Driscoll v. Commissioner, 2012-1 U.S.T.C. ¶50,187 (11th Cir. 2012)
In 2010, the United States Tax Court ruled that a minister could apply a housing allowance to expenses incurred in owning two homes. This ruling was recently reversed by a federal appeals court. The facts of the case and the court's ruling are summarized below, along with a discussion of the relevance of the case to churches and clergy.
An ordained minister was employed by a parachurch ministry. He owned a principal residence and a vacation home. At no time did he use either home for commercial purposes (i.e., as rental property). The ministry designated a housing allowance for him each year that he used for the payment of expenses on both homes, including mortgage payments, utilities, furnishings, improvements, and maintenance (i.e., lawn care, painting, and repairs).
The IRS audited the minister's tax returns for four years, and determined that he was not entitled for any of those years to exclude from taxable income the portion of his housing allowance that he used to pay housing expenses on his second home. The minister appealed to the Tax Court.