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Congress enacted new tax laws in 2010 that include provisions of direct relevance to churches and church employees. Tax laws enacted in prior years also contain provisions that took effect in 2010 or 2011. In addition, a number of court decisions and IRS rulings provided clarification on a number of important tax issues. Several of the most important changes and clarifications are summarized in this feature article.
Part 1: Clergy and Lay Church Employees
A. Miscellaneous Tax Law Changes
1. Housing allowance challenged in federal court
Section 107 of the federal tax code exempts from federal income tax (1) the fair rental value of a church-owned parsonage provided to a minister as compensation for ministerial services, and (2) the amount of a minister's compensation that is designated in advance as a housing allowance to the extent that the allowance represents compensation for ministerial services, is used to pay housing expenses, and does not exceed the fair rental value of the home (furnished, plus utilities).