court ruled in 2000 that a housing allowance is nontaxable for income tax reporting purposes so long as it is used to pay for housing-related expenses. Warren v. Commissioner, 114 T.C. 23 (2000). 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 IRS appealed the Tax Court's ruling to a federal appeals court, and the court recently issued a preliminary order requiring the parties, and a law professor, to submit legal briefs to the court addressing the question of whether the housing allowance violates the first amendment's prohibition of the establishment of religion.
In referring to the housing allowance the court observed that "it appears that no similar exemption is afforded any member of any other profession, whether serving a for-profit or non-profit institution." This off-hand comment certainly suggests that the court has made up its mind that the housing allowance is unconstitutional. This conclusion is reinforced by the court's reference to the following quotation from an earlier Supreme Court case,